The widely anticipated restructuring of Fleet National Bank's purchase of Plaza Home Mortgage Corp., announced earlier this week, is graphic evidence of how quickly market conditions have worsened.
In response to deteriorating financials at Plaza, Fleet National Bank has renegotiated the deal at a price of $7.625 per share, down from $10.125.
Under terms of the new deal the Fleet Financial unit will pay about $89 million for the Santa Ana, Calif.-based mortgage lender, as opposed to the $120 million price announced when the deal was first made public in September.
"We are pleased with the renegotiated purchase price," said Michael R. Zucchini, vice chairman of Fleet Financial. "It reflects the current status of the mortgage banking industry and is attractive to both Fleet and Plaza shareholders.
"In our continuing due diligence, we have confirmed the synergies between Plaza and Fleet and we continue to believe that this transaction will enhance Fleet's leading position in mortgage banking. We are working hard to close as soon as possible."
Plaza indicated in November that it might have trouble meeting various terms and conditions of the original deal. Plaza, which recorded a net loss of $11.6 million in the third quarter, is believed to have been out of compliance with certain net tangible worth covenants.
The amended merger agreement will eliminate Plaza's obligation to meet all requirements of the original agreement, including the maintenance of minimum tangible net worth.
The deal is still subject to shareholder and regulatory approval, but is expected to close in the first quarter of 1995.
The revised purchase price may be amended, according to Plaza, if the result of certain expected assets sales are outside of agreed upon ranges.
As a mortgage bank that concentrates on wholesale originations, Plaza has been disproportionately affected by this year's drop in originations.
Wholesalers, which get loans from intermediaries, were the first to feel the bite of price competition, as brokers and correspondents quickly steered loans to the company with the lowest price. This phenomenon was especially true in California, where most of Plaza's operations are concentrated.