The Treasury Department has agreed to take a haircut on its investment in a struggling Virginia bank that is trying to raise capital.
Hampton Roads Bankshares in Norfolk announced Thursday that the Treasury had agreed to take a 74% discount on its $80.3 million investment, accepting $21 million of common equity. The investment was made through the Troubled Asset Relief Program.
The agreement is the latest sign of the Treasury's willingness to negotiate with struggling Tarp-takers whose viability is at stake. And it is one of the last steps in the $3 billion-asset Hampton Roads' efforts to fill a $275 million capital hole.
"This agreement facilitates our capital raise, which will substantially strengthen our balance sheet and provide a solid foundation for the future," the company's chief executive, John A.B. Davies Jr., said in a release.
Hampton Roads announced in July that it had raised $255 million through a fully subscribed placement of its common stock. The effort was led by the Carlyle Group and Anchorage Advisors, two private-equity firms that each agreed to buy $73 million. The rest came from institutional investors.
As part of the capital-raise, the Treasury agreed to exchange its 80.3 million of Series C cumulative preferred stock for Series C-1 preferred stock. Upon the closing of the capital-raise, the new series of stock would be converted into 52.5 million shares of common stock. The common stock would be converted at 40 cents a share, into $21 million of common equity.
The Treasury also held a warrant in connection with the Tarp investment to buy 1,325,858 shares of common stock at a price of $9.09 a share.
Under the exchange agreement, the company will issue the Treasury a new warrant to buy the same number of shares at the exercise price of 40 cents a share.
The closing is contingent upon approval from the company's shareholders.
Hampton Roads is expected to bring in another $20 million through a rights offering to existing shareholders, which will commence after the private placement closes.