Frontier Financial Corp. of Everett, Wash., is scrambling for capital again, after announcing Monday that its lifesaving deal with a blank-check company had fallen apart.

The $4 billion-asset Frontier said it could not get regulatory approval in time for a planned sale to SP Acquisition Holdings Inc. of New York, which must dissolve itself now.

Though industry observers said the deal's collapse could doom Frontier, Pat Fahey, its chairman and chief executive officer, said in an interview that he believes another deal is possible.

"We've been frustrated by the process, but we are not giving up," Fahey said. "I think we will have others who will probably be interested."

Fahey said that after Frontier signed a letter of intent in August to sell itself to SP, other potential buyers had expressed interest, but Frontier could not initiate talks then because it had a deal pending.

Analysts said the urgent need to find a buyer puts Frontier in grave danger. Its bank unit already has missed a July deadline to boost its capital ratios, under a cease-and-desist order it received in March from the Federal Deposit Insurance Corp. and state regulators. It also had nonperformers exceeding 20% of its assets at June 30.

"Management needs to find an alternative to the acquisition that has been canceled or regulators are going to have to step in," said Timothy Coffey, an analyst at FIG Partners LLC. "This is a serious situation for Frontier. I can't emphasize that enough."

SP, which raised $429 million to spend on an acquisition, had planned to structure the deal for Frontier as a share exchange. Then SP would have recapitalized Frontier's bank unit, ensuring a cushion large enough to allow it to bid on failures.

But as a blank-check company, SP, which was formed in 2007 by Steel Partners, a New York investment firm, had an Oct. 10 deadline to complete a deal or dissolve itself.

Fahey said Frontier could not get regulators to sign off on the deal before the deadline. He would not say what issues regulators had, but said he does not expect them to block any future deal that might come along.

"I think they would be dying for us to get new capital," Fahey said. "I don't think anybody wants to see a negative outcome. This was a very complicated transaction. There was no lack of desire on their part for us to get the capital infusion."

Fahey said the regulators did not object to SP's plan to retain Frontier's existing management.

An FDIC spokesman said the Federal Reserve was the regulator responsible for reviewing the deal, because Frontier had filed for a change in control at the holding company level.

A Fed spokeswoman declined to comment.

Brett Rabatin, an analyst at Sterne, Agee & Leach Inc., said that despite the blank-check company having cash to potentially prevent a failure, regulators want long-term solutions and often investors from outside of the banking industry are perceived to be interested in short-term returns.

"Just because private equity or blank-check companies show up with money doesn't mean regulators are going to see eye-to-eye with them in terms of how they view the transaction," Rabatin said.

Acquisitions by blank-check companies, also known as special-purpose acquisition companies, are rare in the banking industry, and such deals have fallen apart more often than not. In recent years, these shareholders often rejected proposed bank deals because the prices were too rich.

But now that prices have come down, Mark Fitzgibbon, the director of research at Sandler O'Neill & Partners LP, said such companies could begin to invest in banking more often. "I think it is likely you will see a lot of SPACs buying banks because they are inexpensive right now, and my sense is that will go for a while," he said. "People are going to do SPACs with the idea of investing in these distressed banks."

Another blank-check company that recently targeted the banking sector is Global Consumer Acquisition Corp. of New York. It has a deal to buy the $45 million-asset 1st Commerce Bank in North Las Vegas from Capitol Bancorp of Lansing, Mich., and a letter of intent to buy the $204 million-asset Service1st Bank of Nevada in Las Vegas.

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