Ailing Thrift Considers Deal to Draw In Cash

Sun Savings & Loan is considering a major cash infusion deal that could eventually pump about $4 million into the financially troubled University City-based company, according to sources familiar with the deal.

Officials are expected to announce soon--perhaps as early as this week--that San Diego developer and Sun shareholder Victor Fargo will buy a large chunk of Sun stock at $10 per share and that he will have an option to purchase up to half the shares in an eventual 1-million-share public stock offering.

After the financial machinations, Fargo will own 9.9% of Sun’s 2.2 million common shares outstanding.

Fargo’s ownership would remain below 10% to avoid Sun having to file a change-of-ownership application with federal regulators, which is required whenever an individual or company acquires more than 10% of a savings and loan’s stock.

In addition, Sun officials believe that such a “control party” may be required to guarantee that the savings and loan’s net worth meets federal minimums “in perpetuity,” according to Sun sources.

Sun’s net worth as of March 31 was about $6.1 million, or only 1.25% of its $485 million in assets and about $1 million short of the federally required minimum.

New York financier Van D. Greenfield could play a role in marketing a new Sun common stock offering, according to one source.

Greenfield, who last year aborted his own attempt to infuse $10 million into Sun, said Monday that it was “too premature” to comment on the proposal.

In exchange for Fargo’s investment, Sun will move its headquarters into a La Jolla office complex built by Fargo and partly funded with construction loans from Sun.

Under the proposal, Sun will receive 25% of the lease profits from the building, except proceeds from the rent of its own 30,000 square feet of office space.

Sun’s rent would be at fair market value, according to one source familiar with the proposal.

“It’s a good business deal,” the source said. “The loan was made long before Sun thought of going in there.”

A Sun board meeting to consider the proposal is scheduled for Wednesday.

Fargo could not be reached for comment Monday.

John M. McEwan, Sun’s president and chief executive, would not discuss details of pending proposals to financially boost the ailing thrift.

“I can’t forecast the outcome of negotiations,” he said, referring both to a possible capital infusion and to Sun’s plan to swap $12 million in loans with an unidentified Seattle savings and loan association.

Fargo is the brother-in-law of Sun director Ted P. Van Leeuwen, a La Jolla management consultant.

Without addressing the Fargo cash infusion proposal directly, McEwan said that Sun executives would be careful about the relationship of “affiliated parties” in any transaction.

“We’d be very careful that we didn’t have a real or perceived conflict,” he said.

Meanwhile, Sun’s stock has risen dramatically, closing at $6.25 Monday, up 50 cents per share. On Wednesday, Sun’s stock closed at $4.50 per share.

American Stock Exchange officials delayed opening trading in Sun stock Monday morning until McEwan issued a statement maintaining that “although negotiations are continuing, no comprehensive or definitive agreements have been reached at this time which would justify the large percentage increase in our stock.”