Debt Holders Pave Way for First City Bailout

Debt holders of First City Bancorporation of Texas have submitted enough of their securities to clear the way for a $1.6-billion federal bailout plan, the company announced Tuesday.

Meanwhile, McAllen State Bank, a First City subsidiary, failed and was taken over by another of the company’s banks.

The bailout plan calls for $970 million in assistance from the Federal Deposit Insurance Corp., a spinoff of $1.79 billion of poorly performing assets and a $500-million infusion of capital raised privately by a group headed by Chicago investor A. Robert Abboud.

The company officially becomes the First City Acquisition Corp. under the plan.

First City senior debt holders were offered 45 cents on the dollar for their debt under the plan, while subordinated debt holders were offered 35 cents.

Bonds not tendered by the deadline become the obligation of the new First City and could be worth as much as 100 cents on the dollar.

First City, with 59 banks in Texas and one in South Dakota, grew quickly during the Texas oil boom, but was hit by energy and real estate losses when oil prices plummeted.

First City officials announced last week that they planned to complete the deal by Tuesday, three months behind schedule.

Alan Whitney, spokesman for FDIC in Washington, said paper work needed to be completed before the agency would forward the assistance money.

In a 10K report filed late last month with the Securities and Exchange Commission, First City reported that it expected to lose $43 million by the time the reorganization is completed.

Leadership of the institution will then move from longtime Houston banker James A. Elkins Jr. to Abboud. Abboud, 58, has been working as a consultant for the company since September for $1 and a $2.25-million expense account.