Bondholders Rail Against Calfed Restructuring Plan
A critical restructuring plan proposed by Calfed Inc.--an exchange of $122 million in bonds for stock--was criticized Tuesday by its major bondholders as “wholly unacceptable.”
Calfed’s plan, disclosed in a filing with the federal Office of Thrift Supervision, involves swapping 130 shares of preferred stock and 450 shares of common stock for each $5,000 in principal amount of the convertible bonds.
Los Angeles-based Calfed, parent of California Federal Bank, proposed the plan to shore up the capital of the thrift. But bondholders expressed displeasure with the deal.
Herb Stiles, a T. Rowe Price executive in Baltimore who heads the “Debentureholders Steering Committee of Calfed Inc.,” said that although bondholders don’t like the plan, they hope to negotiate a better deal.
Calfed continues to meet federal requirements for capital, its financial cushion against losses. But it has been hammered by the soft commercial real estate market, the slow California economy and changes in federal thrift laws that retroactively wiped out some capital that regulators previously allowed.
As a result, Calfed’s capital levels have thinned, especially one measure tied to the riskiness of its loans and other assets. In an action that reflects its weakened financial condition, Calfed disclosed that it has been officially designated a “problem” institution by federal regulators.
Because of its tenuous financial shape, Calfed has agreed to meet tougher capital standards by next June, risking eventual seizure by regulators if it fails. Swapping its bonds for stock--which requires bondholder approval--would free up about $100 million allocated to service the bonds. The step is critical to Calfed’s overall plan to boost its financial strength by about $200 million to $225 million.
Under the plan, Calfed, after swapping the bonds for the stock, would be folded into a subsidiary of the bank.
Shares in the holding company would be converted into shares in the bank itself.
Calfed declined comment on its offer, citing U.S. Securities and Exchange Commission rules.
