Default by Glenfed Is Possible : Finance: The parent of Glendale Federal says it may not be able to pay $4.6 million in interest that will be due investors next March.
The parent company of ailing Glendale Federal Bank disclosed Thursday that it may default on some of its debt next March, raising the possibility that bondholders could force the firm into involuntarily bankruptcy proceedings.
Glenfed Inc. described its dilemma as a “liquidity concern” in documents filed with the Securities and Exchange Commission, but in a separate statement downplayed the possibility of bankruptcy proceedings.
The company also said that even if it were forced into bankruptcy, there would be no “legal effect” on Glendale Federal Bank, the thrift’s depositors or its loan customers.
After the disclosure, Glenfed’s stock tumbled $1 a share to close at $1.375 on the New York Stock Exchange. Trading was halted at one point Thursday. Earlier this year, Glenfed traded as high as $8.50 a share.
Glenfed’s liquidity crunch stems from an order by regulators after a recent examination for the company to reimburse $2.1 million in expenses to its thrift unit.
The payment has not been made, and the two sides are still discussing it.
The thrift holding company had just $5.3 million in cash on June 30, according to the documents. If Glenfed is unable to restructure its debt, or attract an infusion of money, it will be unable to pay interest of $4.6 million next March to investors holding $59.9 million in convertible subordinated debentures.
The Glendale-based company in its statement insisted that it has no plans to voluntarily file for bankruptcy. It added that there are no signs that bondholders would try to force the company to do so involuntarily.
The future of Glendale Federal, which continues to suffer from the slipping California economy and real estate market, is one of the cloudiest in the thrift industry.
Its condition is deteriorating largely because of real estate losses.
In the year ended June 30, Glenfed lost $120.9 million, which came on top of a loss of $230.1 million a year earlier.
As a result, the thrift fails to comply with one federal capital standard and has been given until next June by regulators to bolster its finances.
Yet at the same time that its finances are weak, the thrift is hoping to win an important legal battle with the government that could conceivably restore its health.
This summer, it won the early round in a legal battle in its claim that the federal government improperly reneged on an agreement to let it count hundreds of millions of dollars in “goodwill”--an intangible asset--toward the financial cushion it must maintain to protect against losses.
The government is appealing that decision. Glenfed hopes to pressure the Justice Department to settle.
Peter Treadway, a thrift analyst at Smith Barney, Harris Upham & Co. in New York, said he believes that the government will continue to resist and that a settlement is unlikely.
