Glenfed Offers Plan to Raise Cash With New Common Stock : Banking: Chairman says move would ‘dramatically strengthen’ the savings and loan, which faces seizure.
Glenfed, racing to prevent a possible government seizure of its savings and loan in two weeks, unveiled a plan Monday to raise up to $425 million in additional capital.
The plan allows Glenfed’s stockholders, certain bondholders and new investors to buy more common shares and provide the financial institution with its needed cash infusion. The plan would “dramatically strengthen the capital position of the bank,” Chairman Stephen J. Trafton said in a statement.
Glenfed is the parent of Glendale Federal Bank, the nation’s fifth-largest savings and loan. The company’s capital is about $400 million below government-mandated minimums, and Glenfed faces a June 30 deadline to fix the problem or be seized.
However, Glenfed has said it expects the Office of Thrift Supervision to extend the deadline because of Glenfed’s continuing efforts to raise more cash.
According to the plan:
* The holding company Glenfed would be dissolved, leaving Glendale Federal Bank as the publicly held corporate entity.
* Existing common stockholders would get four shares in Glendale Federal for every 100 Glenfed shares they now hold, as well as rights to buy additional shares. If all the rights are exercised, the conversion would be equivalent to a 1-for-10 reverse split of the company’s common stock.
* Holders of $59.9 million of Glenfed’s debentures would swap those claims for Glendale Federal common stock and rights to buy additional shares.
* Holders of certain preferred stock would exchange those shares for new preferred shares convertible into the thrift’s common stock, plus rights to buy more common shares.
Glenfed said it also expects to reach agreement with certain institutional investors to buy up to $125 million of additional stock in the restructured thrift.
The restructuring is subject to approval by the OTS, the bondholders and existing common stockholders. Representatives of the bondholders and preferred shareholders involved in the proposed changes have already given their tentative approval.
A special meeting for the stockholders’ vote is scheduled for Aug. 3 for holders of record June 21.
One result of the changes is that Glenfed’s current common stockholders will see a sharp decline in their combined ownership of the thrift, even if they fully subscribe to their rights offering.
That is because a large portion of the equity will shift to the current debt and preferred-stock holders and new investors. After the announcement, Glenfed’s common stock fell 37.5 cents a share to $1.875 in New York Stock Exchange composite trading.
