Glendale Fed Wins OK to Recapitalize : Thrifts: Shareholders narrowly approve $425-million plan, setting stage for largest private restructuring.
Shareholders narrowly approved a $425-million recapitalization plan for Glendale Federal Bank, setting the stage for the largest private restructuring ever of a troubled thrift.
The twice-delayed vote vindicates a controversial effort by Stephen Trafton, chairman of Glendale Federal’s parent entity, Glenfed Inc., to save the nation’s fifth-largest thrift, which faced a government takeover Aug. 31 had the plan been rejected.
Shareholders had balked at the plan because their ownership stake in the company will suffer dramatic dilution as a result, to a meager 2.1% from 100%.
As it was, management--which needed owners of 50% of outstanding shares plus one to approve the plan--received just 52.8% approval.
Ultimately, shareholders had little choice.
The thrift’s capital has been decimated by more than $650 million in loan losses since 1991 and by changes in regulatory capital rules. Efforts to raise capital by other means, including branch sales, met with failure. Deep cost cuts--about 2,700 employees were laid off in 1991--weren’t deep enough.
Glenfed also announced that sufficient numbers of bonds were exchanged for common stock in the new entity that will own the thrift to satisfy terms of the plan. That approval, too, came barely. Tender of more than 80% of bonds were called for, and management gathered 81.9%. Preferred shareholders also agreed to reclassification to a new series of shares. Both those classes of investors will suffer dramatic dilution, as well.
The voting opens the way for a sale of $175 million worth of a new series of convertible preferred shares and $250 million in new common shares. Underwriters and two dozen large investors have made commitments to buy all the new shares. Glenfed declined to identify the new investors, except to say they include “mutual funds, individuals and institutional investors.”
Glenfed shares finished flat Thursday at 15/16 in New York Stock Exchange trading. Glendale Federal has $17.9 billion in assets and 215 branches in California, Florida and Washington state.
The new infusion of capital will raise Glendale Federal’s core capital to 4.77% of assets and its risk-based capital to 9.61%, safely above the minimum 4.5% core and 9% risk-based measures required by regulators after Sept. 30. Glenfed Inc. will be dissolved once the recapitalization is complete.
Analysts lauded Trafton’s perseverance in pulling off the plan, which involves a highly complex series of debt-for-stock swaps, investment reclassifications and new equity offerings.
But Gareth Plank of Mabon Securities in San Francisco pointed out that the Glendale-based thrift is not yet out of the woods.
“As in the ‘Temple of Doom’ movies, Glenfed has escaped from one pit of horrors and entered another,” he said. “It’s called the California economy and the downward pressure on real estate values.”
Peter Treadway, an analyst with Smith Barney, Harris Upham & Co., said Glendale Federal’s chances of survival are “really a question of whether or not California will slither off into the sea.”
Said Treadway: “I tend to think it will not. I think Glenfed’s chances of surviving are better than even.”
Perhaps the most significant hurdle is that the thrift must raise capital to even higher levels in 1994. To meet federal standards, it is weighing a number of measures, including the sale of 23 branches.
