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05/04/2010

A Creative Exchange Sees Bank Moving Toxic Assets

Georgia�s third largest bank, United Community Banks (Nasdaq:UCBI), has struck a barter-type deal with a New York-based private equity firm, Fletcher International. Fletcher will acquire $100 million in United�s most illiquid assets.

These assets are ones the bank couldn�t have shed from its books without essentially giving them away and burning enormous capital. In the exchange the private equity group receives warrants for equity in the bank.

The complex transaction covers nonperforming commercial and residential mortgages and foreclosed property � mostly partially built houses and raw lots � in the North Georgia Mountains, the Western Carolinas and along the Georgia coast.

The deal will essentially take illiquid assets off the balance sheet and free up capital. In short, United gets capital back (instead of losing capital in fire sales) while also structuring the deal to be accretive to capital over time through a stock investment by its new private equity partner.

Fletcher now has rights to acquire $65 million in convertible preferred stock and will acquire warrants to purchase up to an additional $65 million in common stock. They will also put $10 million in deposits into the bank in exchange for the financing.

Bottomline:  A good deal for everyone. And United is now in the position of becoming a consolidator of failed banking institutions.



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