Tuesday, May 25, 2010

Carlyle Group Sails into Hampton Roads Bank

Two private equity underwriters (PEU's) will take big stakes in Hampton Roads Bankshares. The A combined Carlyle Group and Anchorage Advisors will control 46.2% of Hampton Roads voting equity. Hampton Roads received TARP funds. The Treasury plans to convert its preferred shares to common stock. Here's the planned ownership breakdown according to SEC filings:

Carlyle Group - $72.6 million = 23.1% of common stock
Anchorage Advisors - $72.6 million = 23.1% of common stock

U.S. Treasury - $80 million = 6.4% of common stock
The news release said nothing about Hampton Roads' deferred dividends owed to Uncle Sam. MarketWatch reported:

Under the terms of the TARP Preferred Stock, the Company is required to pay on a quarterly basis a dividend rate of 5% per year for the first five years, after which the dividend rate automatically increases to 9% per year. Dividend payments may be deferred, but the dividend is a cumulative dividend and failure to pay dividends for six dividend periods would trigger board appointment rights for the holder of the TARP Preferred Stock.

The company missed dividend payments in November 2009 and February 2010. What happened to the accrued dividends?

Hampton Roads isn't The Carlyle Group's first foray into banking's safe harbor. The FDIC provided $4.9 billion in subsidies for Carlyle's BankUnited deal.

Using taxpayer money to enrich PEU's is a common theme in Washington, D.C. That hasn't changed under financial reform.

The question is how the Hampton Roads deal feeds into Carlyle's other strategies, including their proposal to operate Virginia's ports. Carlyle is known for entering via the back door. How long before they're sailing in Hampton Roads on state taxpayer money?