Wednesday, April 13, 2011

Carlyle Group Surfs Central Pacific Bank

Central Pacific Bank struck a deal with The Carlyle Group and Anchorage Capital, private equity underwriters (PEU's).  Carlyle's press release stated:

Each of The Carlyle Group and funds managed by Anchorage Capital Group, L.L.C. will own 24.9% of the common stock of the Company prior to giving effect to the rights offering. The shares of common stock will be purchased at $0.75 per share for an aggregate price of $195 million. Each Lead Investor shall be entitled to one Board seat on each of the Company and Bank boards of directors.
The deal mentioned the company executing a 1 for 20 reverse stock split,  Applying the reverse split to the announced deal, Carlyle and Anchorage would pay $15 per share.  They paid $10:

SEC filings named the lower price while stating how existing shareholders could participate via stock rights:

The Company announced the record date for its planned common stock rights offering (the “Rights Offering”) was the close of business on February 17, 2011.  The rights will be transferable and will entitle holders to purchase newly issued shares of the Company’s common stock at a purchase price of $10.00 per share (after giving effect to the reverse stock split described below), which is the same per share purchase price to be paid by investors in the Private Placement.  
Carlyle's deal was contingent upon regulatory approval of the capital raise outside the Securities Act of 1933, exchanging its TARP preferred stock for common and amending its TARP warrant. Check, check, check.

Central Pacific Financial Corp. (NYSE: CPF) (the “Company”), parent company of Central Pacific Bank (“CPB”), today announced that it has received all required regulatory approvals necessary to complete its planned $325 million capital raise from accredited investors in a private placement (the “Private Placement”). The Company also entered into an agreement today (the “Exchange Agreement”) with the United States Department of the Treasury (the “Treasury”) pursuant to which the Treasury will exchange 135,000 shares of the Company’s preferred stock designated as Fixed Rate Cumulative Preferred Stock and accrued and unpaid dividends thereon for 5,620,288 shares of the Company’s common stock (the “TARP Exchange”). All other closing conditions have previously been satisfied or will be satisfied concurrent with the closing of the Private Placement.  Accordingly, the Company has set February 18, 2011 as the closing date for both the Private Placement and the TARP Exchange.
Uncle Sam traded $135 million in preferred stock, plus accrued/unpaid dividends, for 5.6 million common shares.  At the $10 private placement price, Uncle Sam gave up $135 million for $56 million.  At $15, Treasury received $84 million for $135 million.  This is how Carlyle makes bank deals work.

"CPF has made significant strides in improving its asset quality and we are delighted to partner with the Company's strong management team as it continues to execute its recovery plan," said P. Olivier Sarkozy, Carlyle Group Managing Director.

Central Pacific had $4.2 billion in assets when the deal was announced.  It's down to $3.9 billion.

"We believe CPF has a valuable core franchise and with this capital it is well positioned for future growth and success." 

The investing public finally put the pieces together.  Central Pacific's share price plummeted today.

Central Pacific warned "existing shareholders interests will be substantially diluted and the market price of our common stock may decrease to a level at or below the purchase price in the Private Placement."
How fast will they flip their deeply discounted shares?  The February 2011 capital raise provided 32.5 million shares, of which 18.5 million could soon be for sale.

Uncle Sam's generosity will help Carlyle profit, once again.  Carlyle holds Central Pacific's common stock in a Cayman Islands account named after their founders, David-Bill-Daniel (DBD),  DBD Cayman.  It's a game the big boys play.