In its press release issued on May 4, 2011, Bryan Cave client Brand Group Holdings, Inc. (the “Company”) announced the successful completion of its recapitalization.  The total amount raised in the initial phase of this effort was $125 million, and the three largest investors in the recapitalization, affiliates of The Carlyle Group, The Stephens Group, and the Cousins’ family, invested approximately $96 million, with various other investors investing approximately $29 million.  The investors have agreements in place with the Company to invest an additional $75 million in capital at a later date.

A unique feature of this transaction is a valuation adjustment that utilizes a stock escrow arrangement.   Some of the purchased shares will revert from the new investors to the legacy shareholders if the existing loan portfolio performs better than the investors have projected.

As a result of the recapitalization, the Company is among the best capitalized financial

Background

On July 2, 2009, the Board of Directors of the Federal Deposit Insurance Corporation (“FDIC”) issued for public comment a proposed Statement of Policy that sets forth the qualifications for private equity investors in failed bank acquisitions (the “Proposed Policy”).  The FDIC established a 30-day comment period and sought public comment on nine topics:

• definition of private equity investor and scope of the policy;
• permissibility of “silo” structures;
• capital requirements;
• applicability of the source of strength doctrine;
• imposition of cross-guarantee liability;
• restrictions on bidders from bank secrecy jurisdictions;
• post-investment holding period;
• possible limitations on 10% investors in failed institutions; and
• length of restriction period.

On August 26, 2009, the FDIC issued its Final Statement of Policy on Qualifications for Failed Bank Acquisitions (the “Final Policy”).   The FDIC notes that the policy statement is just that—a statement of policy and not a statutory provision imposing civil or criminal

We understand that several banks have been told that the bank needed to raise sufficient new private capital so that, following a TARP Capital infusion, the bank would:

• have total non-performing assets that are less than 100% of the resulting capital;
• have total classified assets that are less than 100% of the resulting capital; and
• be in compliance with the Commercial Real Estate guidance (total Commercial Real Estate loans of less than 300% of resulting capital, and total Acquisition, Development and Construction loans of less than 100% of the resulting capital).

We don’t think this is exclusive or automatic, but we do find it logical for some banks, and a good argument for others to use.  For those banks that cannot satisfy the requirements of the Commercial Real Estate guidance, we believe that a tangible reduction schedule may suffice.

Yesterday’s New York Times article on whether banks

On November 26, 2008, the FDIC issued a press release outlining a new plan to allow parties that do not have a bank charter to bid on failing institutions.  We will keep you up to date as additional details emerge on this new plan.  Below is the complete text of the FDIC’s press release.

Our September 25, 2008 Client Alert analyzes the impacts of the Federal Reserve’s new policy statement easing the limitations on private equity investments in banks and bank holding companies.