Opinion ID: 2301005
Heading Depth: 2
Heading Rank: 8

Heading: Levan Devises A New Sale Structure.

Text: The sale of the Tampa branches and deposits temporarily buoyed Bancorp's financial results, but not enough to satisfy bank regulators. On February 23, 2011, the Office of Thrift Supervision [4] required that Bancorp and BankAtlantic enter into Cease and Desist Orders in light of their losses over the past three years, their inadequate capital relative to their risk profile, and BankAtlantic's high levels of classified assets (discussed in greater detail below). Among other things, the Cease and Desist Orders prevented BankAtlantic from paying dividends or transferring any assets to Bancorp without regulatory approval. BankAtlantic was required to increase its capital, meet higher capital ratios than other thrifts, and stop originating commercial real estate loans. The implicit message of the Cease and Desist Orders seems clear: regulators wanted BankAtlantic to become part of a stronger, better-capitalized franchise. For Levan, however, selling was not attractive. He had just completed a process that generated a single offer of $50 million, which he told his board BFC would block as inadequate. Despite having advised his fellow directors that the offer was not serious, Levan's intuition told him it was pretty close to market. As Levan explained at trial, [i]n the best of times you get the two times book value but, clearly, we were not in the best of times, nor were we the best candidate. Tr. 791. A book value metric suggested a sale price of $7-14 million. As an alternative measure, Levan understood that historically buyers would pay up to a 30% premium to market. In the second quarter of 2011, Bancorp's trading price implied a range of $45-79 million. At the time, Levan thought Bancorp realistically could expect $14-48 million for the whole company. Tr. 792-97. In July 2011, inspired by the deposit premium he had obtained in the Tampa branch transaction, Levan devised a new structure. Bancorp would sell BankAtlantic as a clean franchise without any criticized assets and without the Debt Securities. In Levan's words, the pitch would be: Deposits and performing loans only. No Trups. No classifieds. No non performing. JX 119. As sold, BankAtlantic would be in pristine condition. JX 121. Bancorp would keep and manage the remaining assets through an entity called Retained Assets LLC. In essence, Levan was proposing a good bank/bad bank structure, a standard technique used by regulators when resolving troubled banks and thrifts. [5] After Levan decided on this route, Bancorp engaged two financial advisors, Sandler O'Neill & Partners and Cantor Fitzgerald & Co., to contact potential bidders. The pitch book outlining the transaction stated that Bancorp was pursuing the monetization of it's [sic] core banking franchise and that existing criticized assets will not be included in the sale. JX 139 at 5. The pitch book advised potential bidders that Bancorp will only consider a transaction with an `effective deposit premium' in excess of 10%. Id. at 7. As the pitch book explained, the deposit premium would not be paid in cash, but rather would be conveyed through the exclusion from the sale of criticized assets with a book value of approximately $600 million (the Retained Assets). At closing, BankAtlantic would transfer the Retained Assets to Retained Assets LLC, and Retained Assets LLC will be distributed to Bancorp simultaneously with the Buyer's purchase of 100% of Bank stock from Bancorp. Id. at 6. As of that instant, BankAtlantic would have approximately $3.4 billion in liabilities and $3.1 billion in assets. By purchasing the stock of BankAtlantic, the acquirer would receive an entity with approximately $300 million more in liabilities than assets, resulting in an effective premium of 10%. Id. at 7. The pitch book accurately described the Retained Assets as the consideration for the sale. Levan likewise described the classified loans to Bancorp as the [p]urchase price consideration paid by the acquirer. JX 120. He explained that the winning bidder would be the one that allows the most assets to be retained by [Retained Assets LLC]. JX 124. Beginning in September 2011, Sandler O'Neill and Cantor Fitzgerald contacted twenty-four companies. Nine expressed interest and executed nondisclosure agreements. Three others expressed interest but said they were preoccupied and could not consider a transaction for two or three months. One of the three was Bidder 1. Bancorp did not adjust its timeline to allow any of the three to participate. Bancorp also signaled its unwillingness to consider alternative structures, such as a whole-company sale or a transaction in which the acquirer would assume the Debt Securities. [6] At least two potential bidders could have benefited from the TruPS, but Bancorp only was interested in a good bank/bad bank transaction.