SPOKANE, WASH. -- Sterling Financial Corp., owner of Sonoma Bank in Santa Rosa, today said it is in active negotiations with several private equity investors, its major creditors and its regulators about various strategic alternatives designed to put Sterling on a sound financial footing and to allow it to recapitalize and grow its business.
As part of the plan announced today, Sterling requested and received a letter from the U.S. Department of the Treasury of its support to convert the Sterling preferred stock that Treasury holds into Sterling common stock.
Additionally, Sterling said it has received several nonbinding proposals from private-equity firms and has entered into a nonbinding letter of intent with one firm to provide additional capital to recapitalize Sterling.
“We continue to make progress toward raising capital and improving our financial condition. We are encouraged by the positive recognition of the value of Sterling’s franchise and the continued loyalty of the customers and the communities we serve,” said Greg Seibly, president and chief executive officer of Sterling Financial. “Treasury’s expression of support for this proposed conversion of its preferred stock is a significant step in Sterling’s capital recovery plan.”
Sterling’s recovery plan is expected to include a restructuring of its capital and liabilities. As such, Sterling has been actively engaged with two of its major stakeholders, the owners of its outstanding trust preferred securities or TruPS and Treasury, which holds preferred stock that Sterling issued as part of Treasury’s Capital Purchase Program, and which was designed to support the health of the nation’s banking sector.
In its letter, Treasury set forth several conditions for its approval of the conversion of the Treasury-owned securities to common equity.
Among them, Sterling must get consent for the repurchase of Sterling’s TruPS by a substantial portion of the holders of those securities, must raise at least $650 million of additional capital through the issuance of new common equity and must execute a definitive agreement for that conversion with Treasury.
Sterling Financial announced in October that its subsidiary, Sterling Savings Bank, had entered into agreements with the Federal Deposit Insurance Corp. requiring it to strengthen its financial position.
The cease-and-desist agreement committed Sterling’s principal banking subsidiary, Sterling Savings Bank, to continue taking actions relating to its capital position, asset quality, liquidity and management oversight.
Sterling also continues to consider and explore these and other alternatives, including the raising of capital through public or private equity offerings; the potential sale of Sterling or some or all of its assets; or other substantial adjustments to Sterling’s balance sheet.
All proposals received by Sterling to date contemplate a conversion of the Treasury’s preferred stock at a discount to the face value, and the exchange of a substantial portion of the TruPS into cash at a significantly reduced price.
In February 2010, Sterling began making cash offers to repurchase its outstanding series of TruPS at an 80 percent discount from the stated value. Formal offers have been extended to registered owners of Sterling’s managed TruPS series, who have until March 23 to consent to the terms of Sterling’s cash tender offer.
Owners of Sterling’s unmanaged TruPS series have until March 31 to consent to the terms of Sterling’s cash offer. Sterling’s cash tender offer is conditioned upon the completion of a successful capital raise, as well as the receipt of all applicable approvals from the Federal Reserve Bank of San Francisco.
Sterling is being assisted in its exploration of these various alternatives by financial advisers Sandler O’Neill+Partners, Barclays Capital and FBR Capital Markets.
