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Of course, the economics of bank-flipping work much better when the government guarantees a heads I win, tails you lose outcome.
When BankUnited Inc. goes public, veteran banker John Kanas likely will have earned $100 million-plus on a single transaction for the second time in his career.
BankUnited expects to price its IPO in the coming week, and if the transaction comes to market at $24, the midpoint of the offering range, Kanas' initial $23.5 million investment in the company will have grown to $155.4 million. Not a bad return for an investment made in the first half of 2009....
Many people expected the deal to be very profitable for Kanas and his fellow investors, including Wilbur Ross, Blackstone Group LP, Carlyle Group LLC and Centerbridge Partners LP, but we did not think he would repeat the payday he received from Capital One, much less record a six-bagger in just more than 18 months' time.
When the investor group acquired BankUnited FSB from the FDIC in May 2009, the terms looked quite attractive for the buyer. After a closer look at the details BankUnited executives provided during their IPO road show this week, the assisted purchase of a beleaguered thrift appears to be one of the best failed-bank deals for a buyer in history.
The structure of the deal was so attractive that every loan acquired could go bad and the investor group would still earn $1.5 billion. Such eye-popping terms conjure up memories of the best deals from the last credit cycle and, in particular, the assisted purchase of First RepublicBank by Bank of America predecessor NCNB in 1988, which came at a song and stands as one of the best bank deals in history.
In the BankUnited deal in May 2009, the FDIC gave $2.2 billion to the investor group, which also picked up $800 million in book value in the deal. The loss share agreement the acquirer entered into with the FDIC was also special.
BankUnited COO Raj Singh said during the IPO road show that the loss share agreement covered $11.6 billion in assets, $11.4 billion of which were loans. He said the group marked down the target's loan portfolio by $2.7 billion to a carrying value of $8.7 billion, giving the acquirer a $1.5 billion cushion in the event of 100% in losses. The FDIC agreed to absorb 80% of losses up to $4.0 billion and 95% thereafter. Singh said the company expects losses on the covered assets to exceed $4.0 billion and noted that the new BankUnited has already collected $1.2 billion in reimbursements by the FDIC.
There are other important components to the loss share agreement that make it unique. Loss share agreements in other assisted-transactions require the buyer to get the FDIC's consent before selling an asset covered under loss share. Conversely, the loss share agreement in the BankUnited deal allows the buyer to sell 2.5% of covered loans every year without consent. If a loss occurs when the loans are sold, the new BankUnited will receive reimbursements from the FDIC, he said.
The investor group was also given six months to give the FDIC back unwanted branches, leases and even the failed thrift's former headquarters, which Kanas said saved the company $3 million per year.
Other loss share agreements did not offer as much flexibility and certainly have been far less favorable for buyers, particularly after the FDIC has made several changes to the structure of loss-sharing agreements. In April 2010, the FDIC limited its absorption to 80% from 95% of losses covered in loss-sharing agreements, and then in early September 2010, the FDIC rolled out an even less attractive structure for buyers.
Changes in loss share coincided with more competitive bidding for failed banks, and the investor group that acquired BankUnited benefited from the timing of the thrift's closure and the relatively few potential buyers in the marketplace at the time.
That benefit will be monetized when the company goes public next week. Assuming the IPO prices at $24 per share, its midpoint, the investor group will sell close to $670 million in the IPO, with Wilbur Ross, Carlyle and Blackstone selling the most shares in the transaction — roughly 5.1 million shares each, for $122.8 million — and the three firms will each retain a 15.9% stake in BankUnited valued $370.4 million apiece.
Kanas plans to sell almost 1 million shares in the transaction, which at the midpoint of the offering range would be valued at $23.7 million. At those market prices, his remaining stake would be worth $131.6 million.
Kanas and the members of the investor group won't be able to monetize the full value of their investments in BankUnited right away, having agreed to a lock-up period of 180 days following the offering. But we feel pretty certain they will walk away from the transaction happy next week.
BankUnited expects to price its IPO in the coming week, and if the transaction comes to market at $24, the midpoint of the offering range, Kanas' initial $23.5 million investment in the company will have grown to $155.4 million. Not a bad return for an investment made in the first half of 2009....
Many people expected the deal to be very profitable for Kanas and his fellow investors, including Wilbur Ross, Blackstone Group LP, Carlyle Group LLC and Centerbridge Partners LP, but we did not think he would repeat the payday he received from Capital One, much less record a six-bagger in just more than 18 months' time.
When the investor group acquired BankUnited FSB from the FDIC in May 2009, the terms looked quite attractive for the buyer. After a closer look at the details BankUnited executives provided during their IPO road show this week, the assisted purchase of a beleaguered thrift appears to be one of the best failed-bank deals for a buyer in history.
The structure of the deal was so attractive that every loan acquired could go bad and the investor group would still earn $1.5 billion. Such eye-popping terms conjure up memories of the best deals from the last credit cycle and, in particular, the assisted purchase of First RepublicBank by Bank of America predecessor NCNB in 1988, which came at a song and stands as one of the best bank deals in history.
In the BankUnited deal in May 2009, the FDIC gave $2.2 billion to the investor group, which also picked up $800 million in book value in the deal. The loss share agreement the acquirer entered into with the FDIC was also special.
BankUnited COO Raj Singh said during the IPO road show that the loss share agreement covered $11.6 billion in assets, $11.4 billion of which were loans. He said the group marked down the target's loan portfolio by $2.7 billion to a carrying value of $8.7 billion, giving the acquirer a $1.5 billion cushion in the event of 100% in losses. The FDIC agreed to absorb 80% of losses up to $4.0 billion and 95% thereafter. Singh said the company expects losses on the covered assets to exceed $4.0 billion and noted that the new BankUnited has already collected $1.2 billion in reimbursements by the FDIC.
There are other important components to the loss share agreement that make it unique. Loss share agreements in other assisted-transactions require the buyer to get the FDIC's consent before selling an asset covered under loss share. Conversely, the loss share agreement in the BankUnited deal allows the buyer to sell 2.5% of covered loans every year without consent. If a loss occurs when the loans are sold, the new BankUnited will receive reimbursements from the FDIC, he said.
The investor group was also given six months to give the FDIC back unwanted branches, leases and even the failed thrift's former headquarters, which Kanas said saved the company $3 million per year.
Other loss share agreements did not offer as much flexibility and certainly have been far less favorable for buyers, particularly after the FDIC has made several changes to the structure of loss-sharing agreements. In April 2010, the FDIC limited its absorption to 80% from 95% of losses covered in loss-sharing agreements, and then in early September 2010, the FDIC rolled out an even less attractive structure for buyers.
Changes in loss share coincided with more competitive bidding for failed banks, and the investor group that acquired BankUnited benefited from the timing of the thrift's closure and the relatively few potential buyers in the marketplace at the time.
That benefit will be monetized when the company goes public next week. Assuming the IPO prices at $24 per share, its midpoint, the investor group will sell close to $670 million in the IPO, with Wilbur Ross, Carlyle and Blackstone selling the most shares in the transaction — roughly 5.1 million shares each, for $122.8 million — and the three firms will each retain a 15.9% stake in BankUnited valued $370.4 million apiece.
Kanas plans to sell almost 1 million shares in the transaction, which at the midpoint of the offering range would be valued at $23.7 million. At those market prices, his remaining stake would be worth $131.6 million.
Kanas and the members of the investor group won't be able to monetize the full value of their investments in BankUnited right away, having agreed to a lock-up period of 180 days following the offering. But we feel pretty certain they will walk away from the transaction happy next week.
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