They tried to raise capital.
They tried to sell in a traditional fashion.
They even considered bankruptcy sales to different parties.
First Mariner Bancorp officials spent years looking for a way to save its major holding, 1st Mariner Bank.
At a bankruptcy court hearing Friday that resulted in approval of First Mariner Bancorp’s plan to auction the bank, the parent company’s futile, years-long struggle to find a buyer for its failing bank became clear for the first time.
Years of soliciting
In court Friday, First Mariner and its advisers were charged with defending their efforts to market the community bank, which was hit hard by the financial crisis that began in 2007.
They had to prove that, despite the worries of creditors, the proposed plan to auction off the bank in a sale under Section 363 of the Bankruptcy Code is fair and necessary. That section of the code allows a company to sell its assets after filing for bankruptcy protection.
Taking the stand, William L. Boyan of Sandler O’Neill, First Mariner’s financial advisor, told the history of First Mariner’s quest for capital, explaining that the company had considered sales of its 1st Mariner Bank before, including section 363 sales.
He also named, for the first time publicly, financial institutions that had previously assessed the bank or considered buying it.
The holding company started seeking capital in 2009, when the Federal Deposit Insurance Corporation and Maryland Commissioner of Financial Regulation issued a cease and desist order on 1st Mariner Bank, requiring that it raise capital.
That year, court documents said, the company sold 95 percent of its consumer finance division, Mariner Finance LLC, for $10.5 million and conducted a rights offering and a stock offering to local investors, which raised $10.9 million.
But that wasn’t enough. So in 2010, Sandler O’Neill contacted more than 100 potential investors. A few of them held discussions with First Mariner, but none resulted in a viable recapitalization.
In April 2011, New York-based Priam Capital, which is now an investor in the proposal by RKJS to acquire 1st Mariner, agreed to invest $36.4 million in First Mariner Bancorp, on the condition that the bank raise $123.6 million from other investors. Another condition was that the bank’s founder, Edwin F. Hale Sr., step down from his posts as president and CEO, which he did. First Mariner ended up dropping out of that deal in November 2012 after missing multiple deadlines on the agreement.
Later in 2011, Sandler O’Neill reached out to 35 strategic buyers. According to court documents, seven executed non-disclosure agreements.
In court Friday, Boyan named four banks that conducted due diligence into a potential purchase of 1st Mariner — BB&T, TD Bank, Bay Bancorp and Northwest Bancshares.
None of them came through with a proposal.
After that, First Mariner started to consider a sale out of bankruptcy. A pair of investment firms, which Boyan identified as Priam Capital and Pine Brook Partners, issued a letter of intent to buy the bank under Section 363 of the Bankruptcy Code.
But this was later terminated, when First Mariner got what seemed like a better proposal in November 2012 from one of the companies it had previously solicited. First Mariner dropped the Priam-Pine Brook discussions as a condition of the new proposal. But after negotiating, First Mariner decided that the deal was unlikely to get regulatory approval, so it terminated discussions.
First Mariner then resumed discussions with the investment firms, but eventually dropped negotiations, anticipating that if the deal went through the bank would still be unable to reach required capital ratios.
In August 2013, Sandler O’Neill marketed the bank once again to 24 potential strategic acquirers. Two banks conducted due diligence — National Penn and F.N.B Corp., according to Boyan’s testimony.
National Penn, he said, expressed interest in a 363 deal, but presented no written offer.
F.N.B. proposed an acquisition, but only wanted to acquire First Mariners best branches, deposits and loans, so First Mariner abandoned that possibility.
When RKJS Inc. and its group of six investors submitted a term sheet about a potential 363 acquisition on Nov. 8, 2013, First Mariner once again approached National Penn and F.N.B., said Boyan on the stand.
But neither of the two were biting, so First Mariner signed the term sheet on Nov. 21, 2013, entering an exclusivity agreement with RKJS.
First Mariner Bancorp filed for Chapter 11 bankruptcy protection in February, after announcing that a group of investors plans to buy the bank for $4.8 million and recapitalize it with $100 million.
The group of investors, known as RKJS Inc., was led by Jack Steil and Robert Kunisch, and includes commitments from Priam Capital, Patriot Financial Partners, GCP Captial Partners and TFO Financial Institutions Restructuring Fund LLC.
Stamp of approval
Rice said that he found Boyan’s testimony to be credible, and decided Friday that First Mariner had given considerable effort to marketing its bank, leading to his decision to approve the proposed auction plan and bidder requirements.
At the bankruptcy hearing, creditors had questioned the bidder requirements in First Mariner’s proposed sale of the bank.
They said that the timeline of the sale was too tight, with only 30 days for interested potential buyers to submit a bid. They also said that the expense reimbursement and breakup fees, adding up to $2.75 million on top of the $4.75 million purchase price, along with the requirement of infusing $85 million to $100 million, was prohibitive to other buyers.
But the judge decided that all of these conditions were appropriate, given First Mariner’s saga to save its bank.
“The bank has been marketed for more than three years,” said Rice. “This evidence shows the market has spoken.”
The only schedule change was a delay of one day for the bidding deadline, as the proposed date of April 6 was a Sunday. The auction, if there are any other bidders, will take place April 10.
“This is a situation that requires action and requires it now,” Rice said, “and the market has spoken.”
He also said that given the financial commitment of the initial bidder, RKJS Inc., the proposed reimbursement and breakup fees are appropriate.