1st Mariner Bank will remain in local hands after a last-minute deal Tuesday resulted in a reopened auction and the initial winning suitor withdrew.
The new auction pushed out National Penn Bank, leaving RKJS Bank, led by a group local investors, as the winning bidder, pending regulatory approval.
“We’re very excited,” said Robert Kunisch of RKJS, who is slated to be president and chief operating officer of 1st Mariner Bank. “We were prepared always to increase our bid.”
National Penn Bank had emerged as the winner in Thursday’s auction. 1st Mariner said that the decision arose out of doubts that RKJS would be able to gain swift regulatory approval.
But RKJS challenged the sale, and continued to present revised bids. With yet another offer on the table Tuesday, 1st Mariner and its creditors began to reconsider.
A lawyer for the creditors’ committee said in U.S. Bankruptcy Court in Baltimore Tuesday morning that it had reached an agreement with RKJS minutes before the hearing, on a new offer that included “enhancements.” Following the creditors’ endorsement of the bid, 1st Mariner held a board meeting to discuss the offer and agreed it would be best to reopen the auction.
“Auctioning is a market test,” said Lawrence Yumkas, an attorney for 1st Mariner, following the hearing. “In this instance it worked very well.”
RKJS had modified its previous offer by including a $3 million non-refundable deposit, and offered to assume any losses in bank value if the deal does not gain quick regulatory approval. The stalking horse — the first bidder for the bank — already had submitted an amended bid Sunday night, with a cash purchase price of $17.2 million. That figure will increase by $1 million if the deal is not approved by regulators by April 30.
Once hearing the debtor’s decision, a lawyer for National Penn said that the Pennsylvania-based bank would withdraw its bid for 1st Mariner if the auction were reopened.
Despite National Penn’s stance, Judge David E. Rice agreed to reopen the auction, stating that the court had ample grounds to do so. However, he also said he had no doubts that all parties in the first auction acted in good faith.
When the bank and its creditors confirmed their agreement to reopen the bidding process, National Penn officially withdrew.
“Bankruptcy as a court of equity provides judges with a wide discretion,” said John Haeckel, of Chilmark Partners, whose team compiles data on sales under Section 363 of the bankruptcy code, which is what governed the 1st Mariner transaction. “If I were National Penn, I might be frustrated because of the intersection of an auction process with judicial discretion.”
But the Pennsylvania bank’s strong showing in the auction process made a point for these types of sales, he said: “Just because you become the stalking horse doesn’t mean that you bought the asset.”
After Penn National withdrew, Rice proceeded to hold the hearing for approval of sale and granted approval to RKJS and 1st Mariner.
RKJS will now seek regulatory approval for the deal. It said in its Sunday offer that it anticipates receiving that approval by April 30.
In its initial announcement of First Mariner Bancorp’s bankruptcy and the planned sale of 1st Mariner Bank, interim CEO Mark Keidel praised the local connections of the RKJS partners.
“Our new partners have extensive banking experience in the Baltimore market,” he said in the Feb. 10 statement announcing the proposed deal. “Many of the investors are local and recognize the growth opportunities for a community bank headquartered in Baltimore.”
But following Thursday’s auction, which continued into the night, it seemed that swift approvals were more important than retaining local ownership. It had to be, said Yumkas, as the bank was tasked with choosing the most fiscally responsible option.
“RKJS was the high bid, but was it the best bid?” Keidel testified in court Monday.
But representatives for RKJS argued Monday that First Mariner failed to say that likelihood and speed of regulatory approval would be a deciding factor in the auction. Rice also voiced concern about this failure, which the parent company acknowledged.
Meanwhile, RKJS continued to submit offers, contacting First Mariner in the early hours of Friday and again late Sunday night.
RKJS’ final offer, upon which it agreed with creditors’ only 20 minutes before approval hearings resumed Tuesday, took regulatory approvals into account. Representatives of National Penn would have had the chance to come back with a counter bid, but they made it clear that if the auction reopened they would withdraw the Pennsylvania banking company’s bid.
“Now there has been a wholesale shift in what the debtors and committee want to do,” said Claudia Springer, of Reed Smith LLP, representing National Penn. “We just don’t want to be a part of it anymore if [reopening the auction] is your honor’s decision.”
Once National Penn withdrew, the one-party auction concluded quickly. Rice congratulated RKJS and 1st Mariner on the deal and suggested all parties involved get some sleep after days of negotiations and hearings.
If state and federal regulators approve the deal, the bank will stay in local hands. Kunisch and proposed CEO Jack Steil are both Baltimore-area banking veterans and previously worked with 1st Mariner in its quest to raise capital. The other investors involved have ties to Baltimore as well, including Howard Feinglass, the Baltimore native who runs lead investor Priam Capital.
“It’s going to be a great result for Baltimore,” said Yumkas. “It’s the last major, locally owned bank in Maryland. The city deserves its own bank.”