Temple-Inland blasts Guaranty Financial trustee's lawsuit allegations

By Caroline Salls

Pittsburgh, Aug. 29 - Guaranty Financial Group former parent Temple-Inland Inc. said a lawsuit filed against it by Guaranty liquidation trustee Kenneth L. Tepper in connection with a 2007 spin-off "is neither factually supportable nor legally sustainable," according to an 8-K filed on Aug. 29 by Temple-Inland with the Securities and Exchange Commission.

As previously reported, Tepper's lawsuit alleges that Temple-Inland and some of its affiliates, officers and directors caused the failure of Guaranty Financial Group and its wholly owned subsidiary Guaranty Bank.

Temple-Inland said the lawsuit "disregards the overwhelming contemporaneous belief of the markets in the financial soundness of GFG at the time it was spun off."

"Further, the company believes that the huge amounts of alleged damages sought by the complaint and discussed in press releases issued by the market speculator plaintiffs are not factually supportable and include substantial alleged damages for ordinary course dividends paid and internal corporate realignments made in years when GFG and the financial services industry were achieving record profits," Temple-Inland said in the 8-K.

According to the 8-K, the spin-off of Guaranty was part of a larger transformation plan, which also included the spin-off of a real estate group now known as Forestar Group Inc. and the sale of 1.55 million acres of Temple-Inland's strategic timberlands.

"An important element of the plan was to enable each of the three companies, including GFG, to better develop their respective businesses," Temple-Inland said in the 8-K.

Specifically, Temple-Inland said it prepared for the Guaranty spin-off by ensuring that it would meet or exceed the financial safety and soundness standards that would enable its primary regulator to categorize Guaranty as well capitalized.

Temple-Inland said the transformation plan and the Guaranty spin-off were well received by the financial market, confirming Guaranty's financial soundness.

"As of the consummation of the spin-off, GFG had an equity market capitalization of over $550 million, and it continued to meet or exceed the standards for classification as well capitalized until at least September 30, 2008," Temple-Inland said in the 8-K.

"Even when the effects of the broad financial crisis were evident in 2008, nonetheless GFG successfully raised $600 million in new capital from extremely sophisticated investors, approximately half of which was equity and half subordinated debt, in mid-2008."

Temple-Inland said the mortgage-backed securities portfolio held by Guaranty before and after the spin-off was deemed to have declined in value "to an extent neither the company nor other financial services industry participants anticipated" when the financial crisis worsened toward the end of 2008.

Guaranty Financial, a Dallas-based unitary thrift holding company, emerged from bankruptcy in May.

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