R&G Financial to buy back outstanding warrants in connection with Crow Bank sale

By Caroline Salls

Pittsburgh, Oct. 5 - R&G Financial Corp. has entered an agreement with the investors from its 2006 financing transaction that will allow R&G to buy back outstanding warrants upon the sale of wholly owned Florida thrift subsidiary R-G Crow Bank, according to a company news release.

"The transaction is very favorable to the company, as it will permit us to retire all outstanding warrants to acquire RGF common stock, which could potentially in the future have had a significantly dilutive impact on our existing stockholders," R&G president and chief executive officer Rolando Rodriguez said in the release.

"Even though these warrants were currently well out of the money, we had an opportunity to retire them at an insignificant cost, and we believed that taking this action is in the best future interests of the company and its stockholders."

Specifically, R&G said it entered into an amendment to its securities purchase agreement with Elliott Associates, LP and Financial Stocks Capital Partners IV LP under which the dividend due on its series A preferred stock for the dividend period ended Sept. 30 was paid in full.

According to the release, the companies have agreed to file for regulatory permission to pay dividends on the series A preferred stock for the period of Oct. 1 through the closing of a sale back to the company of all 10 million of the series A preferred majority stockholders' warrants to buy shares of the company's class B preferred stock.

R&G has also received permission from the Federal Reserve Bank of New York to redeem the series A preferred stock in connection with the closing of the sale of Crown Bank to Fifth Third Financial Corp.

According to the release, the Crown Bank sale constitutes a change of control of Crown Bank under the series A preferred stock certificate of designation and allows for an automatic redemption of the preferred stock at 110%. In addition, the redemption of the RAC series A preferred stock is a condition to closing the sale agreement with Fifth Third.

The redemption is also a condition of closing of the Crown Bank sale.

Warehouse facilities extended

Also, R&G Mortgage Corp. extended the maturity on its two warehouse credit facilities to Oct. 31 from Sept. 30.

R&G Mortgage said it expects to renegotiate the terms of the credit facilities.

If the lenders under either of the credit agreements stop making advances under the warehousing facilities, accelerate or demand payment of any outstanding amounts or fail to renew the credit facilities beyond their termination dates, R&G said the company's liquidity and operating flexibility would be significantly affected.

Lender status reinstated

In addition, R&G's status as an approved lender for the U.S. Department of Housing and Urban Development has been reinstated.

According to the release, a HUD chief administrative law judge ordered the agency to reinstate R&G's lender status as a result of HUD's failure to properly follow regulations in withdrawing R&G Mortgage as a HUD-FHA Title II approved lender pending R&G's appeal of the withdrawal.

The Federal National Mortgage Association also did not approve Puerto Rican banking subsidiary R-G Premier Bank of Puerto Rico's application to become an FNMA seller/servicer because of recent ratings downgrades and R&G Mortgage's failure to provide current audited financial statements.

As a result, R&G Mortgage must sell its FNMA servicing portfolio to an FNMA-approved mortgage servicer by Oct. 31.

Mortgage loan portfolio sale complete

The company also said R&G Mortgage has completed the $64 million sale of a residential mortgage loan portfolio of primarily sub-performing and non-performing mortgage loans to a private investor.

The sale proceeds were used to repay $55.9 million of outstanding borrowings under its mortgage loan warehousing and working capital credit facilities and to meet some other operational commitments.

R&G said the sale resulted in a $31 million realized loss.

R&G is a San Juan, Puerto Rico bank holding company.

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