South Financial to exchange convertible preferreds in capital plan

By Jennifer Chiou

New York, June 18 - South Financial Group, Inc. announced a capital plan estimated to add about $300 million to $315 million of tier 1 common capital, including a privately negotiated exchange offer for $94.5 million of its mandatory convertible preferred stock.

The privately negotiated exchanges with two investors will involve the issue of a new series 2009-A of preferred stock for the mandatory convertible preferreds. The new preferreds will automatically convert into about 24 million shares upon receipt of shareholder approval.

In addition, the company plans a public exchange offer for the remaining $95.5 million of mandatory convertible preferred stock, which is anticipated following receipt of shareholder approval.

South Financial also said that its plan involves a public offering of $75 million of common stock as well as the conversion of hybrid securities and sales of ancillary businesses, which are estimated to generate capital of $35 million to $50 million.

The company said that these actions will be completed during the second and third quarters.

The issue of the new preferreds is contingent upon completion of the $75 million public stock offering.

New preferreds details

The new series 2009-A preferreds will automatically convert into 253.846 shares each, which is based on an initial conversion price of $3.94 per share.

The new issue is dependent on the two-thirds approval from shareholders of an amendment to the company's articles of incorporation to increase the number of authorized shares to 325 million from 200 million, provided that a conversion will not result in a holder owning more than 9.9% of the company's voting securities.

If the shareholder approval is not obtained by Dec. 19, 2009, the conversion price will be reduced by 20% and will be further adjusted every six months with an additional decrease of 10% of the original conversion price. In no event, however, will the conversion price be reduced to less than 70% of the original conversion price.

Initially, the new preferreds will not pay any dividends. If the preferreds have not been converted by Dec. 19, holders will be entitled to receive quarterly dividends at a rate that will initially be 12% per year and will increase by 1% on Sept. 18, 2010 and thereafter for every six months, subject to a maximum rate of 15%.

Overall, the company said that this capital plan will bolster its capital position to a level that will allow it to weather a more severe economic environment.

Morgan Stanley & Co. is the bookrunner in connection with the common equity offering and has also been retained to act as financial adviser.

South Financial is a Greenville, S.C., financial holding company.

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