Capitol Bancorp offers common stock in exchange for trust preferreds

By Angela McDaniels

Tacoma, Wash., Dec. 23 - Capitol Bancorp Ltd. is offering common stock in exchange for $170.8 million of outstanding trust preferred securities, according to a company news release.

The trust preferreds subject to the offer include:

• $25.3 million issued by Capitol Trust I;

• $10 million issued by Capitol Trust II;

• $15 million issued by Capitol Trust III;

• $3 million issued by Capitol Trust IV;

• $10 million issued by Capitol Trust VI;

• $10 million issued by Capitol Trust VII;

• $20 million issued by Capitol Trust VIII;

• $10 million issued by Capitol Trust IX;

• $33 million issued by Capitol Bancorp Trust X;

• $20 million issued by Capitol Trust XI; and

• $14.5 million issued by Capitol Trust XII.

The company plans to issue up to 170 million new shares in exchange for the trust preferreds, according to a schedule 14A filed with the Securities and Exchange Commission.

The company's common stock closed at $0.44 (NYSE: CBC) on Dec. 22. At that price, the 170 million shares would be worth $74.8 million.

The deadline for the offer and the number of shares being offered per trust preferred were not disclosed.

The company said the exchange offer is being made to strengthen its equity base by increasing its tier 1 tangible common equity component while also reducing or potentially eliminating the $16 million annual interest expense associated with these securities.

Capitol Bancorp has incurred significant losses from operations in periods since 2007. It said this has led to a material erosion of its common equity and related regulatory capital levels, resulting in the company becoming classified as less than adequately capitalized from a regulatory perspective.

When the trust preferreds were originally issued, they made up a "crucial element" of the company's compliance with regulatory capital requirements because they were a material component of regulatory capital, according to the release.

Capitol Bancorp said that because of its weakened financial condition and recent changes affecting the ability of bank holding companies to include trust preferreds in regulatory capital computations, a small portion of its trust preferred are included in its current regulatory capital measurements and will cease to be includable in the future.

Interest payments on the trust preferreds have been deferred since mid-2009.

The exchange offer is part of the company's capital strategy focused on enhancing its common equity and regulatory capital levels. The capital initiatives also include a shareholder rights offering, development entity exchange offers and a potential reverse stock split.

Capitol Bancorp is a banking company with head offices in Lansing, Mich., and Phoenix.

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