In its press release issued on May 4, 2011, Bryan Cave client Brand Group Holdings, Inc. (the “Company”) announced the successful completion of its recapitalization.  The total amount raised in the initial phase of this effort was $125 million, and the three largest investors in the recapitalization, affiliates of The Carlyle Group, The Stephens Group, and the Cousins’ family, invested approximately $96 million, with various other investors investing approximately $29 million.  The investors have agreements in place with the Company to invest an additional $75 million in capital at a later date.

A unique feature of this transaction is a valuation adjustment that utilizes a stock escrow arrangement.   Some of the purchased shares will revert from the new investors to the legacy shareholders if the existing loan portfolio performs better than the investors have projected.

As a result of the recapitalization, the Company is among the best capitalized financial institutions, among those with over $1 billion in assets, in Georgia. The Company’s Total Risk-Based Capital Ratio stands at over 24%.  The Company anticipates that its wholly owned subsidiary bank, The Brand Banking Company, will use proceeds from the recapitalization to enhance its current offerings and expand into new banking services.

Bryan Cave LLP represented the Company in the recapitalization and has significant experience in dealing with capital improvement alternatives and the regulatory issues surrounding those alternatives.  B.T. Atkinson in Bryan Cave’s Charlotte office, and Walt Moeling and Dustin Hall in Bryan Cave’s Atlanta office led the team working on the transaction.

Our key takeaway from this effort is the need to be patient on recapitalization transactions for bank holding companies.  The parties were in discussions with the staff of the Federal Reserve for approximately one year, and six months elapsed between the signing of the definitive investment agreements and the initial closing.   In light of the complexity and uniqueness of this transaction these timeframes were very good.

We commend both the Federal Reserve Bank of Atlanta and the Federal Reserve System Board of Governors for being open to creative approaches to solving some of the more difficult obstacles to recapitalizations of community bank holding companies.  But parties interested in pursuing transactions of this type need to be prepared for multiple rounds of questions and comments regarding the terms of the transaction, the investors, and their affiliates, and also need to be flexible as the issues are addressed.