February 23, 2012
Authored by: Robert Klingler
On February 15, 2012, Broadway Financial Corporation announced that it had reached a definitive agreement with the Treasury Department pursuant to which Treasury will exchange preferred stock in the company for new common stock valued at a discount of 50% to the aggregate liquidation preference of the outstanding shares of preferred stock held by Treasury. As previously noted, while Treasury is unwilling to consider a blanket discount on the repayment of TARP, it remains open to restructuring its investment to facilitate additional capital, so long as it is treated equitably with other investors.
Although exact terms of the agreement are not yet publicly available, the company’s press release indicates that Treasury has agreed to convert its TARP CPP investment in the company into common stock at 50% of its liquidation value and the accrued unpaid interest on such investment at 100% of the accrued amount. The conversion is condition on a number of factors, including: (i) the exchange of the Company’s other preferred stock at the same 50% discount; and (ii) at least $5 million being raised in new common equity.
The company has previously announced that it had an agreement in principal with its senior bank lender to exchange a portion of its senior line of credit, which is in default, for common stock at 100% of the face amount to be exchanged and to forgive the accrued interest on the entire amount of the senior line of credit. In the company’s 3rd Quarter Form 10-Q, the company indicated that these conversions would result in the issuance of approximately 7.5 million new shares of common stock, which in turn would constitute approximately 80% of the pro forma outstanding shares.