Capitol Bancorp Ltd.(fka CBCRQ)

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Capitol Bancorp Settles With Creditors, Clears Way for Deal With Ross's Talmer
DOW JONES & COMPANY, INC. 3:40 PM ET 1/2/2014
Symbol Last Price Change
CBCRQ 0.0018 0.0001 (5.88%)
QUOTES AS OF 03:47:48 PM ET 01/02/2014
Capitol Bancorp Ltd. (CBCRQ) has reached a settlement with unsecured creditors that will allow the bank-holding company to close on its sale to Wilbur Ross'sTalmer Bancorp Inc. after months of fighting.

With this deal, creditors have agreed to support Capitol's bankruptcy-exit plan after 99% of general unsecured debt and 61% of trust-preferred securities debt, or TruPS, voted in mid-December to reject it. These groups are owed $20.8 million and $2.35 million, respectively.

The settlement provides slightly better treatment for creditors and caps Capitol's winddown budget at $1.5 million.

"The Settlement Agreement will permit the Plan to proceed through confirmation largely unopposed and will allow the Debtors to avoid extensive and complex litigation, delay and risk, as well as the incurring of additional professional fees and costs related to these issues," Capitol Bancorp(CBCRQ) said in documents filed Tuesday.

As part of the agreement, Capitol and its creditors are pushing back a hearing on confirmation of the plan to Jan. 21 from Jan. 7 and have requested that Judge Marci B. McIvor of the U.S. Bankruptcy Court in Detroit consider approval of the settlement before then.

Late last year, Judge McIvor dealt a blow to unsecured creditors by approving the sale of Capitol Bancorp(CBCRQ), despite their protests that Talmer's offer significantly undervalued the banks. Judge McIvor agreed with Capitol's management that after 15 months in bankruptcy, the holding company had run out of time to strike a deal with another investor.

Still, confirmation of Capitol's bankruptcy-exit plan remained a final hurdle for the Talmer sale.

Talmer, a Michigan-based holding company that Mr. Ross has used in recent years to buy a number of struggling banks in the Midwest, has agreed to invest $ 97 million to take over Capitol Bancorp's(CBCRQ) stakes in its four remaining banks-- Bank of Las Vegas, Indiana Community Bank, Michigan Commerce Bank and Sunrise Bank of Albuquerque.

Earlier in the case, Capitol agreed to funnel 85% of the proceeds of the sale to the Federal Deposit Insurance Corp. in exchange for the FDIC's agreement to waive its "cross-guaranty" claims against Capitol's other banks. These claims were the result of the FDIC's seizure of five of Capitol's banks in recent months, which the bank regulator estimated had cost its deposit insurance fund about $61 million.

As the receiver for the failed banks, the FDIC could have gone after Capitol's remaining bank subsidiaries, forcing the banks into receivership and scuttling a sale completely. But the settlement leaves only 15% of the sale proceeds for creditors of Capitol's bankruptcy estate.

Capitol Bancorp (CBCRQ), a Lansing, Mich., bank-holding company that filed for Chapter 11 protection in August 2012, once operated 64 small banks in states including Arizona, Michigan and Nevada, areas that were particularly hard hit when the nation's housing bubble burst.

--Patrick Fitzgerald contributed to this article.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Write to Stephanie Gleason at [e-mail]

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01-02-141540ET
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