Southeast Banking Corporation (Southeast) was a two-bank holding company located in Miami, Florida. Although the resolution of Southeast’s two banks is notable for several reasons, the primary reason is that it was one of the first times the Federal Deposit Insurance Corporation (FDIC) used a transaction known as loss sharing. The loss sharing agreement for the two Southeast banks was a part of a purchase and assumption (P&A) transaction in which the acquiring institution, First Union National Bank of Florida (First Union), Jacksonville, Florida, a subsidiary of First Union Corporation (First Union Corp.), Charlotte, North Carolina, purchased $10.1 billion of the failed banks’ assets. First Union then managed and liquidated the assets under a loss sharing agreement that required the FDIC as receiver to reimburse First Union for a substantial portion of its losses on purchased assets for a period of five years. The program was successful, and the FDIC recovered all of its principal expenditure for the resolution of the two banks.
FDIC Case Study:
The net operating carryforwards (NOLCF) of SEBC as of December 31, 2005, was $801,586,099. According to SEBC’s 10Q filing for the fiscal year ended December 31, 1990, there were 34,329,064 shares of common stock outstanding as of that date. The amount of NOLCFs per share is $23.35.
However, the Depository Trust Company details only about 12.4 million book-entry shares outstanding. Thus, there is a large number of shares held in certificate form which are held by "lost" shareholders.
Confirmed Third Amended Plan Chapter 11 Plan of Reorganization (3/13/09)
Planned Business of Reorganized SEBC, SEBC Holdings LP and SEBC Real Estate LLC
The Plan proposes to authorize the Transaction in which SEBC will invest the existing SEBC cash and other assets and the Investor will invest new funds ($1.639 billion) to restructure SEBC into appropriately organized entities to take advantage of the existing SEBC assets and continue the remaining business activities of SEBC. The Transaction will benefit the holders of existing SEBC Preferred and Common Shares, the holders of existing SEBC General Unsecured Claims, the holders of existing SEBC Notes and the Investor.
The Investor receives: (1) 300,000,000 shares ($300 million aggregate face amount) of Reorganized SEBC Series A Senior Preferred Stock; (2) 718,000,000 shares ($718 million aggregate face amount) of Reorganized SEBC Series B Senior Preferred Stock; (3) 611,000,000 shares ($611 million aggregate face amount) of Reorganized SEBC Series J Junior Preferred Stock; (4) 5,000,000 shares of Reorganized SEBC Class B Common Stock, representing 20% of the outstanding Reorganized SEBC Common Stock on a fully diluted basis; and (5) 5,000,000 shares of Reorganized SEBC Class C Common Stock, representing 20% of the outstanding Reorganized SEBC Common Stock on a fully diluted basis.
Reorganized SEBC will be renamed SEBC Financial Corporation to reflect the nature of the historic SEBC business activities it will continue. SEBC Financial will receive the investment of existing cash from SEBC and new cash from the Investor, and will engage in investment and management of primarily fixed income financial instruments and other financial assets to earn a return on such investments. SEBC Financial will also hold a $9 million loan from SEBC Real Estate LLC, the activities of which will be described below, and will lend up to $600,000 to SEBC Holdings LP the activities of which will be described below. SEBC Financial will use its cash to purchase from another newly-created entity, the Investment Vehicle, the Investment Vehicle Senior Securities (consisting of senior preferred equity). The Investment Vehicle, in turn, will use the proceeds from the issuance of the Investment Vehicle Senior Securities to SEBC Financial and other equity to acquire and manage a portfolio consisting of fixed-income instruments to be acquired by the Investment Vehicle from an affiliate of Investor. Income earned on SEBC Financial investments will, to the extent not needed to pay dividends on the SEBC Financial preferred stock, be reinvested in high quality investments as specified in the SEBC Financial Charter. Upon the maturity, redemption, repayment, repayment, sale, exchange or other disposition of the Investment Vehicle Senior Securities, the proceeds received must be reinvested in eligible portfolio investments, which are limited to financial assets that have a fixed term and will generate sufficient income to pay quarterly dividends on the SEBC Financial preferred stock. The determination of such reinvestments will be made by the SEBC Financial Board, a majority of which will be determined by SEBC Holdings through the SEBC Holdings General Partner. Depending upon the success of the business, SEBC Financial could later undertake a broader array of financial businesses and/or distribute the allocable portion of the earnings from Investor’s equity investment to SEBC’s creditors and equity holders, including SEBC Holdings.
Based upon the structure of the planned investment by the Investor and the use of the existing SEBC cash, it is anticipated that, like the historic banking and financial investment activities of SEBC, there will be a positive spread between the cost of funds to SEBC Financial and its earnings from the investment of those funds. The returns anticipated from such investments will fund the operations of SEBC Financial and payments to its preferred and common shareholders. As SEBC Financial will be organized as a corporation, its activities will be managed by a Board of Directors and Officers, governed by the Charter and Bylaws as described in the Disclosure Statement. The initial Directors and Officers are identified elsewhere in this Plan Supplement. As provided for in the Plan and as described in the Disclosure Statement, the existing holders of SEBC Common and Preferred Stock and existing holders of SEBC General Unsecured Claims and Notes will retain direct and indirect ownership of a portion of the preferred securities and 60% of the Common Shares of SEBC Financial. In particular, the existing holders of SEBC Common Stock will own 100% of the Common Units of SEBC Holdings, which will own 60% of the Common Shares of SEBC Financial. The Investor will retain ownership of the remaining preferred securities and the remaining 40% of the Common Shares of SEBC Financial.
SEBC Holdings, a limited partnership, has been named to reflect the nature of the role it will play in the continuation of the historic SEBC business activities. SEBC Holdings will be the nexus of the combination of all the continuing business activities of SEBC. Rather than having direct operations itself, it will hold interests in the two entities that will have such operations. SEBC Holdings will retain 60% of the Common Shares of SEBC Financial and 100% of the ownership interests in SEBC Real Estate. In its role as the nexus of such activities, it will derive its revenues from its holdings, namely dividends from the Common Shares of SEBC Financial and all the income from SEBC Real Estate over the costs of SEBC Real Estate operations and the repayment of the $9 million note from SEBC Real Estate to SEBC Financial. In addition, to the extent necessary to fund the operations of SEBC Holdings, SEBC Financial will lend up to $600,000 to SEBC Holdings. The Common Units of limited partnership interest will be held by the current holders of the SEBC Common Shares. The preferred securities of SEBC Holdings will be held by holders of current SEBC General Unsecured Claims, holders of current SEBC Notes, holders of current SEBC preferred shares, and the Investor. As a limited partnership, SEBC Holdings will be managed by a General Partner and governed by a Limited Partnership.
SEBC Real Estate
SEBC Real Estate,`a limited liability company, has been named to reflect the nature of the historic business activities of SEBC that it will continue. SWQ Holdings, Inc. ("SWQ"), Southeast Properties, Inc. ("SEPI"), First Pioneer Corporation ("First Pioneer") and First Pioneer’s wholly owned subsidiary, Second Pioneer Corporation ("Second Pioneer"), the existing SEBC subsidiaries that have invested in and currently own, manage and market for sale their real estate assets, will be converted to limited liability companies. Second Pioneer will continue to be wholly owned by First Pioneer. SWQ, SEPI and First Pioneer will become wholly owned affiliates of SEBC Real Estate, which, as indicated above, will be wholly owned by SEBC Holdings. The existing real estate is unencumbered. As part of the Transaction, SEBC Real Estate will be obligated to SEBC Financial for payment of a $9 million note. First Pioneer, Second Pioneer, SWQ and SEPI will continue the same real estate ownership, investment management and marketing for sale activities in which they have been engaged. It is intended that they will do so with the intent to maximize the value of their real estate and related holdings for the benefit of payment of the $9 million note and distribution of proceeds to SEBC Holdings. SEBC Real Estate will be managed by SEBC Holdings.
Southeast Banking Corporation Global Settlement website: