Spokane-based AmericanWest Bancorporation to file Chapter 11 bankruptcy
October 27, 2010 2 Comments
The parent company of AmericanWest Bank will file Chapter 11 bankruptcy and “the Court would supervise a competitive bidding process for the Bank’s common stock“. The retail AmericanWest Bank will remain in operation.
While the news sort of spins this story as a positive, here’s the bottom line:
Although completion of the Bank Recapitalization is expected to substantially alleviate, if not eliminate, concerns regarding the ability of the Bank to continue to operate as a going concern in the hands of the Bank’s new owner, it is highly unlikely that the Company will emerge from the bankruptcy proceeding as an operating company. Accordingly, even the successful completion of the Bank Recapitalization will not result in any alleviation of the Company’s “going concern” status on a standalone basis. The Company anticipates that, even after receiving proceeds from the sale of the Bank and paying the costs associated with the bankruptcy proceeding, it will not have sufficient assets to pay creditors in full. The Company further believes it is unlikely shareholders will receive any proceeds from the liquidation.
In other words, the owners of the bank, the common shareholders,will be wiped out and other creditors are unlikely to get all their money back. Wish it could have turned out better for them.
The plan for this re-organization of AmericanWest is considered to be unusual and might be a way for the bank to get out of paying off the creditors of their “trust preferred” securities.
As I understand the trust preferred securities used by banks, it was a way for a bank to borrow money but make the debt look like an equity asset instead of a debt with tax deduction advantages … See this in Bank Director magazine.