Over the past year, Oaktree Capital Management LP has pursued an unorthodox strategy to get into the banking business, underscoring just how attractive the industry is for investors looking for places to put their money.
SKBHC Holding LLC, a venture formed by the downtown L.A. private equity firm in 2009 with several partners, recently acquired 58-branch AmericanWest Bank in Spokane, Wash., out of Chapter 11 for just $6.5 million. The move, believed to be the first of its kind, eliminated the need for regulators to shutter the institution, saving the government more than $300 million and preserving potentially hundreds of jobs.
Scott Kisting, a longtime banker who was brought in to run SKBHC, said the strategy could catch on with investors.
“A lot of people are looking at this,” said Kisting, SKBHC chief executive and chairman.
Billionaires Howard Marks and Bruce Karsh, who co-founded Oaktree, have a reputation for profiting from distress, so it came as little surprise when the firm started angling to invest in the banking industry more than a year ago. However, the firm was restricted from wholly acquiring banks without registering as a holding company, which can be a lengthy and cumbersome process.
Instead, Oaktree formed SKBHC and brought in several partners, including Goldman Sachs Group Inc., raising a total of $750 million. None of the partners took more than a 25 percent stake in the holding company due to regulatory restrictions.
In need of a bank charter, SKBHC sniffed out a tiny Midwest institution, First National Bank of Starbuck in Starbuck, Minn., and arranged to purchase it. After a six-month process, the Federal Reserve approved SKBHC’s acquisition of First National in October.
Around that same time, the company was approached by investment bank Sandler O’Neill and Partners LP about a potential acquisition in the Pacific Northwest. AmericanWest was taking heavy losses, particularly in its construction loan portfolio, and it appeared to be headed toward failure. Executives were searching for a lifeline.
“The CEO of AmericanWest was looking at whatever way he could save his bank from going through receivership,” said Kisting, who thought the bank was in better condition than some other distressed institutions.
The parties developed a plan whereby AmericanWest would file for bankruptcy and SKBHC would provide debtor-in-possession financing, taking bank stock as collateral. SKBHC ultimately picked up AmericanWest for $6.5 million, and pledged to put an additional $185 million of capital into the bank.
“Somebody else could have come in and outbid us,” Kisting said. “It certainly isn’t a risk-free strategy.”
SKBHC, which is still sitting on more than $500 million of capital, is now on the hunt for additional deals with the hope of building a midsize West Coast bank with as much as $15 billion in assets.
“We would really like to become one brand, the AmericanWest brand,” he said.
SKBHC Holding LLC
Corona del Mar
BUSINESS: Bank holding company, backed by private equity firms, including L.A.-based Oaktree Capital Management.
LATEST ACQUISITION: Bought AmericanWest Bank out of Chapter 11 bankruptcy in December 2010.
AMOUNT: $6.5 million
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