Certain Colorado National Bancorp noteholders raised questions about the company's conclusion that a proposal to acquire Colorado National Bank by Marks Moskvins is "financially and otherwise superior" to any other offer it received for the institution during a process that began in June 2015.
Moskvins, the founder, CEO and controlling shareholder of Latvian electronic money institution Transact Pro, and Maksims Jarosevskis entered a stock purchase agreement Nov. 8 to acquire the outstanding shares of Colorado National Bank for consideration equal to the bank's tangible common equity at the time of closing. The agreement, which would be executed under Section 363 of the U.S. Bankruptcy Code, also contemplates that the acquirers will recapitalize Colorado National Bank with an equity contribution of at least $2 million.
Colorado National Bancorp creditors representing nearly $2.9 million of the $4.7 million in aggregate principal amount of notes issued in 2013 by the company commenced a collection action in state court in June 2016, and they won summary judgment in January. The holding company reported $5.4 million in assets, largely consisting of the bank's stock, and $8.8 million in liabilities, according to a bankruptcy court filing.
The official committee of the holding company's creditors alleged that Colorado National Bancorp entered the agreement after having "unilaterally abandoned an agreed recapitalization proposal." That transaction, the committee said in a court filing dated Nov. 30 that objects to a motion to facilitate the auction and sale of the Colorado National Bank stock, would have seen existing Colorado National Bancorp noteholders convert their debt to equity and make a $3 million capital infusion to the bank. Executives of the holding company and the banking unit would have been replaced by candidates proposed by the noteholders, subject to regulatory approval.
Colorado National Bancorp listed the proposed reorganization among several of the options that it considered ahead of entering the stock purchase agreement. The company said it first engaged in efforts to recapitalize, sell, or merge it and/or the bank in June 2015 and that it had directed its efforts to a sale or merger of the bank since October 2015.
It retained Atlantic Merchant Capital Advisors LLC in January 2016 to help solicit offers and provide advisory services regarding potential transactions. The firm identified 52 potential buyers or merger partners of which 15 signed nondisclosure agreements, but only two indications of interest emerged from those parties. Though Colorado National Bancorp said it engaged in "extensive discussions" over the course of "several months" with one interested party, that unnamed entity failed to produce a business plan, information regarding capital sources and other information deemed necessary to evaluate the proposal's potential value.
The noteholders formally rejected an offer that emerged in March from an unnamed bank holding company to acquire the bank for $3 million. Colorado National Bank had tangible common equity of nearly $5.1 million as of March 31 and just over $4.9 million as of Sept. 30.
Regarding the noteholders' proposed reorganization, Colorado National Bancorp confirmed the receipt of a nonbinding proposal in May. It received the letter of intent from Moskvins in mid-July.
Moskvins proposed in that letter to change the bank's name to TransactBank NA after closing. He noted that Transact Pro was the first electronic money institution licensed by the Latvian Financial and Capital Market Commission to render payment services.
The committee alleged that the proposal with Moskvins, who has "no experience in banking," would involve "virtually the highest degree of execution risk possible due to the high degree of regulatory scrutiny given to payment processing companies who try to purchase banks and to individuals who have no banking experience." It demanded that Colorado National Bancorp disclose information showing that the proposed acquirers are financially capable of closing, and it warned that "[a]t best" the transaction faces a "prolonged" regulatory approval process given the would-be buyers' background.
Under the timeline proposed by Colorado National Bancorp, the U.S. Bankruptcy Court for the District of Colorado is scheduled to convene a hearing on the company's bidding procedures motion Dec. 6. Competing bidders would have 21 days from the date of the court's entry of the bidding procedures order to submit an offer, and an auction would follow seven days later to the extent any qualified bids emerge.
The creditors' committee argued that the proposed timeline was designed so as to ensure Moskvins and Jarosevskis, the stalking-horse bidders, obtain Colorado National Bank "with no reasonable opportunity for outside competition." It characterized the process as "unjustifiably hurried" and alleged that it would "chill bidding and prevent a possible reorganization," proposing instead that creditors should be given 120 days to determine whether a debt-for-equity reorganization plan would represent a "more attractive alternative."
