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Florida-based BHC files bankruptcy protection to facilitate 363 bank sale

Sarasota,Fla.-based Bank of CommerceHoldings Inc. filed for protection under Chapter 11 of the U.S.Bankruptcy Code to facilitate the sale of its banking unit after a marketing processthat spanned several years and involved multiple investment banking firms.

Bankof Commerce Holdings President and CEO Charles Murphy said in an affidavitfiled Sept. 22 in the U.S. Bankruptcy Court for the Middle District of Floridathat the company has agreed to sell Bank of Commerce to Chattanooga, Tenn.-based investor P.Byron DeFoor, subject to a court-supervised auction under Section 363 of thebankruptcy code, for total consideration of $1.75 million and a commitment torecapitalize the bank with an equity contribution of $4.7 million.

Theholding company claimed $320,676 in assets and $12.2 million in liabilities inthe filing. M&T BankCorp. unit WilmingtonTrust Co., acting solely in its capacity as institutional trustee,was included on the holding company's list of largest unsecured creditors inconjunction with separate claims in the amounts of $5.9 million and $5.8 million.The unsecured claims relate to subordinated debt referencing trust preferredsecurities issued by Bank of Commerce Statutory Trust I and Bank of CommerceStatutory Trust II, and Murphy reported that those instruments are currentlyheld by the Preferred Term Securities XX Ltd. and Preferred Term SecuritiesXXIII Ltd. CDOs.

Murphysaid that $1 million of the proceeds from the bank's sale would be earmarked tosatisfy $5 million in face amount of subordinated debt at the bank level undera pre-petition compromise. The balance would be left to provide a distributionfor the holding company's unsecured creditors.

ThePreferred Term Securities XV Ltd. CDO holds the bank's subordinated debt. Itsholders eventually consented to selling the securities to DeFoor at a discountfollowing a series of solicitations through trustee

"Ithink this is a positive," said Brett Jefferson, president and chiefinvestment officer at HildeneCapital Management LLC, which manages funds that hold notes issuedby PreTSL XV. Jefferson said he assisted in the solicitation process.

"Becauseof the sub debt [at the bank level], this isn't one where you can just go tobankruptcy court and figure it out," said Jefferson, whose firm hascontested several previous 363 bank sales in the post-financial crisis era. Forthat reason, he described Bank of Commerce's predicament as a "very, veryunique, 1%-type situation."

Thebankruptcy filing marks the culmination of years of efforts by the company toraise outside capital and attract new investors that date back to the March2011 issuance of awritten consent order involving the bank, the FDIC and the Florida Office ofFinancial Regulation.

Murphysaid the company retained Keefe Bruyette & Woods Inc. in 2013 to assist inits recapitalization efforts. The firm contacted more than 40 potentialacquirers and investor groups, including DeFoor, who had purchased majoritystakes in what is now known as Millennium Bank in Ooltewah, Tenn., and, , Gastonia, N.C.-basedAB&T FinancialCorp. Of the parties KBW contacted, Murphy said, only DeFoor showedcontinued interest.

Theyeventually negotiated a prepackaged bankruptcy plan through which DeFoor wouldinvest $6 million toward a proposed $8 million capital commitment in exchangefor a 77% equity stake in the reorganized Bank of Commerce Holdings. But Murphysaid that the company, "hampered" by the difficulty it faced inobtaining the required consent from supermajority of PreTSL noteholders, wasnot able to win acceptance of the plan.

Bythe fall of 2015, he said, the company retained Hovde Group to seek potentialacquirers in an outright sale of the bank. Hovde contacted 18 potentialacquirers, but none of them showed continuing interest.

DeFoorrenewed his pursuit of a transaction earlier this year. He and the bank entereda letter of intent in March for an acquisition and simultaneousrecapitalization, conditioned upon addressing the bank's subordinated debt.Bank of New York Mellon provided notice on Sept. 2 that the requisite amount ofPreTSL XV noteholders had accepted a modified proposal — one that provides thatany additional consideration resulting from a prospective court-supervisedauction of the bank would flow first to the bank subordinated debt.

"Insum, for over five years, through multiple investment bankers and a series ofproposals, the Debtor has exhausted every conceivable option to attempt toidentify a buyer or capital investor in order to conform to the terms of theConsent Order," Murphy said. "The proposal before the Courtrepresents the culmination of those efforts."

Thetransaction is subject to regulatory approval, an auction to the extentqualified bids emerge under a framework that is subject to court approval, andsign-off by a bankruptcy judge.

Legalcounsel to the seller is Peter Haley of Nelson Mullins Riley & ScarboroughLLP. Michael Marshall Jr. of Miller & Martin PLLC is counsel toDeFoor.