OCC Approves BB&T-BankAtlantic Deal

The Office of the Comptroller of the Currency (OCC) has approved BB&T Corporation’s ( BBT - Analyst Report ) plan to acquire BankAtlantic, a wholly owned subsidiary of BankAtlantic Bancorp Inc. ( BBX ) . OCC has given consent based upon the fact that no further changes will take place in the deal terms.

BB&T-BankAtlantic deal is expected to close by the end of the second quarter of 2012. Prior to the closure, BankAtlantic must receive approval from the Federal Reserve. Similarly, BB&T should also get the necessary consent from the Fed and Federal Deposit Insurance Corporation (FDIC). BB&T has already received the permission of the North Carolina Office of the Commissioner of Banks.

Earlier, on March 13, when BB&T’s deal to acquire BankAtlantic was opposed in court, BB&T had to modify certain terms of the agreement. Apart from the earlier deal terms, BB&T will also assume BankAtlantic Bancorp’s obligations related to the outstanding trust preferred securities (TruPS) having a balance of about $285 million.

As per the new terms, BB&T will get 95% preferred interest in a newly established LLC that would consist of a $423 million pool of loans and $17 million of other net assets as of January 31, 2012. The pool of loans represents a part of those loans, which were originally anticipated to be retained by BankAtlantic Bancorp pursuant to the original agreement. However, the acquisition excludes all legal and other liabilities other than these outstanding TruPS of BankAtlantic Bancorp.

Additionally, BankAtlantic Bancorp will also provide BB&T with an incremental $35 million guarantee to further assure the recovery of $285 million of assumed liability. The LLC assets will be monetized over time and once BB&T recovers $285 million in preference amount, the company’s interest in the LLC will cease to exist.

Back in November 2011, BB&T had announced its plan to acquire BankAtlantic. Under the terms of the deal, the company would acquire $2.1 billion in loans and $3.3 billion in deposits (90% core and low-cost funds) for $301 million premium. This represents 9.05% of the deposits at BankAtlantic on September 30, 2011, plus the net asset value of the bank. However, deposit premium could rise or fall, based on the amount of deposits at BankAtlantic prior to the closing of deal, not exceeding $315.9 million.

However, a group of corporate debt investors of BankAtlantic, led by Hildene Capital Management and Alesco Preferred Funding, filed a lawsuit against the firm to prevent it from selling its loans, deposits and branches to BB&T. These investors believe that the sale infringes the terms of their creditors’ agreement.

The plaintiffs accused both BB&T and BankAtlantic of structuring the transaction in such a way that the acquirer can evade the TruPS obligations. They accused BankAtlantic Bancorp of breaching an agreement by stating that the transfer or sale of majority of its assets will not happen without ensuring that the acquirer will also assume these TruPS.

The plaintiffs also stated that following the closure of the transaction, BankAtlantic Bancorp would become a holding company with no branches and will own a large amount of nonperforming loans and foreclosed real estate assets. Therefore, the company will no longer resemble its present operations.

The BB&T-BankAtlantic deal is expected to be highly advantageous to both the companies. For BankAtlantic, the agreement will resolve some of its balance sheet and higher operating expense related problems.

For BB&T, the transaction will enable it to speed up its expansion strategy in the Florida region. Also, the deal will add 78 branches to the company’s 64-branch network in the Florida region. Besides substantially increasing the company’s market share and footprints, the acquisition would also improve its top line over the medium term.

Currently, the shares of BB&T retain a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.