We find ourselves in the middle of one of the greatest wealth transfer periods of all time. Those with wealth must decide whether they want to make transfers, and if they do, they must decide how much, to whom, when and in what structure?
GREELEY – Six months after federal regulators stepped in to liquidate Greeley’s New Frontier Bank, it appears they are still working to sell off its largely troubled assets.
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The Federal Deposit Insurance Corp., charged with liquidating the assets of failed institutions, has recently listed the former New Frontier offices in Longmont and Windsor for sale on its website for $1.92 million and $1.84 million respectively.
Various New Frontier loans are also listed. FDIC sales records indicate that an auction that closed on Sept. 3 garnered about 25 cents on the dollar for a portfolio of 415 performing and non-performing loans carrying a book value of $472.67 million. A Sept. 17 sale netted about 38 cents on the dollar, with a 1,780-loan portfolio valued at $102.85 million selling for $38.59 million.
The first New Frontier loan portfolio listed contained $455 million in agricultural loans with due diligence starting on July 20 and bid day on Aug. 18. Another $250 million portfolio of performing and non-performing New Frontier agricultural loans was opened up for due diligence more recently, with bids due on Oct. 20. Closing and transfer of the winning bids is set for Nov. 5.
Tranches of New Frontier loans have also been packaged with loans from other closed banks. In an offering that closed on Sept. 29, New Frontier loans were among those of eight other failed institutions. The 142 loan participations included in the portfolio carried a book value of about $301 million. Another portfolio of $106 million commercial real estate and commercial and industrial Small Business Administration loans includes New Frontier assets among 14 other banks. Bidding on that portfolio closes on Oct. 27.
Greeley-based Bank of Choice successfully bid on a handful of loans that were part of $150 million of commercial loans from New Frontier that closed early in the fall. According to sales records, Bank of Choice picked up 20 non-performing commercial loans with a book value of $49.42 million for $14.88 million. President Darrell McAllister said it’s the first time his bank has participated in such a bid.
“We don’t consider it an ongoing line of business,” he said.
Rather, he describes the bid as a defensive action, since several of the customers in the group were also customers of Bank of Choice. Bank officers knew the customers and the assets in questions, so it seemed like a safe bet. Bank of Choice could ultimately be protecting its own notes since an out-of-market investor might put more pressure on the shared customers resulting in bankruptcy.
To prepare the bid, Bank of Choice officers had to pore over thousands of pages of documents. While they knew the shared customers’ assets inside and out, some of the other loans in the package were unknown. Even with due diligence, there were a few surprises after the fact.
“A file is an interesting thing,” McAllister said. “It tells you a lot, but it’s what it might not show that can be a problem.”
Despite the surprises, Bank of Choice still believes it will make a profit on the bids even without collecting every penny owed.
While Bank of Choice is in a good position to assess the New Frontier loans for sale, investors probably don’t have that same opportunity. That could be especially troublesome with agricultural loans, according to fellow Greeley banker Leroy Leavitt, president of New West Bank.
“It’s hard to do your due diligence from an e-file,” Leavitt said, referring to the electronic documents available to qualified bidders.
Risks and returns
Adding to the difficulty with agricultural loans is the complexity of the business cycles and variability of the conditions and, therefore, value of the assets. Investors willing to take the risk are likely looking for big returns in a relatively short amount of time.
Leavitt explained that such a situation doesn’t have to be a negative one for the borrower. He described a hypothetical situation in which an investor could win a bid for a loan at 20 cents on the dollar and turn around and “sell” it to the borrower for 50 cents on the dollar. The investor makes a profit and the borrower’s debt is essentially forgiven for half of what is owed.
“I think a lot of (loan investors) will want to get in and double or triple their investment,” Leavitt said.
It is unclear whether the continuing portfolio offerings are the result of a rolling method of listing and selling the assets or if some of the bid offerings have been unsuccessful and the loans relisted in new packages. The actual amount of loans still not sold or out for bid is also unclear, since calls and e-mails by the Business Report to FDIC representatives seeking a clarification have not been answered since early September. Less than two weeks before its April 10 closure, New Frontier reported total loans of $1.44 billion.
Even if the public can’t keep an eye on the details of New Frontier’s liquidation, Colorado’s federal legislators are. Congresswoman Betsy Markey and Sens. Mark Udall and Michael Bennet have been active in asking for action and assistance for New Frontier customers, especially those in the agricultural community.
Markey spokesman Ben Marter said that she and her staff are in contact with agricultural borrowers impacted by the New Frontier closure on an almost daily basis. He also pointed out that she has access to speak directly with the highest officials in the FDIC.
“We’ve been acting as a bullhorn for Northern Colorado in Washington to make sure this remains a top concern,” he said. “The congresswoman is holding the FDIC’s feet to the fire.”