Actionable Opportunities in Special Situations: Spinoffs, Bankruptcy, Restructurings


Broadway Financial Corporation (BYFC) raises $10mm in capital, extends its debentures

Broadway Financial Corporation (NASDAQ Capital Market: BYFC), parent of Broadway Federal Bank, f.s.b. (the “Bank”), today reported that it has completed its previously announced plan to raise additional common equity, extend the maturity of the Company’s Floating Rate Junior Subordinated Debentures (the “Debentures”) and implement modifications to the payment terms of the Debentures (collectively, the “Debenture Extension”).

The Company raised approximately $9.7 million of new equity capital through private sales of an aggregate of 1,856,229 shares of voting common stock and 6,973,320 shares of non-voting common stock at a price of $1.10 per share (the “Private Placement”) to twenty-four investors, led by an entity affiliated with Gapstow Capital Partners, and including members of the Company’s Board of Directors and senior management. The other investors included both new and current stockholders. The net proceeds from the placement were used to repay $900,000 of the principal amount of the Debentures at face value, pay all of the accrued interest on the Debentures, which had accumulated to approximately $805 thousand over the past four years, and retire the outstanding principal balance of $2.425 million, and related accrued interest, on the Company’s senior loan due to another bank. The remaining $4.7 million of net proceeds from the Private Placement will be used to fund the Company’s working capital and make an incremental investment into the Bank to support growth.

As a result of these transactions, the Company’s remaining debt consists solely of $5.1 million of Debentures. Debt service requirements have been reduced for the next five years to approximately $142 thousand per year based on current interest rates. The modified terms of the Debentures require quarterly payments of interest only for the next five years at the original rate of 3 Month LIBOR plus 2.54%. Starting in June 2019, the Company will be required to make quarterly payments of equal amounts of principal, plus interest, until the Debentures are fully amortized on March 17, 2024. The Debentures may be called for redemption at any time by the Company.

Giving effect to the Private Placement, the book value of the Company’s common equity is $1.24 per share as of June 30, 2014. The number of shares of common stock has been increased to 29,076,708 shares, including 21,405,188 shares of voting common stock and 7,671,520 shares of non-voting common stock. Based on the assumed uses of proceeds, the Bank’s pro forma Tier 1 Leverage ratio increased to 11.33%, its pro forma Tier 1 Risk-Based Capital ratio increased to 16.77%, and its pro forma Total Risk-Based Capital ratio increased to 18.06%, each as of June 30, 2014.

Chief Executive Officer Wayne-Kent Bradshaw stated, “Consummation of the Private Placement and Debenture Extension represent the final chapter in the restructuring of the Company’s balance sheet. In conjunction with the improvements in the quality and performance of our loan portfolio, we are now able to devote our attention to producing profitable growth and enhancing operations for our investors. We are especially pleased that several of the investors that participated in our Recapitalization in August 2013, including Gapstow Capital Partners, National Community Investment Fund, Economic Resources Corporation, and the California Community Foundation, elected to invest additional funds in the Private Placement in support of our mission of serving low-to-moderate income communities in Southern California. In the near term, we will accelerate our efforts to improve operations and pursue growth, and continue our efforts to remove the restrictions under our regulatory orders.

“Finally, on behalf of the Board of Directors I would like to express our sincere thanks and appreciation to the members of the local communities that we serve, our employees, and all of our stockholders for their patience and enduring support through the extended process that was required to successfully return Broadway and the Bank to a solid financial foundation. Your support is a strong testimony to the strength of Broadway’s brand and position in Southern California, and enables the Company to continue to be a leader in serving low-to-moderate income communities in Southern California.”

Jack Thompson, Head of Financial Institutions Investments of Gapstow Capital Partners, commented, “We are proud to help Broadway Financial complete its financial restructuring so that the Bank can continue making loans to foster local businesses and provide affordable housing to low-to-moderate income families in Southern California. Gapstow Capital Partners has invested in a number of community banks that, like Broadway Financial, are the lifeblood of their communities. We believe that their health is a vital component of the overall economy.”

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