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Originally published May 3, 2010 at 7:37 AM | Page modified May 4, 2010 at 6:23 AM

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Sterling Financial adds to its rescue package

The parent of troubled Sterling Savings Bank is filling in the pieces of a $725 million recapitalization plan — on terms that steeply discount its current stock price and substantially dilute shareholders.

Seattle Times business reporter

The parent of troubled Sterling Savings Bank moved Monday to fill in the missing pieces of its recapitalization plan, announcing a $555 million private placement and boosting the size of a companion investment.

The private placement, to unidentified institutional investors, would involve selling 221.9 million shares of Sterling Financial common stock at 20 cents a share — a big discount to the current price — as well as 5.5 million shares of convertible preferred stock at $92 a share.

Those preferred shares would be convertible into a total 2.6 billion additional common shares, each with a nominal value of 20 cents.

The terms mirror those of the planned investment by Thomas H. Lee Partners (THL), a Boston private-equity firm. Sterling said Monday THL would increase its investment from the $134.7 million announced last week to $170 million.

Together, the two deals would raise $725 million, enough for Spokane-based Sterling to meet all its regulatory capital requirements.

However, they would substantially dilute the stakes of Sterling's existing shareholders. The company now has less than 52 million shares outstanding.

THL would end up with a 24.9 percent stake in Sterling Financial, according to the company's announcement.

The parent company said it would contribute the proceeds of the recapitalization deals to Sterling Savings Bank, which is undercapitalized according to two key regulatory ratios. With $10.6 billion in assets, Sterling is the second-largest bank headquartered in Washington.

Both deals are contingent on the U.S. Treasury Department, which pumped $303 million into Sterling Financial as part of the Troubled Asset Relief Program, signing off on a trade of its preferred stock for common stock valued at $75.75 million, or 20 cents a share. The Treasury already has agreed in principle to such a trade.

Sterling Financial shares fell 18 cents Monday to 69 cents. The stock had closed at $1.58 on April 26, the day before the THL deal was announced.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

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