Capitol Bancorp of Michigan Makes Chapter 11 Filing

Capitol Bancorp Ltd., (CBCR) a Lansing, Michigan, lender, filed for bankruptcy with a prepackaged reorganization plan after a proposed restructuring failed.

Capitol Bancorp, in its Chapter 11 petition filed today in U.S. bankruptcy court in Detroit, listed total assets of $112.2 million and debt of $195.6 million.

The company also reported today a net loss of $10.3 million in the quarter that ended June 30, compared with a loss of $16.4 million a year earlier. The loss was due to “continued costs associated with problem asset resolution.”

“Capitol continues to focus on liquidity to manage its balance sheet in the face of ongoing economic challenges and regulatory constraints,” the company said in its earnings release today.

Capitol Bancorp announced in June a voluntary restructuring plan in which debtholders were asked to exchange their debt for preferred and common stock. Conditions for the offer “were not met,” the company said today.

In the prepackaged plan filed today, current debt and equity will be converted into new common stock representing 53 percent control of the company after it emerges from Chapter 11. Capitol Bancorp said it’s also seeking as much as $115 million in new equity financing, which would give the potential investors 47 percent of the company.

The bank, founded in 1988, had announced plans to sell controlling interests in several affiliated banks. Two deals that closed in July and another now under agreement represent $200 million in assets, the company said.

Capitol Bancroft said it reduced its operating expenses in the second fiscal quarter, as well as its provision for loan losses.

Capitol’s largest unsecured creditors are M&T Trust Co. of Wilmington, Delaware, with $44.4 million in trust preferred securities, and US Bank of Boston with $22.5 million of similar securities, according to court filings.

The case is Capitol Bancorp Ltd., 12-58409, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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