Portland Business Journal

Firm Offers Banks New Capital Strategy

February 1, 2013
Portland Business Journal: Matthew Kish

A new Portland firm that invests in banks is getting ready to close a series of deals.

Former Chicago banker Frank Reppenhagen founded Community BanCapital LP in 2011 with $50 million he raised from wealthy investors.

Reppenhagen's pitch to investors: Since the Wall Street collapse, a lot of community banks need new capital. Regulators no longer look favorably on trust preferred securities, a oncepopular capital source that doesn't dilute shareholders. The decrease in popularity of trust preferred securities has left banks with few outlets for raising capital.

"Other than common stock there aren't many alternatives," Reppenhagen said.

Public companies, including banks, don't like to issue more stock because it dilutes shareholders.

Reppenhagen's fund offers a new solution: subordinated debt. Subordinated debt is paid back after primary debt if a company closes or is forced to pay back all its debt at one time. As a result, it's considered higher risk.

He's already closed one deal. Three more are in the works.

Each of the investments is in a bank with between $500 million and $2 billion in assets.

After earning a master's degree in business administration at the University of Chicago, Reppenhagen started his career as a private equity executive in Chicago, where he worked for Concentric Equity Partners, which managed the holdings of Chicago's wealthy Steans family.

He also advised the chief financial officer of USAmeriBank in Florida on strategy, capital planning and acquisitions.

Community BanCapital brings all of that experience together.

Reppenhagen said "there seems to be a lot of demand" from banks, but he admitted he's behind schedule when it comes to closing deals.

"I thought more deals would have closed by now," he said. "It's been a longer education process to explain how subordinated debt is used."

Bank analysts said Reppenhagen won't have problems setting up meetings with capitalhungry bank executives.

"There are a lot of good opportunities," Joey Warmenhoven, senior vice president of trading in the Portland office of McAdams Wright Ragen, told the Business Journal last year.

Jim Bradshaw, a bank analyst and senior vice president of research at Portland-based Bridge City Capital, is impressed by Reppenhagen and his two general partners: former Bank of Hawaii CEO Allan Landon and long-time Federal Reserve banker Thomas Back.

Bradshaw said there are concerns about how regulators will view subordinated debt.

"To me, that's the rub," Bradshaw said. "It's not a simple, easy product. The regulators arediscouraging debt. They much prefer plain old common stock."

Reppenhagen also could soon have some competition.

Warmenhoven said several other funds targeting community banks have been raised.

Reppenhagen said the "market won't go away" if competition picks up, but he said he could shift his business model to a "hybrid of equity and debt."

For now, Reppenhagen is committed to investing the full $50 million, not raising more funds.

"We have an obligation to put that to work versus fundraising and distracting ourselves," he said.

Community BanCapital
What: Private investment fund that raised $50 million to invest in community banks
General partners: Frank Reppenhagen, Allan Landon, Thomas Back
Where: 1000 S.W. Broadway, Suite 1010
Founded: 2011
Matthew Kish covers banking, finance and higher education.

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