Attorneys from Parker, Hudson, Rainer & Dobbs are handling the Chapter 11 legal work for the bank whose failure has been dubbed the largest of 2009: Montgomery, Ala.-based Colonial BancGroup Inc.
In June, Colonial had approximately $22 billion in assets and $20 billion in total deposits. Earlier this month, Winston-Salem, N.C.-based BB&T purchased about $20 billion of those assets, with the Federal Deposit Insurance Corp. retaining the remaining assets. By the time Colonial 
filed for reorganization in U.S. Bankruptcy Court for the Middle District of Alabama on Tuesday, it reported $45 million in assets and $380 million in liabilities.
Parker, Hudson lawyers listed on the bankruptcy filings are C. Edward Dobbs and Rufus T. Dorsey IV. W. Clark Watson of Balch & Bingham in Birmingham also represents the bank.
Dobbs said this is the first time his firm has represented Colonial, and that he believes that was one of the criteria for the firm’s selection. “That’s not uncommon in bankruptcy cases because of the potential for conflicts of interest,” he said.
Though he said he is not certain why his firm was selected over other firms, he did say that Colonial’s general counsel David Byrne, now with BB&T, told him he knew of the firm because of a case Parker, Hudson handled in Montgomery some years ago. The firm handled the reorganization legal work for Enstar Group, a bank holding company which Dobbs said was much like Colonial BancGroup.
Dobbs called the Enstar case, in what might be termed an understatement, a “fairly successful” one: creditors received 100 cents on the dollar, plus interest; security holders kept their stock and saw its value rise dramatically.
"The shareholders went from expecting nothing in the bankruptcy case to post-confirmation and reissuance of the shares with a market capitalization of between $35 million and $50 million," he said. Then, he added, several years later, Enstar merged with a Bermuda-based company called Enstar Group Ltd. The merged company's shares were valued at about $100 each, he said. "And that was just 50 percent of the merged entity, so the total merged entity [had] an over-a-billion-dollars market capitalization."
That kind of result, he said, isn't likely with Colonial. Colonial, according to news reports, suffered in the credit crisis because of higher charge-offs and rising foreclosures in its Florida construction-loan portfolio.
The bankruptcy petition indicates that Colonial’s liabilities include $253.7 million in subordinated debt securities and more than $109 million in unsecured debt securities. Most of that debt is owed to the Bank of New York Trust Company N.A. and the Bank of New York Trust Co. of Florida.
Two of the company’s smaller unsecured creditors include Atlanta accounting firm Habif, Arogeti & Wynne, to which Colonial owes $2,265, and Bryan Cave, whose address on the unsecured claims list is its St. Louis, Mo., headquarters, for $1,574.
Colonial’s recent history is troubled. In early August, the bank’s mortgage lending division in Orlando, Fla., was raided at the behest of the Troubled Asset Relief Program on suspicion of misuse of federal bailout money, and the Securities and Exchange Commission subpoenaed the company seeking disclosures related to its relief program participation.
The Alabama State Banking Department closed Colonial on Aug. 14 and appointed the FDIC as receiver; three days later, the New York Stock Exchange suspended trading in the bank’s stock. After the closure, BB&T assumed most of the bank’s deposits, purchased most of its assets and began operating the bank’s more than 340 branches in Alabama, Florida, Georgia, Nevada and Texas.
The bank is also under investigation by both the U.S. Department of Justice and the Securities and Exchange Commission for accounting irregularities in its mortgage lending unit. There’s also a pending shareholder class action accusing the bank of failing to disclose that its receipt of $550 million in relief money was contingent on the company raising $300 million in private financing.
Chief Financial Officer Sarah Moore’s declaration, in the bankruptcy court file, indicates that Colonial’s pre-tax losses for the first six months of 2009 were approximately $638 million; in 2008, they were $1.128 billion.