SAN DIEGO — A proposal to pump at least $7.2 million of new capital into ailing Sun Savings & Loan was approved by the University City-based thrift's board of directors Wednesday, according to sources familiar with the deal.
Terms of the plan, which the company is expected to announce today, call for developer Victor Fargo to buy 247,000 shares in Sun at $10 each.
In exchange, Sun will move its corporate headquarters into a La Jolla office complex built by Fargo and will share in 25% of all lease and refinancing profits from the building. Sun funded 10% of Fargo's $17-million construction loan.
The stock purchase will give Fargo ownership of 9.9% of Sun's outstanding shares, just shy of the 10% equity level that triggers a change-of-ownership application with federal regulators.
Directors also approved a 1-million-share common stock offering that could yield at least an additional $4.76 million for Sun. The offering will be underwritten by New York financier Van D. Greenfield, who last year tried unsuccessfully to buy 45% of Sun with a $10-million capital infusion.
The stock offering would be guaranteed. Whatever is not sold to the public would be bought by Greenfield, who also has an option to eventually buy 9.9% of the outstanding stock.
Fargo also has an option to later buy up to 24.9% of Sun's stock. Sun officials believe that any stockholder owning more than 25% would be required to guarantee that the company meet regulatory net worth requirements.
As of March 31, Sun's net worth was about $6.1 million, or only 1.25% of its $485 million in assets and about $1 million short of the minimum required for fledgling thrifts. Net worth at older savings and loans is supposed to be at least 3% of total assets.
Legal Action Opposing Deal
Fargo is a friend of ousted Sun Chairman Daniel W. Dierdorff and is the brother-in-law of Sun director Ted P. Van Leeuwen. Van Leeuwen abstained from voting on the Fargo capital infusion plan, according to Sun sources.
Nonetheless, dissident shareholder Robert Blake, an Orange County developer, said Wednesday that he will file a legal action to block the Fargo deal. Sun, said Blake, is "creating long-term liabilities for some short-term, small amounts of cash. They're selling the company back to their own little group, the Dierdorff group."
Neither Fargo nor Greenfield could be reached for comment. Sun President and Chief Executive John M. McEwan said he would not comment on the proposal before today's scheduled announcement.
The headquarters move is complicated. Sun will lease 30,000 square feet of Fargo's building for $13 million over the next 10 years. It will draw a 25% share of the lease profits and of any proceeds from Fargo's attempt to refinance a $17-million construction loan with $25 million in permanent loans.
Fargo, according to Sun sources, will use Sun's tenancy to secure the permanent financing and then will use those funds to pump money into Sun.
In May, Sun signed a 10-year lease for 25,000 square feet of corporate office space in a University City building that has not yet been built. That space will eventually be sublet, with Fargo sharing in any losses incurred from a shortfall in rent, according to Sun sources.
American Stock Exchange officials refused to allow trading in Sun stock Wednesday in anticipation of an announcement today about the capital infusion. In addition, the exchange is reportedly investigating why Sun's stock rose dramatically in the past week. It closed at $6.75 a share on Tuesday, up from $4.50 one week ago.