Parent of CPB borrows $40M

By Deborah Adamson
Advertiser Staff Writer

Central Pacific Financial has borrowed $40 million to help pay for a proposed merger with rival CB Bancshares, more than tripling one form of the bank holding company's debt.

The parent of Central Pacific Bank raised capital from an offering of "trust preferred" securities, which now totals $55 million.

The borrowings, called subordinated debt, have a lower priority than other debt when it comes to claims on an asset, such as might occur in a bankruptcy.

If the money is not used for the merger, the holding company for Hawai'i's third-largest commercial bank plans to use it to repurchase its common stock.

"While we're well-capitalized prior to the trust preferred issuance, the additional capital will assist us in remaining well-capitalized in the event we acquire CB Bancshares," said Central Pacific spokeswoman Ann Takiguchi.

The proposed merger, which City Bank is fighting in court, is expected to cost $288 million, of which 35 percent would be in cash and the rest in stock. The cash portion was increased to sweeten the deal for the parent of City Bank.

In response to the news, shares of Central Pacific declined by a penny to close at $26.49 yesterday while CB Bancshares ended the day down 49 cents to $61.26.

Wall Street still expects the merger to go through, based on the trading price of CB Bancshares, said Brett Rabatin, banking analyst at FTN Midwest Research.

CB Bancshares remains at lofty levels; it had traded at $46 just before the launch of the hostile takeover in April that offered a 51 percent premium.

Rabatin said the bank can handle the added debt, which can be repaid in whole or in part after five years.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.