MeraBank To Get $450 Million From Pinnacle West
PHOENIX (AP) _ Pinnacle West Capital Corp. agreed to inject $450 million into its troubled thrift subsidiary, MeraBank, just hours before tough, new federal capital standards for thrifts took affect Thursday.
The agreement, announced late Wednesday, settled months of negotiations between Pinnacle West and the Office of Thrift Supervision over the federal agency’s demand that Pinnacle West inject $510 million into MeraBank.
Pinnacle West has received a $1.87 billion takeover offer from PacifiCorp., the utility company based in Portland, Ore. PacifiCorp executives were upbeat that the settlement would clear the way for a deal.
″This agreement ... should free Pinnacle West to devote full attention to addressing the offer from PacifiCorp. We are eager to move ahead,″ PacifiCorp Executive Vice President Verl Topham said in a statement.
Under terms of its agreement with regulators, Pinnacle West will give MeraBank $300 million by March 31, 1990 and a $150 million unsecured note.
The OTS said the ″fair and reasonable″ settlement would avoid costly litigation. Pinnacle West had threated to seek bankruptcy protection if it could not reach an agreement with bank regulators.
Pinnacle West said its board will consider the PacifiCorp offer on an unspecified date.
The bid, which is conditioned upon Pinnacle West disposing of MeraBank, is an expansion of an earlier PacifiCorp offer to buy Arizona Public Service Co., a Pinnacle West subsidiary and Arizona’s largest utility.
Pinnacle West Chairman Keith Turley said the MeraBank settlement would not affect the PacifiCorp offer even though APS common stock would be used as collateral to secure financing for the cash infusion into MeraBank.
Renz Jennings, chairman of the three-member Arizona Corporation Commission, which regulates utilities, voiced concern over the link with APS.
He said the commission ″is deeply concerned about the possibility that Pinnacle West creditors will look to (APS) for repayment.″
But Turley countered that ″it’s illogical for anybody to think that APS would assume the debt obligations of Pinnacle West. It’s impossible and illegal for APS to raise its rates to pay our interest on debt.″
MeraBank Chairman Gene Rice called the infusion ″an important beginning of the recapitalization of MeraBank″ and said the thrift, which has been hard hit by Arizona’s real estate slump, would be able to get back on its feet eventually. But he cautioned that the market ″is going down, and we will continue to have losses in the short term.″
MeraBank lost $209 million in 1988 and $105 million in the first six months of this year, with a projected loss of about the same amount in the last six months.
Jennings criticized the settlement for saddling Pinnacle West ″with additional debt at a time when the company can ill afford it, and leaves ownership of MeraBank in the hands of Pinnacle West with no assurance that losses will not continue to mount.″
In addition to APS and MeraBank, Pinnacle West also owns three small subsidiaries involved in mining, real estate development and investments.