Business Context and Reporting Period
Company: Broadway Financial Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: December 4, 2009
Event: Entry into a Material Definitive Agreement with the United States Department of the Treasury (UST) under the Capital Purchase Program (CPP) of the Troubled Asset Relief Program (TARP).
Key Financial Metrics and Transaction Details
- Capital Raised: $6,000,000 total proceeds from the sale of preferred stock.
- Instrument: 6,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series E.
- Liquidation Preference: $1,000 per share.
- Capital Classification: Qualifies as Tier 1 capital under Federal Reserve Board regulations.
- Dividend Rate: 5% per year for the first five years; 9% per year thereafter.
- Redemption: Redeemable by the Company at any time, subject to regulatory approval.
Material Changes and Restrictions
The filing details significant covenants and restrictions imposed by the UST as part of the CPP agreement:
- Dividend and Repurchase Restrictions: For three years from issuance (unless redeemed or transferred), the Company cannot increase Common Stock dividends or repurchase Common Stock/equity securities without UST consent.
- Dividend Cap: Cash dividends on Common Stock are restricted to the rate of the last quarterly cash dividend declared prior to October 14, 2008, without UST consent.
- Voting Rights: The Series E Preferred Stock is non-voting, except for class voting rights on matters adversely affecting the holders.
- Registration Rights: The Company agreed to register the Series E Preferred Stock if requested by the UST.
Outlook, Risks, and Management Commentary
Management Commentary: The transaction was consummated to secure Tier 1 capital. A press release announcing the consummation was issued on December 8, 2009.
Risks and Contingencies:
- Dividend Default Risk: If the Company fails to declare and pay full dividends on the Series E Preferred Stock, restrictions on Common Stock dividends and repurchases will be triggered.
- Regulatory Approval: Redemption of the preferred stock requires regulatory approval.
- Private Placement: The issuance was exempt from registration under Section 4(2) of the Securities Act of 1933.
Financial Metrics Note: This filing is a current report regarding a specific transaction and does not provide comprehensive revenue, profit, cash flow, or debt metrics for the reporting period.
Key Facts for Investor Verification
- Verify the impact of the 5% (rising to 9%) dividend obligation on future earnings and cash flow.
- Confirm the specific amount of the Common Stock dividend declared prior to October 14, 2008, to understand the current dividend cap.
- Monitor the Company's ability to maintain Tier 1 capital ratios under Federal Reserve regulations.
- Review the Certificate of Designations (Exhibit 4.1) for detailed rights and preferences of the Series E Preferred Stock.
- Check for any future filings regarding the redemption of the Series E stock or transfer to third parties, which would lift the three-year restrictions.