How a Cayman Islands hedge fund became Yadkin Valley Financial’s largest shareholder
Adam O’Daniel Finance Editor- Charlotte Business Journal
Did Yadkin Valley Financial Corp. really sell 5% of its shares to a Cayman Islands hedge fund?
In short: Yes. But not really.
Now, the long answer:
Elkin-based Yadkin Valley Financial, parent of Charlotte’s American Community Bank and Piedmont Bank in Lake Norman, recently disclosed that 5.5% of its company, about 2.2 million shares, is now held by a hedge fund based in the Cayman Islands known as Ithan Creek Master Investors. However, like so many of these funds, it is actually owned by a U.S. mutual fund manager, Boston-based Wellington Management Co.
Wellington, a multibillion-dollar asset manager, is Ithan Creek’s sole partner, according to securities filings. Wellington holds a $5 billion stake in JPMorgan Chase, a $4 billion stake in Wells Fargo and more than $3 billion stakes in both Apple and Microsoft, among others.
Ithan Creek apparently was established by Wellington in 2008 to hold stakes in smaller distressed financial institutions. The fund has actively added stakes in small banks across the U.S. for several years.
The stake in Yadkin came about last fall, when the lender announced a $45 million capital raise. Yadkin sold new shares to a group of institutional investors and company insiders, including its board of directors. The capital raise was necessary to recapitalize the company after several years of loan losses had eroded the balance sheet. As part of that private placement, Yadkin apparently sold a large portion of preferred shares to Wellington.
In December, Yadkin shareholders approved the capital raise, and the preferred shares were all converted to common stock, as the plan had called for. Wellington then transferred its new common shares to its Cayman hedge fund. And since the 2.27 million shares represent more than 5% of all shares, Yadkin disclosed the stake in a securities filing this month.
“There’s no additional ownership change — it’s all controlled by the same people,” Chief Financial Officer Jan Hollar explained in a phone call with me on Wednesday. “There’s just been a lot of filing and a lot of paperwork.”
The filing caused a mild hubbub among some members of Yadkin’s long-suffering local shareholder base, mainly because seeing “Cayman Islands” on a securities filing sparks concern. The Caymans are known as a tax haven for both sophisticated investors and investors wishing to keep public disclosures to a minimum.
However, the transaction is part of the same deal shareholders approved by a wide margin at a special meeting last year.
Yadkin Valley will report its fourth-quarter and year-end results in a conference call on Thursday.
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