Banc of California signed a definitive merger agreement with PacWest Bancorp. Under the agreement, which was unanimously approved by the boards of directors of both companies, PacWest will merge into Banc of California Inc., the holding company of Banc of California, which will merge into Pacific Western Bank. The combined holding company and bank will operate under the Banc of California name and brand following closing of the transaction. Under the terms of the merger agreement, PacWest stockholders will receive 0.6569 of a share of Banc of California common stock for each share of PacWest common stock.

Banc of California also entered into investment agreements with affiliates of funds managed by Warburg Pincus and certain investment vehicles managed or advised by Centerbridge Partners and its affiliates for the investment of an aggregate of $400 million of newly issued equity securities concurrently with, and subject to, closing of the merger. The proceeds from this capital raise are expected to be utilized in conjunction with other planned actions to reposition the combined company’s balance sheet and generate material savings.

The combined company will repay roughly $13 billion in wholesale borrowings, funded by sales of assets which are fully marked as a result of the transaction and excess cash. Banc of California also entered into a $3.5 billion interest rate swap and a contingent forward asset sale agreement to hedge interest rate risk and lock in proceeds. These repositioning transactions for the combined company will result in a higher net interest margin, estimated to add more than 170 bps compared to the pre-restructured balance sheet. The actions will result in a CET1 of 10% plus pro forma, which includes the cost of swaps purchased and forward sales.

Following closing of the merger and the asset sales, the combined company is expected to have approximately $36.1 billion in assets, $25.3 billion in total loans, $30.5 billion in total deposits and more than 70 branches in California.

Jared Wolff, president and CEO of Banc of California, will retain the same roles at the combined company. John Eggemeyer, who currently serves as the independent lead director on the board of PacWest, will become the chairman of the board of the combined company following the merger. The board of directors of the combined company will consist of 12 directors: eight from the existing Banc of California board, three from the existing PacWest board and one from the Warburg investors.

“This transformational merger will create a robust, well-capitalized and highly liquid institution poised to deliver exceptional service to even more California businesses and communities,” Wolff said. “We believe both Banc of California and PacWest stockholders will benefit from the compelling economics of the combined company and its enhanced ability to deliver profitable and sustainable growth. Out of the gate, the combined company will have the strength and market position to support the banking needs of small and medium-size businesses in California and to capitalize on the opportunities created for stronger financial institutions in the wake of the recent banking industry turmoil.

“Due to the high degree of familiarity between our businesses, we anticipate a smooth integration that will enable us to quickly and effectively capitalize on the long-term opportunities unlocked by the strength of our combined platform. Both institutions follow a client-first, relationship-based approach to serving our clients and communities while emphasizing prudent risk management. We believe that uniting the talent and expertise from both organizations, along with our cultural similarities and deep familiarity with each other’s business, will accelerate the execution and delivery of strong and growing franchise value for all stakeholders.”

“This merger is a tremendous opportunity for PacWest’s stockholders, customers, communities and employees, representing significant immediate and long-term value beyond PacWest’s standalone strategic plan,” Paul Taylor, president and CEO of PacWest, said. “I am honored and extremely proud of the PacWest team’s fortitude over the past several months amidst industry-wide volatility. With the combined strength of both institutions, new capital from investors that are committed to the strategic vision and value creation of this merger, and a proven track record of successful integrations, the combined company will be well-positioned to provide significant value for the long term to all of our constituents.”

“We are excited to back the strategic combination of two institutions we know well and respect,” Todd Schell, who will join the combined company’s board from Warburg Pincus, said. “The transaction provides an opportunity to execute a highly accretive balance sheet repositioning which generates substantial incremental earnings and positions the combined company for the next leg of profitable growth.”

Banc of California and PacWest expect the closing of the merger to occur in late 2023 or early 2024, subject to satisfaction of closing conditions, including receipt of customary required regulatory approvals and requisite approval by the stockholders of each company and the concurrent closing of the equity capital raise. The equity capital raise is expected to close concurrently with the merger, subject to the concurrent closing of the merger and other closing conditions.

J.P. Morgan Securities is acting as financial advisor and rendered a fairness opinion to the board of directors of Banc of California and is acting as sole placement agent to Banc of California. Skadden, Arps, Slate, Meagher & Flom is serving as legal counsel to Banc of California. Piper Sandler is acting as financial advisor to and rendered a fairness opinion to the board of directors of PacWest. Sullivan & Cromwell is serving as legal counsel to PacWest. Jefferies is acting as financial advisor to Warburg Pincus and Centerbridge. Wachtell, Lipton, Rosen & Katz is serving as legal counsel to Warburg Pincus, and Simpson Thacher & Bartlett is serving as legal counsel to Centerbridge.