Patriot National Bancorp, the parent company of Patriot Bank, and American Challenger Development, entered into a definitive agreement under which Patriot will acquire American Challenger via a reverse subsidiary merger, with American Challenger surviving as a wholly-owned subsidiary of Patriot.
Patriot also entered into separate definitive agreements with certain investors, consisting of a private placement in an aggregate principal amount of approximately $540 million of newly issued Patriot voting and non-voting common stock priced at $17.69 per share, warrants for the purchase of non-voting common stock of Patriot and preferred stock of Patriot Bank. Patriot intends to raise an additional principal amount of at least $350 million for a total capital raise of at least $890 million, and it intends to negotiate and enter into definitive agreements with other investors for the purchase of subordinated debt securities and preferred stock of Patriot in addition to further sales of Patriot common stock and warrants for the purchase of Patriot non-voting common stock (collectively, the “recapitalization.”) Pursuant to the terms and conditions of the investment agreements and the merger agreement, the recapitalization and the merger will be completed on the same day.
Following completion of the merger, taking into account the shares issued in the recapitalization, former American Challenger shareholders will collectively own approximately 13.8% of the combined company and existing Patriot shareholders will own approximately 8.2% of the combined company.
The implied total transaction value of the merger is approximately $119 million. American Challenger common shareholders will receive 4,092 shares of Patriot common stock for each American Challenger common share they own, and American Challenger preferred shareholders will receive an amount in cash equal to $75,413.22 per share plus any accrued and unpaid dividends on the American Challenger preferred stock.
Following the merger, Patriot Bank will adopt the American Challenger business plan and will operate as two divisions: the Patriot Bank division, which will continue to operate Patriot Bank’s existing business, and the American Challenger division, which will execute the American Challenger business plan.
As soon as practicable following the closing of the proposed transactions, Patriot Bank will adopt American Challenger’s proprietary technology platform for its operations. This should allow Patriot Bank to operate with a technology cost structure that is largely fixed, in contrast to the more variable cost structure at most banks. Patriot Bank expects this cost structure to drive efficiencies and allow it to share the benefits with customers.
The boards of directors of Patriot and American Challenger approved the merger and recapitalization, which are expected to close in Q1/22, subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals and approval by Patriot’s shareholders.
“We’re excited to have engineered this industry-disrupting merger,” Michael Carrazza, chairman of Patriot National Bancorp, said. “The combination transforms Patriot to what will become the largest digital bank in the U.S. Customers will benefit from an expanded array of services and a tech-savvy banking experience, while shareholders should benefit from the compelling value that will be created. Patriot’s team will remain intact and will be complemented by American Challenger’s team and digital platform capabilities.”
“We could not be more excited about the opportunities provided by this merger, as it propels our purpose of shaking up banking in your interest,” Felix Scherzer, chairman and president of American Challenger, said.
Raymond J. Quinlan, a board member and CEO of American Challenger, will serve as CEO of the combined entity, while Scherzer will serve as chairman and president and Carrazza will serve as vice chairman.
“We are building a digital bank that will leverage the best in technology and operational excellence to serve our customers and communities,” Quinlan said. “This will be evident in the design and pricing of our banking products, in our delivery of superior personal service and in our clear commitment to corporate social responsibility. We believe in ‘banking for good’ and through our actions we will demonstrate that we are a purpose-driven financial institution.”
Separately, American Challenger also entered into a term sheet, which, subject to agreement on definitive documentation, would result in a partnership with Sunlight Financial, the subsidiary of Sunlight Financial Holdings, a financing platform for U.S. residential solar and energy-efficient home improvement projects, with respect to a new multi-year loan purchase program for up to $1.75 billion. The program will focus on loans for solar energy systems and battery storage.
“As a responsible, full-service digital bank, we will be focused on lending in ways that help communities and the planet with the intent of investing over half of its assets in support of sustainability, local community and good health,” Scherzer said.
BofA Securities, Barclays Capital and Keefe, Bruyette & Woods are serving as private placement agents for Patriot in connection with the recapitalization. Evercore served as financial advisor and provided a fairness opinion to Patriot. Blank Rome served as legal advisor to Patriot. Sullivan & Cromwell served as legal advisor to American Challenger. Squire Patton Boggs served as legal counsel to the placement agents.
