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Warburg to invest $115m in Webster Financial

The PIPE will give the buyout firm 11.5 million of the bank’s common shares at $10 per share, a 4% premium over Friday’s closing price.

Warburg Pincus will invest $115 million in Webster Financial for a 15 percent stake in the bank, which has been working to build up its capital base.

Webster has $17.5 billion in assets and provides business and consumer banking, mortgage, financial planning, trust and investment services.

Warburg will buy 11.5 million newly issued common shares at $10 each, representing about a 4 percent premium over the bank’s closing share price on Friday. The private equity firm will also acquire junior non-voting stock and warrants. It will initially take a 5.9 percent stake in Webster, and after all approvals Warburg eventually will have a 15.2 percent holding.

David Coulter, a managing director who co-leads Warburg’s financial services investment activities, will join Webster’s board of directors.

The bank announced an exchange offer last month to issue about 11.3 million shares of common stock and make a $59 million payment to bolster its capital base amid a second quarter net loss of $31.6 million. The bank also reported a continued decline in loan delinquencies.

Earlier this month, Fitch Ratings downgraded Webster’s debt but put the bank’s outlook at “stable” rather than “negative”.

“Fitch believes the impact of heightened credit costs will continue to hamper (the company’s) financial performance given the prevailing market environment, resulting in further pressure on its capital position,” Fitch said.

The Warbrug deal needs antitrust and federal bank regulatory approvals, the latter of which could prove onerous as the Federal Deposit Insurance Corporation has proposed rules that would make it tougher for private investment firms to buy banks.

The proposed rules would force firms to meet higher capitalisation requirements and force firms to hold bank investments for at least three years. Firms also would have to provide cross guarantees, meaning if a firm owns two banks, the stronger bank would have to provide support to the weaker bank. Firms also would be barred from using the acquired bank to extend credit to their investment funds.

Earlier this year, Warburg increased its stake in municipal bond insurer MBIA to more than 30 percent. The firm first invested in the bond insurer in 2007 with a commitment to inject up to $1 billion into the company. The firm has continued to inject capital as the company has been battered by the economic downturn and its exposure to bonds linked to subprime mortgages.