Old Second Bancorp defers dividends on trust preferreds indefinitely

By Angela McDaniels

Tacoma, Wash., Aug. 31 - Old Second Bancorp, Inc. said it elected to defer regularly scheduled interest payments on $58.4 million of junior subordinated debentures related to the trust preferred securities issued by its two statutory trust subsidiaries, Old Second Capital Trust I and Old Second Capital Trust II.

Because of the deferral on the debentures, the trusts will defer regularly scheduled dividends on the trust preferreds.

Interest can be deferred on the debentures for up to 20 consecutive quarterly periods without default or penalty. The company has decided to defer interest for an indefinite period.

Interest on the debentures, and distributions on the trust preferreds, are cumulative, and the company will continue to accrue their monthly costs.

The company also plans to suspend quarterly cash dividends on its outstanding fixed-rate cumulative perpetual preferred stock, series B, issued to the Department of the Treasury in connection with its participation in the Capital Purchase Program under the Trouble Asset Relief Program as well as on its outstanding common stock.

Dividends will not be declared on the TARP preferreds until distributions on the debentures have been made current. If the company does not pay dividends on the TARP preferreds for six quarters, whether or not consecutive, the holders will have the right to appoint two individuals to the company's board of directors.

The deferrals are part of Old Second's plan to enhance its capital positions and are expected to result in annual cash savings of approximately $8.4 million based on current rates.

The company continues to evaluate the potential exchange of its TARP preferreds for a like amount of fixed-rate trust preferreds with substantially similar terms, and it is pursuing several alternative strategies including the potential sale of a portfolio of nonperforming assets to a private investment firm, potentially coupled with a "modest" equity investment from that firm.

Old Second is a financial services company with headquarters in Aurora, Ill., and the holding company for Old Second National Bank.

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