Creditors: Arvest Owes $25M Debt After Union Bank Buyout

Creditors who allege Fayetteville-chartered Arvest Bank defaulted on a $25 million debt related to its 2012 acquisition of Kansas City-based Union Bank are suing the company.

According to a report from the Kansas City Business Journal, the lawsuit states Arvest was responsible for debt acquired by Union Bank’s holding company, Bannister Bancshares Inc., after it dissolved in July 2013.

At the time of acquisition, Union Bank had about 10 local offices in the Kansas City area, with $459.4 million in assets.

Prior to the acquisition, Bannister received $20 million worth of trust-preferred securities, the obligations for which, per a contract between the bondholders and issuer, would shift to the buyer if one purchased “all or substantially all” of the company.

The issue at hand, according to the report, is whether this applied to Arvest’s transaction — which was approved two months before the creditors declared Bannister in default — making the bank responsible for Bannister’s debts.

Prior to the purchase, Bannister president and Union Bank CEO Jeff Jernigan stated in a letter from his lawyer to the creditors that Arvest only purchased Union Bank’s assets and none of Bannister’s assets, according to the complaint.

In addition, the Federal Deposit Insurance Corp. had a lien on Union Bank’s assets of $116.6 million because of the failure of its sister bank, First National Bank of Olathe, in 2011.

Brett Jefferson, founder and president of Hildene Capital Management, which filed the suit as an agent for the Bank of New York Mellon, said, “[Bannister and Arvest] decided to cut a backroom deal and decided to skirt their obligations,” rather than declare bankruptcy.

In the suit, Arvest is accused of tortious interference because of the creditors’ claim that it intentionally interfered with a contractual deal.

Other defendants listed on the lawsuit included Bannister, accused of breach of contract, and Jernigan. According to the suit, Jernigan was in a position to ensure that Bannister adhered to its obligations but instead helped cut a deal to secure his job future.

He is accused with willful misconduct and breach of fiduciary duty.

“We feel that those trust-preferred [securities creditor]s are still owed and that we’re owed $25 million,” Jefferson said.

Interest had brought the $20 million debt to $24.7 million as of August 2014, according to the report.