By Paul Minnis, The Republic
pminnis@therepublic.com
Irwin Financial Corp.'s rights offering is a chance for people with company stock to buy more shares, infusing the company with new money to lend others.
A traditional stock offering goes to anyone, not just existing shareholders, according to Matt Souza, IFC chief administrative officer.
IFC announced Tuesday its intention to offer $50 million in new shares. If the shareholders do not cover the total amount, Cummins Inc. and four other investors will buy the remainder, up to $31 million.
New funds will give the cash-strapped bank the ability to loan out several times that, said Warren Ward of Warren Ward & Associates in Columbus.
As the borrower pays back the loan, the interest goes to the bank and its shareholders, theoretically making them a profit and strengthening the institution.
Ward said investors have reasons to take advantage of a rights offering, partially because the shares will be sold at a price below current market value.
And any investment helps IFC regain its footing and ultimately return money to its investors, he said.
The fact that Cummins and other entities have committed so much money to IFC speaks to their confidence in its management to spend the money wisely, Ward said.
He said they also see IFC's value to the community.
"For a lot of people, investing in Irwin Financial is just the right thing to do," he said. "They might just want to help it out."
Souza said the number of shares IFC will issue will depend on the discounted share price, which IFC hopes to set in early- to mid-November.
Once the number of shares to be issued has been determined, each investor will receive the opportunity to purchase a prorated share to keep his ownership percentage in IFC at the same level.
The issuance of the shares will have no immediate impact on the value of existing shares - unlike in a stock split.
The market will determine the value of the shares after the issuance of the new shares, Souza said.
There will be no minimum investment.
"It's hard to name a big company that hasn't done this before," Ward said about such offers.
He mentioned Chrysler Corp., which doubled its available stocks a few years ago to its benefit.