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A small Nevada bank deal, involving a shell company, will provide an interesting test case that could help the recapitalization of some regional U.S. banks.

Troubled community bank Colonial BancGroup Inc. (CNB) last week agreed to sell 21 of its Nevada branches to Global Consumer Acquisition Corp. (GHC), a special-purpose acquisition company ("SPAC"), otherwise known as a "shell" or a "blank-check" company.

Such a deal -- a SPAC buying a bank -- is unusual but not unheard of. In May 2008, Community Bankers Acquisition Corp. purchased Virginia's Bank of Essex.

A SPAC typically has been used in a variety of industries including media, energy, shipping, retail, telecom, insurance and health care. This deal will test whether investors have an appetite for smaller regional and commercial banks as well as whether regulators are comfortable with financial buyers. A completed deal may even give new life to the once popular SPAC vehicle.

SPACs are publicly traded companies that are established for the sole purpose of making an acquisition. After its initial public offering, a SPAC has about two years to make a purchase or return capital to investors, which are usually hedge funds. If it finds an attractive investment, the SPAC needs shareholder approval, typically set at 70%.

SPAC investors have the flexibility to vote in favor of or turn down an acquisition. If they don't like an acquisition, they can redeem their capital. That's the popular trend of late. It will be interesting to see whether a new crop of investors emerges with a risk appetite for small U.S. banks.

Investors have actively participated in a recent round of secondary share offerings by some big banks, but it's uncertain whether they will show the same interest in smaller banks.

Global Consumer, which will end up with 22 banking branches, will start off with $477 million of loan assets and $547 million of deposits.

The deal also requires a slew of regulatory approvals. Global Consumer, which is also buying 1st Commerce Bank as part of the transaction, will need the U.S. Federal Reserve's approval to become a bank holding company. Then, it will need approval from the U.S. Federal Deposit Insurance Corp. to buy the branches.

It's the FDIC that will be closely watched. The regulator had indicated unease with financial buyers when it proposed new hurdles for private equity looking to purchase failing banks out of FDIC receivership.

The FDIC's proposed guidelines nix the "silo" structure, which allows a private equity firm to carve out from its other investments a separate fund with the purpose of buying banks.

The FDIC may be more amenable to a SPAC than private equity since there's more transparency with the publicly traded entity, said Lawrence Kaplan, of counsel at Paul, Hastings, Janofsky & Walker LLP. "It's a clean way to go," Kaplan told Dow Jones Newswires.

There's money to be deployed and the banking sector is in desperate need of capital. But investors and buyers are sitting on the sidelines. For SPACs, though, time is ticking. About $5.8 billion in SPAC cash, across 28 SPACs, face a liquidation deadline before the end of 2009. Global Consumer, which floated in 2007, has one looming in November, a driving factor no doubt.

If SPACs can become a new mechanism to buy into distressed banks, it could revive these moribund vehicles.

(Lisa Lee is a columnist with Dow Jones Newswires. She has covered Wall Street and the markets as a journalist. Prior, she was a banker in LBO financing, healthcare investment banking and cross-border M&A. She also worked in the government as a Senate aide on international trade policy. She can be reached at +1 (212) 416-2105 or by email at lisa.lee@dowjones.com. To ensure continued access to the best of Dow Jones news and opinion on companies, sectors and deals for bankers and research analysts, please contact investmentbanker@dowjones.com.)

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