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Sterling Financial agrees to raise $730 million

Spokane-based Sterling Financial Corporation said today it has reached agreements to raise $730 million in new capital from institutional, private equity and other investors. Expected to close within the next week, the transactions could result in Sterling issuing 4.2 billion shares of stock.

The infusion of new capital “represents a major milestone in our recovery plan, and one that will substantially strengthen our capital ratios and provide a solid base for rebuilding long-term franchise value,” Sterling President and CEO Greg Seibly said in a prepared statement.

Sterling Financial, which owns Sterling Savings Bank, has been working on a major recapitalization effort that includes the U.S. Treasury accepting a steep markdown on the $303 million it invested in Sterling almost two years ago.

The agreements Sterling announced this morning include larger investments from Boston-based Thomas H. Lee Partners, L.P. and Warburg Pincus Private Equity X, L.P., a Wall Street firm. The firms are expected to each buy 68.4 million shares of common stock and 1.7 million shares of Series B preferred stock, for an aggregate purchase price of about $171 million each. The investors also would receive warrants.

Upon closing, the firms each would own an aggregate of 22.6 percent of Sterling’s pro forma common stock on an as-converted basis and after giving effect to the exercise of warrants, Sterling said.

After the transaction is completed, Les Biller, former vice chairman and chief operating officer of Wells Fargo & Company, will serve as chairman of Sterling’s board of directors. Warburg Pincus Managing Director David Coulter and Thomas H. Lee Managing Director Scott Jaeckel are expected to join Sterling’s board.

Sterling has also entered into agreements with about 30 accredited investors for private placement of 155.3 million shares of common stock and 3.9 million shares of Series D preferred stock in exchange for aggregate gross proceeds of about $388 million in cash.

In addition, as previously announced, the U.S. Treasury will convert its $303 million investment of preferred stock in Sterling into common shares.

In all, the transactions with investors and the Treasury will result in the issuance of 4.2 billion shares of Sterling common stock, assuming the conversion of preferred stock and the exercise of warrants.

Sterling posted losses for 2008, 2009 and the first half of this year. Its stock has lost 73 percent of its value in the past 12 months. The company has about $10 billion in assets.