Aug. 1--Frontier Financial of Everett, the troubled parent of Washington state's fourth-largest bank, has been thrown a multimillion-dollar lifeline by a New York "blank check" investment company.

SP Acquisition, an offshoot of hedge fund Steel Partners, will buy Frontier Financial for $24.4 million in stock and warrants, the two companies said Friday.

The deal caps a 10-month search by Frontier for new capital to plug the gaping holes in its financial structure, as hundreds of millions of dollars in construction and development loans go sour.

The deal will give Frontier Bank access to the $427 million in SP Acquisition's cash hoard -- money it needs to wipe mountains of bad loans off its books.

And while a purchase by another area bank likely would have meant layoffs and branch closings, Frontier's customers and employees shouldn't notice much change, CEO Patrick Fahey said.

But the new capital comes at a steep cost to Frontier's shareholders.

The deal works out to about 52 cents per Frontier share, a steep discount to the stock price. Frontier shares closed Friday at 90 cents, up a penny. Last September, they traded above $18 a share.

In addition, The Seattle Times estimates that current shareholders will own less than 8 percent of the recapitalized company, which will do business as Frontier Financial.

But the deal -- in which each Frontier share will be traded for 0.053 share and 0.053 warrant of SP Acquisition Holdings -- does give the bank's shareholders a stake in the restructured company's future growth.

Fahey, Frontier's CEO since December, said the deal " was a very attractive option, given the circumstances." He and the rest of the executive team will stay on after the deal closes, likely in early October.

"Could we struggle through on our own?" Fahey said. "We probably could. But until there's an upturn in the local housing market, that would put us at a risk that we didn't think we would responsibly do."

More detailed terms will be unveiled in regulatory filings next week and in a Monday conference call.

The Frontier deal marks the latest hookup between cheap, capital-needy banks and cash-rich buyout firms.

Three weeks ago, blank-check company Global Consumer Acquisition said it would buy 1st Commerce Bank of Nevada and the Nevada assets of Colonial Bank. The combined firm will be renamed Western Liberty Bancorp.

Warren Lichtenstein, who runs Steel Partners and SP Acquisition, called Frontier Bank "a strong growth platform" in Friday's announcement -- a hint, perhaps, that he might use it as a base to roll up other troubled banks in the region.