This article appears courtesy of Institutional Investor
Source: Corporate Financing Week
Dan Shirai
U.S. Bancorp offered $375 million in trust preferreds last week in what bankers say is the tip of the iceberg for hybrid refinancings. Around $20 billion in trust preferreds are expected to be refinanced next year and with this deal serving as a precedent, bank holding companies will be able to obtain Tier I capital, high-equity treatment from Moody's Investors Service , and tax deductibility, all in the same security.
"It's the first [Tier I trust preferred] in bank holding land that is tax deductible," said Daryl Bible , treasurer, who said the hardest part about the transaction was getting the bank's various overseers to sign off on the security at the same time. "We enhanced a normal trust preferred and modified the language to get Tier I capital at the Federal Reserve and equity credit from the rating agencies," he said.
The main tweaks for the U.S. Bancorp deal include a covenant that requires the issuer to replace the security with one of equal or higher equity content and extending the maturity from 30 to 60 years.