| At a glance: Deal type: Self-led Lehman Brothers ECAPs – 60-year non-call five-year step-up (FRN 78 basis points over three-month Libor) Deal size: $300 million Date: August 2005 |
Lehman Brothers’ Enhanced Capital Advantaged Securities (ECAPs) was the first US deal to bridge the gap between traditional trust preferreds and perpetual preferred issues. The gap had been created by the fact that the rating agencies allowed certain hybrid securities to benefit from equity treatment. Trust preferreds are dated tier 1 instruments that US financial institutions raise at the holding company level but which are classified as debt by rating agencies and other authorities. They are a $200 billion sector that grew in the 1990s as US financial institutions sought to increase leverage and boost capital without diluting the holdings of those investing in common equity.
The $300 million 60-year non-call five ECAPs constituted the first structure to push the US tax community to accept a new style of tax-deductible structures. “The deal was really in response to the changes that Moody’s came out with in February 2005,” says Erin Callan, head of global finance solutions at Lehman Brothers.