Zions Sets Exchange Ratio for Notes – Analyst Blog

On Thursday, Zions Bancorporation (ZION) announced the exchange ratios for swapping its common stock to its outstanding non-convertible subordinated notes.

Deutsche Bank Securities Inc., a wing of Deutsche Bank AG (DB) and Goldman, Sachs & Co., a wing of Goldman Sachs Group Inc. (GS), acted as Zions’ financial advisors in connection with the exchange offer. The offer will expire at the end of March 26.

 

Accordingly, Zions has offered three series of its subordinated notes for the swap − are the 2009−5.65% subordinated notes due 2014, the 2009−6.00% subordinated notes due 2015 and the 2009−5.50% subordinated notes due 2015. On the other hand, the swap ratios have been calculated based on the volume weighted average price of the stock for five consecutive trading days ended March 24, which came to $22.5433 per share.

 

Hence, for every $1,000 outstanding principal amount of notes, the total number of shares of common stock issued will be $39.7014 (or $895.00 divided by $22.5433) with respect to each 5.65% note and $39.1469 (or $882.50 divided by $22.5433) for each 6.00% note. For each 5.50% note, Zions will issue common stock worth $38.1488 (or $860.00 divided by $22.5433). Further, any fractional share will be paid in cash.

 

Besides, Zions will also pay cash for any accrued and unpaid interest on all the notes accepted in the exchange offer. However, this will exclude the settlement date.

 

Although Zions trimmed its loss in the fourth quarter to $1.26 per share, which came in below the Zacks Consensus Estimate of a loss of $1.66 per share, the company’s financial health has been suffering badly from non-performing assets, credit-related impairment losses on collateralized debt obligation (CDO) securities and continued weakness in loan demand.

 

We believe that at this financially critical juncture, the exchange offer program can increase Zions’ net income available to common shareholders. It could also provide the company with some tax benefits. However, dividend payment on such increased share count could have a neutralizing effect. Further, an excess dilution could also impact the earnings per share in the hands of the investors.