On July 8, KeyCorp (KEY) announced the commencement of an offer to exchange its common shares for any and all Trust Preferred Securities of KeyCorp Capital V and KeyCorp Capital VI, and any and all Enhanced Trust Preferred Securities of KeyCorp Capital VIII, KeyCorp Capital IX and KeyCorp Capital X.
KeyCorp had recently said that with the successful closure of a previously announced exchange offer, the company believes that it has fulfilled the requirement under the Supervisory Capital Assessment Program or stress test – to generate $1.8 billion of tier 1 common equity capital.
Under terms of the offer, for each Trust Preferred Security of KeyCorp Capital V, KeyCorp Capital VI, KeyCorp Capital VIII, KeyCorp Capital IX and KeyCorp Capital X (the Capital Trusts) accepted, KeyCorp will issue a number of its common shares based on an exchange ratio which will be announced on August 3.
Further, for each of the above mentioned Trust Preferred Security tendered on or prior to 11:59 p.m. on July 21 (and not subsequently withdrawn), KeyCorp will issue a number of its common shares equal to the quotient of $22.00 divided by the Average VWAP. For each these Trust Preferred Security tendered after 11:59 p.m. on July 21, but prior to the expiration date of the Trust Preferred Exchange Offer, KeyCorp will issue a number of its common shares equal to the quotient of $20.75 divided by the Average VWAP.
For each Trust Preferred Security of KeyCorp Capital X tendered on or prior to 11:59 p.m. on July 21, KeyCorp will issue a number of its common shares equal to the quotient of $22.50 divided by the Average VWAP. For every Trust Preferred Security of KeyCorp Capital X tendered after 11:59 p.m. on July 21, but prior to the expiration date of the offer, KeyCorp will issue a number of its common shares equal to the quotient of $21.25 divided by the Average VWAP.
The company will announce the Average VWAP and exchange ratios before the opening of NYSE trading on Monday, August 3.
Morgan Stanley (MS) is the sole arranger and lead manager for the Trust Preferred Exchange Offer, and Morgan Stanley, UBS Investment Bank (UBS), Citigroup (C) and Wells Fargo Securities (WFC) are acting as dealer managers.
KeyCorp, a bank-oriented financial service company, provides a wide range of products and services like commercial and retail banking, commercial leasing, investment management, consumer finance, as well as investment banking products to individual, corporate, and institutional clients throughout the U.S. and, for certain businesses, internationally.
Key is scheduled to release its 2Q09 earnings results on July 22, followed by a conference call later that day. Although the company has taken steps to reduce its exposure to the Commercial Real Estate (CRE) home builders segment, we anticipate higher losses in the CRE portfolio in the coming quarters.
Further, we expect elevated provision requirements combined with high overhead costs and weak net interest to put significant pressure on the company’s profitability in the intermediate term.
As such, we maintain our Sell rating on the shares of KEY.
Read the full analyst report on “KEY”
Read the full analyst report on “C”
Read the full analyst report on “MS”
Read the full analyst report on “UBS”
Read the full analyst report on “WFC”
Zacks Investment Research
