Zions Bancorporation (ZION) recently announced the beginning of an exchange offer to replace any or all of its currently outstanding non-convertible subordinated notes into shares of Zions’ common stock. This will be based on the relevant price, the applicable note price and the ratio of applicable note price to the relevant price. Additionally, the company will also pay cash for any accrued and unpaid interest up to but excluding the settlement date on any notes accepted in the exchange offer.
 
For this, Zions’ management has put three series of non-convertible subordinated notes for the exchange offer. These 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. The company has appointed Deutsche Bank Securities Inc. (DB) and Goldman Sachs & Co. (GS) as its financial advisors for the exchange offer.
 
The swapping of notes into stock is expected to increase Zions’ tangible common equity (TCE) by the aggregate principal amount of the notes exchanged. This in turn will also increase the company’s TCE ratio, while also diminishing the related interest expense that is adjoined with the notes.
 
Concurrently, Zions also announced the successful completion of its common equity issuance that started on Sep 17, 2009 and ended on Feb 26, 2010. Under this offering, the company sold about 16.4 million shares of its common stock at a volume weighted average price of $15.25 each that resulted in net proceeds of $245.7 million.
 
Simultaneously, the company has entered into new common equity distribution agreements with Deutsche Bank and Goldman Sachs, also appointed as sales agents wherein Zions may offer to and sell its common stock worth $250 million through these agents from time to time. The execution of the new equity offering is expected to further augment Zions’ existing capital and liquidity position.
 
Zions’ debt modifications and the favorable capital trends are also helping the ascent of non-interest demand deposits, thereby putting less pressure on the balance sheet and increasing the return on equity. If this steadfastness continues, the company’s strategic growth initiatives will soon be reflected in its operating results.
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