Issuing Trust Preferred Securities

Transcription

1 Issuing Trust Preferred Securities

2 MERITS OF ISSUING TRUST PREFERREDS Why Issue Trust Preferreds? Tier 1 Capital Treatment frm the Federal Reserve Bard Since 1996, Trust Preferred Securities have been apprved as Tier 1 capital by the Federal Reserve at the Hlding Cmpany level. Trust preferred Securities may cmprise up t 25% f a bank hlding cmpany s Tier 1 capital. Excess Trust Preferred issuance is treated as Tier 2 capital, but may rll up t Tier 1 as the Tier 1 capital grws, subject t the 25% limit. Tax-Deductible Peridic Payments Because Trust Preferred Securities are viewed as debt fr federal incme tax purpses, the perid payments are tax-deductible. Nn-Dilutive Trust Preferred Securities neither represent, nr cnvert int, the cmmn shares f a Bank Hlding Cmpany, and therefre the issuance f Trust Preferred Securities des nt increase the number f cmmn shares utstanding fr purpses f calculating EPS. Flexible Pricing Alternatives Flating Rate priced at a spread ver 3-mnth LIBOR (quarterly re-pricing) Fixed/Flating fixed fr first 5 years; then quarterly re-pricing Fixed Rate Fixed fr 30 years Trust Preferred Securities can enhance sharehlder value. Repurchase Stck - Repurchase utstanding stck t increase ROE, EPS, lwer verall cst f capital Fund External Grwth - Prvide cash and capital t fund the Cmpany s grwth thrugh acquisitins Fund Internal Grwth - Prvide cash and capital t fund internal grwth in excess f capital generatin rate Reduce Debt - Cnvert debt t capital Bank Hlding Cmpanies als have the added flexibility t redeem Trust Preferred Securities at par after 5 years. 1

3 TRUST PREFERRED SECURITIES VS. COMMON EQUITY Why Issue Trust Preferred Securities vs. Cmmn Equity? Trust Preferred Securities Time t Issue: As sn as 1 week Undetermined Cmmn Stck Cst t Issue: 0%-3% Placement Fee Apprximately $10,000 fr legal. Initial Trustee fees f $4,250 and $3,000 annually, thereafter. Certain issuers may be eligible fr the underwriters t reimburse legal csts (up t $10,000) and pay fr trustee fees fr life f security. Up t 6-7% Placement Fee Dcumentatin fr public cmmn ffering can cst up t $300,000 Sharehlder Dilutin: Trust Preferred Securities are nt cnvertible int cmmn stck and therefre are a nn-dilutive frm f Tier 1 capital. -N cntrl issues -N negative impact n ROE Sharehlders are diluted by the amunt f the ffering Filing Requirements: N filing requirements Public filing required Tax Deductibility: Trust Preferred Securities are a taxdeductible frm f Tier 1 regulatry capital fr Bank Hlding Cmpanies. N tax deductibility fr dividend payments Regulatry Capital Treatment: Trust Preferreds can cunt up t 25% f Tier 1 capital 100% cunts as Tier 1 capital Dcumentatin: Standardized dcumentatin with shrt turnarund Requirement fr ffering memrandum fr investrs Due Diligence Prcess: N n-site due diligence required On-site due diligence with cunsel generally required

4 UNDERWRITING PROCESS Streamlined Underwriting Prcess Streamlined Due Diligence Prcess Fewer Demands n Management s Time N need fr individual ffering memrandum Standardized Dcumentatin Overall Lwer Transactin Csts What are the Csts Assciated with a Trust Preferred Transactin? Traditinally, the initial ut-f-pcket expenses required fr a trust preferred transactin are apprximately $10,000 fr legal (depending n chice f cunsel) and $4,250 fr initial trustee fees and $3,000 trustee fees annually thereafter. Fr certain issuers, the underwriters will reimburse the issuer fr ut-f-pcket expenses up t $10,000 and arrange t pay fr the initial trustee set-up fee, the trustee s upfrnt cunsel fee, and the annual trustee fees fr the life f the securities. Why Issue with The Baker Grup & StneCastle? Since 1979, The Baker Grup has wrked with thusands f cmmunity banks in Investment Prtfli and Asset / Liability Management, as well as prviding strategic planning and ther investment banking needs. The Baker Grup currently assists ver 600 banks natinwide in managing ver $20 billin dllars in fixed incme securities. The Principals f The Baker Grup have ver 200 years f cmbined Investment Banking experience. StneCastle s principals develped the pled trust preferred structure and have an indepth understanding f all f the structure s issues. StneCastle s principals were the lead members f the team that successfully executed the first pled trust preferred transactin in March StneCastle s principals have helped ver 500 banks raise apprximately $5 billin in regulatry capital since March 2000.

5 TRUST PREFERRED STRUCTURE ISSUANCE OF $10 MILLION TPS The BHC establishes a grantr trust (the Trust ) whse sle purpse is t facilitate the issuance f TPS. The BHC will acquire 100% f the Trust s cmmn shares with a liquidatin value f at least 3% f the Trust s ttal capitalizatin ($0.31 mm f cmmn shares fr a $10 millin TPS issue). The Trust issues $10 mm in TPS. T the extent that Trust has sufficient funds, the BHC will guarantee n a subrdinated basis that the TPS hlders will receive dividend payments. The Trust then lends the prceeds t the BHC in return fr Junir Subrdinated Debt Securities with terms matching thse f the TPS. The Junir Subrdinated Debt Securities are subrdinated t senir and subrdinated debt f the BHC (except pari passu subrdinated debt) but senir t the BHC s capital stck. The Trust will distribute the interest it receives n the Junir Subrdinated Debt Securities t the hlder f the TPS t fulfill its dividend bligatins.

6 SUMMARY OF TERMS June 6, 2006 Sample Bank Trust Preferred Securities Prpsed Term Sheet Timing: On r befre June 2006 Issuance Size: Maturity: Payment Frequency: $10.0 mm 30 years Quarterly, in arrears. Cupn: 3-mnth LIBOR plus 1.50% Subrdinatin: Call Prvisin: Interest Deferral: Issuer Expense: Trust Expenses: Subrdinate t senir and subrdinated debt (except fr any pari passu subrdinated debt) Trust Preferred Securities are callable after 5 years n any Interest Payment Date at par, with Regulatry apprval. Trust Preferred Securities are als callable within the first 5 years at a predetermined premium upn the ccurrence f a Tax Event, a Regulatry Capital Event r any Investment Cmpany Event. Issuers may defer distributins n Trust Preferred Securities n a cumulative basis fr up t 5 cnsecutive years prvided that dividend payments n all equal r subrdinate capital instruments are suspended. Placement Fee equal t 0.00% f the par amunt f securities issued. Issuer may use the legal cunsel f its chice. Hwever, upn request, StneCastle can recmmend a law firm t represent an issuer at a pre-negtiated price. Issuers will be reimbursed fr ut-fpcket expenses up t $10,000. The initial trustee set-up fee, the trustee s upfrnt cunsel fee, and the annual trustee fees fr the life f the securities will als be cvered and will nt be expenses f the Issuer.