U.S. Bancorp : Issuing $1.3 Billion of 10-Year Subordinate Debt
07/18/2012| 02:40pm US/Eastern
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By Patrick McGee
U.S. Bancorp. (USB) plans to sell $1.3 billion of subordinate bonds Wednesday, just hours after reporting that second-quarter profits rose from a year earlier.
The 10-year subordinate bonds are expected to offer investors a yield of 1.50 percentage points more than the Treasury rate. They are expected to be rated A1 by Moody's Investors Service, A-minus by Standard & Poor's, and A-plus by Fitch Ratings.
The bank's senior 10-year bonds, which are more highly-rated, recently traded at 0.95 percentage points over Treasurys, yielding 2.433%, according to MarketAxess.
"Subordinate" means these bonds sit lower in a bank's capital structure, exposing them to greater default risk. Banks are willing to pay a higher cost of funding by issuing subordinate bonds because so-called Basel III rules allow them to count the lower-tier debt as capital, which serves to strengthen their balance sheet while cushioning senior bondholders.
U.S. Bancorp. reported a quarterly profit of $1.42 billion, or 71 cents a share, up from $1.2 billion, or 60 cents a share, a year earlier. Revenue climbed 8.1% to $5.07 billion.
U.S. Bancorp., Credit Suisse, and Morgan Stanley are leading the sale. Proceeds are for general corporate purposes. Shares were up 1.34% in mid-afternoon trading.
Write to Patrick McGee at patrick.mcgee@dowjones.com
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