U.S. Bancorp : Sells $1.3 Billion of 10-Year Subordinate Debt
07/18/2012| 05:32pm US/Eastern
--U.S. Bancorp. sells subordinated bonds after publishing second-quarter earnings
--Bonds yield 1.50 percentage points over Treasurys
(Updates with confirmation of sale, details on yield.)
By Patrick McGee
U.S. Bancorp. (USB) sold $1.3 billion of subordinate bonds Wednesday, just hours after reporting that second-quarter profits rose from a year earlier.
The 2.95% coupon, 10-year subordinate bonds offered investors a yield of 2.987%, or 1.50 percentage points more than the Treasury rate. They have provisional ratings of 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 were lead bookrunners on the sale. Proceeds are for general corporate purposes.
Write to Patrick McGee at firstname.lastname@example.org
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