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In an effort to ease its debt pressure, BancorpSouth, Inc. (BXS - Analyst Report) recently announced the redemption of 8.15% Trust Preferred Securities (TruPS). These TruPS are worth $125.0 million.

The redemption price associated with these preferred stocks is $25 per TruPS. Moreover, any unpaid and accrued interests will be included with the redemption price and disbursed to stockholders within the next 60 days.

The redemption will be funded by $75.0 million of available cash, along with $50.0 million of borrowing. BancorpSouth will also have to bear a one-time unamortized issuance cost of $2.9 million (after-tax) in third-quarter 2013.

Nevertheless, TruPS redemption will lower interest expenses and enhance BancorpSouth’s liquidly position in the following quarters. Attributable to the aforesaid redemption, BancorpSouth’s interest expenses are expected to fall by $9.1 million net of tax savings annually, while net interest margin is likely to improve by 9 basis points. The company’s interest expense in first quarter 2013 was $14.9 million and net interest margin was 3.37%.

Notably, BancorpSouth’s decision to redeem TruPS is in line with the new capital rules proposed by the Federal Reserve in Jun 2012. Underlying the new guidelines, TruPS issued prior to May 19, 2010 will not be considered for calculation of Tier 1 capital ratio.

In the last few months other banks that have undertaken similar redemption actions include Regions Financial Corporation (RF - Analyst Report), which redeemed TruPS worth $498.0 million, Zions Bancorp (ZION - Analyst Report), $285.0 million, and JPMorgan Chase & Co. (JPM - Analyst Report), $5 billion.

Currently, BancorpSouth carries Zacks #3 (Hold).

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