Following Popular, Inc.’s (BPOP - Snapshot Report) announcement to fully clear its Troubled Asset Relief Program (:TARP) dues, the company has priced the public offering of senior notes worth $450 million to fund the repayment. The offering is expected to close on Jul 1, 2014.
The senior notes that are set to mature on Jul 1, 2019 will carry an annual interest of 7%. Popular will make interest payment on Jan 1 and Jul 1 of each year, beginning Jan 1, 2015.
J.P. Morgan Securities LLC, an arm of JPMorgan Chase & Co. (JPM - Analyst Report) , is serving as the capital advisor and sole book-running manager, while Goldman, Sachs & Co., a subsidiary of The Goldman Sachs Group, Inc. (GS - Analyst Report) , is acting as senior co-manager for the offering. Co-managers for the offering include Barclays PLC (BCS - Analyst Report) and Credit Suisse Securities (USA) LLC.
Utilization of the Net Proceeds
Popular intends to utilize around $400 million of the net proceeds, along with additional available cash, for redemption of its junior subordinated debentures. These debentures, held by Popular Capital Trust III, will be redeemed at a price of 100% of the principal amount outstanding along with accrued and unpaid interest.
Consequently, Popular Capital Trust III will redeem trust capital securities of $935 million held by the U.S. Treasury. In Aug 2009, these securities were issued to the U.S. Treasury in exchange for 935,000 shares of Popular’s Series C preferred stock – initially issued in Dec 2008 to the U.S. Treasury under the TARP Capital Purchase Program.
The TARP was set up to bail out troubled institutions at the peak of the 2008 financial crisis. The aim of this program was to stabilize the financial system, restore economic growth and prevent foreclosure. It authorized the U.S. Treasury to purchase troubled companies’ assets and equity.
Popular plans to use the remaining proceeds for enhancing its financial flexibility.
With the gradual economic recovery, many financial companies like Popular have come a long way and improved their overall business performance. Consequently, many such companies, which were offered assistance through TARP, cleared their dues, either fully or partially.
Though the offering will add to Popular’s interest expenses, the repayment of the TARP dues is set to relieve the company from much of its debt burden.
Popular currently holds a Zacks Rank #1 (Strong Buy).