What is the primary purpose of this $500 million securities issuance?

The primary purpose is to raise capital for The PNC Financial Services Group, Inc. (PNC). The issuance is structured to enhance PNC's capital base, particularly through its indirect subsidiary, with the underlying assets linked to mortgages and mortgage-related assets.

Under what circumstances would the Trust Securities be exchanged for PNC's Preferred Stock?

The Trust Securities would be automatically exchanged for PNC's Series I Non-Cumulative Perpetual Preferred Stock if a 'Conditional Exchange Event' occurs. This includes situations where PNC Bank becomes 'undercapitalized' as defined by the Office of the Comptroller of the Currency (OCC), is placed into conservatorship or receivership, or if the OCC directs such an exchange in anticipation of these events.

What restrictions are in place regarding PNC's ability to pay dividends or repurchase its own stock?

PNC has entered into an Exchange Agreement that restricts its ability to declare or pay dividends on, or redeem or acquire, its equity capital securities for a period following any dividend period in which full dividends are not paid on the associated Series 2007-A Company Preferred Securities and the Trust Securities. Certain exceptions apply, such as for employee benefit plans or contractual obligations existing prior to the restriction period.

What is the significance of the Replacement Capital Covenant?

The Replacement Capital Covenant, in effect until March 29, 2017, imposes limitations on PNC and its subsidiaries regarding the purchase or redemption of the newly issued securities and related preferred stock. It requires prior approval from the Federal Reserve Board (if applicable) and proof of proceeds from the sale of 'Qualifying Securities' before such repurchases can occur, ensuring that replacement capital is available.

PNC 8-K: Shareholder Matters

Summary

PNC Financial Services Group, Inc. (PNC) filed an 8-K on March 30, 2007, reporting the closing of a $500 million issuance of Fixed-to-Floating Rate Non-Cumulative Exchangeable Perpetual Trust Securities through its indirect subsidiary, PNC Preferred Funding LLC. These securities were offered to qualified institutional buyers and qualified purchasers. The issuance is structured to provide capital to PNC, with the Trust Securities backed by preferred securities of the subsidiary, which in turn holds indirect interests in mortgages and mortgage-related assets. A key feature of this issuance is an automatic exchange mechanism. In the event of specific regulatory actions by the Office of the Comptroller of the Currency (OCC) concerning PNC Bank's capital levels (becoming 'undercapitalized,' conservatorship, or receivership), the Trust Securities can be automatically exchanged for shares of PNC's Series I Non-Cumulative Perpetual Preferred Stock. This structure aims to reinforce PNC's capital position during times of regulatory stress.

Key Highlights

1PNC Financial Services Group, Inc. closed a $500 million issuance of Fixed-to-Floating Rate Non-Cumulative Exchangeable Perpetual Trust Securities.
2The issuance was conducted through an indirect subsidiary, PNC Preferred Funding LLC, and PNC Preferred Funding Trust II.
3Securities were offered to Qualified Institutional Buyers (QIBs) and Qualified Purchasers under Rule 144A.
4A significant feature is the automatic exchange of Trust Securities into PNC Series I Preferred Stock under specific 'Conditional Exchange Event' scenarios related to PNC Bank's regulatory capital status.
5These events include PNC Bank becoming 'undercapitalized,' entering conservatorship, or receivership, as determined by the OCC.
6PNC entered into an Exchange Agreement that restricts its ability to pay dividends on its equity capital if dividends are not paid on the associated preferred securities.
7A Replacement Capital Covenant was established, restricting PNC and its subsidiaries from purchasing or redeeming these 'Covered Securities' until March 29, 2017, without prior Federal Reserve approval and meeting specific proceeds from 'Qualifying Securities' sales.

PNC FINANCIAL SERVICES GROUP, INC. 8-K Report, Rights Modification (Mar 30, 2007)

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