Summary
U.S. Bancorp (USB) filed an 8-K on June 3, 2011, to announce an amendment to its Replacement Capital Covenants. These covenants are agreements with debt holders that require the company to maintain a certain level of "qualified replacement capital" in the event of certain events, such as the redemption of specific debt instruments. The amendment primarily impacts how the company calculates this qualified replacement capital going forward. The key change introduced by this amendment is that, effective June 3, 2011, proceeds from the sale of certain equity securities, including common stock, preferred stock, and mandatorily convertible preferred stock, will be recognized for the purpose of calculating qualified replacement capital without regard to the issuance date of those securities. This provides U.S. Bancorp with greater flexibility in managing its capital structure and meeting its covenant obligations. Additionally, the amendment allows the company to redesignate which series of its eligible debt can become "Covered Debt" under the covenants on or after a specified Redesignation Date.
Key Highlights
- 1U.S. Bancorp amended its Replacement Capital Covenants, originally established between 2006 and 2010.
- 2The amendment broadens the definition of 'qualified replacement capital' to include proceeds from future sales of common stock, rights, qualifying preferred stock, and mandatorily convertible preferred stock, effective June 3, 2011.
- 3This change allows for the recognition of these capital proceeds regardless of their issuance date, providing greater flexibility for the company.
- 4The amendment also grants U.S. Bancorp the ability to redesignate specific eligible debt series as 'Covered Debt' under the covenants.
- 5The original covenants were tied to specific debt issuances, including Income Capital Obligation Notes and Trust Preferred Securities, as well as preferred stock issuances.
- 6The filing includes the full text of the Amendment as Exhibit 99.5.