Summary
This 8-K filing by U.S. Bancorp (USB) on May 18, 2012, reports the completion of a $765 million redemption of its 6.60% trust preferred securities. This action has significant implications for the company's existing Replacement Capital Covenant, originally established in December 2006. As a result of the redemption, the 6.60% junior subordinated debentures, which were previously designated as the covered debt under the Replacement Capital Covenant, have ceased to be the covered debt. The company has subsequently designated its 6.625% junior subordinated debentures due 2039, underlying the 6.625% trust preferred securities of USB Capital XIII, as the new covered debt under this covenant, effective May 18, 2012.
Key Highlights
- 1U.S. Bancorp completed the redemption of $765 million in 6.60% trust preferred securities on May 18, 2012.
- 2The redemption affects a Replacement Capital Covenant originally dated December 22, 2006.
- 3The 6.60% junior subordinated debentures, previously the covered debt, are no longer designated as such.
- 4The 6.625% junior subordinated debentures due 2039 have been redesignated as the covered debt under the Replacement Capital Covenant.
- 5This change in covered debt is effective as of May 18, 2012.
- 6The Replacement Capital Covenant is related to a preferred stock issuance by USB Realty Corp., a subsidiary.
Frequently Asked Questions
The primary event is U.S. Bancorp's redemption of $765 million of its 6.60% trust preferred securities and the subsequent redesignation of covered debt under its Replacement Capital Covenant.
A Replacement Capital Covenant is an agreement that restricts a company's actions, typically related to dividends or debt, to ensure that certain debt remains in place or that the company maintains a certain capital structure. In this case, it impacts which of U.S. Bancorp's junior subordinated debentures are considered 'covered debt' under the covenant.
The redesignation means that the terms and restrictions associated with the Replacement Capital Covenant will now apply to the 6.625% junior subordinated debentures due 2039, rather than the previously designated 6.60% debentures. Investors holding these new covered securities should review the terms of the covenant, which is incorporated by reference.
While the redemption involves a significant principal amount, it appears to be a strategic move related to managing the company's capital structure and debt instruments. The filing indicates the company is actively managing its obligations under existing covenants. Investors should consult the company's 2011 10-K for more details on the covenant and its implications.