MBNA America Bank will probably be the first to tap the subordinated debt market since easier rules governing these offerings took effect last month.
The bank is marketing a $200 million issue to investors in Boston, New York, and Chicago this week, and it plans to price the offering this week or next, according to market sources.
MBNA America is the flagship bank of Delaware-based MBNA Corp., a credit card banking company.
"We expect to grow, and growth needs to be supported by capital," said David Spartin, senior vice president for investor relations at MBNA.
Under new rules from the comptroller of the currency and the Federal Reserve Board, lead banks of holding companies will have less stringent requirements for preregistering subordinated debt issues with the bank regulatory agencies.
Subordinated debt offerings have typically been done through bank holding companies, which have had easier filing requirements at the Securities and Exchange Commission.
MBNA's move is apparently not directly linked to the new easier filing requirements, but the bank is pioneering a path that will be followed by others, market observers said.
Few Bank Issues
Only a few banks - such as Morgan Guaranty Trust Co., a subsidiary of J.P. Morgan & Co., and Continental Bank -- have issued subordinated debt to the public in recent years. It reportedly took Continental eight weeks to get one issue off the ground under the old rules. Issuance is likely to grow once banks have time to examine the new rules, said William King, fixed-income analyst at Merrill Lynch & Co.
Future subordinated debt issues will be driven by the desire to reach a 10% total capital ratio, a key element in satisfying the Federal Deposit Insurance Corp.'s definition of a "well-capitalized" bank, said Mr. King.
In addition, a bank's subordinated issue typically gets a higher credit rating than a holding company's subordinated debt, he said, thus cutting the borrower's cost. Borrowers could save five to 10 basis points by opting for a bank offering instead of one by the bank holding company, Mr. King estimated.
"It's early to get a real clear read on whether you can push it further than that," said Mr. King.
Joseph Labriola, a banking analyst at Kidder, Peabody & Co., estimated that lower-quality issuers could save as much as 25 to 30 basis points by opting for bank issues. Higher-quality issuers could see savings as small as five basis points, he said.
Mr. Spartin said MBNA America already has a strong, 8.06% Tier 1 capital ratio. Subordinated debt, which count as Tier 2 capital, is a lower-cost form of capital than Tier 1, he said.
At the end of the second quarter, MBNA America met the FDIC's requirements for well-capitalized banks, with a 6.51% leverage into and a 10.27% total capital ratio.
Well-capitalized banks will pay the lowest deposit insurance premiums when risk-based premiums take effect next year.
Merrill Lynch & Co. is lead manager for the MBNA offering, which will have a 10-year maturity.
