In a research note to investors Tuesday, FIG Partners LLC's Christopher Marinac said he is lowering his rating on Synovus' stock from "outperform" to "market perform" because he expects the new debt issue will increase the company's costs in the long run and thus delay the recovery of its $790 million deferred-tax asset allowance that it claimed during its recent string of money-losing quarters.
Synovus, of Columbus, Ga., said Tuesday that it is planning to offer $250 million of senior debts payable in 2019 to pay off $207 million of subordinated notes that come due in a year. Marinac estimates that the coupon on the new seven-year notes will be as high as 8.50% because the company's overall risk profile is higher than that of many of its peers.
Marinac wrote that while the new bond offering would not have a dramatic impact on earnings, "it is one more roadblock to [Synovus] achieving higher profitability that enables it to recover some portion of the deferred-tax valuation allowance."
The $27 billion-asset Synovus earned two cents per share in each of the last two quarters, but prior to the third quarter of 2011 it had lost money in every quarter for more than three years.
Marinac wrote that Synovus may not recapture a meaningful chunk of the deferred-tax asset allowance until 2014, when he expects the company to start earning 25 cents to 30 cents per share as more normal market conditions return.
"Investors may wish to look further out to 2014 and see the company reporting stronger [earnings per share] and perhaps a greater recapture of the...valuation allowance," Marinac wrote. "We simply feel this requires patience among institutional equity investors who typically desire much faster gratification."
Synovus' shares were trading at $1.89 midday Wednesday, down 1.6% from Tuesday's closing price, but still up 34% since the start of the year.
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