National Westminster Bank PLC on Thursday sold $500 million of exchangeable capital securities. increasing the offer from its original $300 million.
The securities start as perpetual debt that carry a 7.875% yield, and can be exchanged by the bank after three years for noncumulative perpetual preferred stock that yields 8.75%. The pricing was in line with the originally proposed terms when the issue was first marketed on Oct. 21. Capital markets sources said NatWest wanted to issue $500 million in debt all along, but the underwriters weren't sure the market was there.
Noncallable for 5 Years
An exchangeable security gives the London-based bank the ability to raise Tier 2 capital immediately, and exchange it for Tier 1 capital for a price that reflects today's low long-term interest rates. The securities are noncallable for five years. The issue was sold in the United States and Europe to traditional buyers of preferred stock, who are largely retail investors. The company issued 20 million shares at $25 each.
Merrill Lynch & Co. and Smith Barney Shearson were co-lead underwriters of the issue, rated Al by Moody's Investors Service and A-plus by Standard & Poor's Corp.
With the issue by NatWest, foreign banks this year have raised $2.1 billion in preferred stock and securities exchangeable into preferred stock, just short of the $2.2 billion raised by domestic banks.
American banks' need for preferred stock is diminishing because their equity capital ratios have generally increased to healthy levels, say capital markets sources. And the industry's high profitability and sluggish loan growth are likely to keep those ratios growing.
