Regions Financial Corp. issued $100 million of subordinated debt last week, using a new twist for a bank holding company which lowered its funding cost.

The 30-year, 7 3/4% notes contain a put option allowing the holder to redeem all or part of the notes after 10 years at 100% of the principal amount plus accrued interest.

Regions and its investment bankers said this is the first time in memory that a bank holding company has issued subordinated debt with a put option.

"Put bonds tend to have appeal to investors in a bearish market, and this is certainly a bearish market," said Fred Sherrill, a vice president at CS First Boston, the lead underwriter of the deal. "If corporate issuers can do this, why not bank holding companies?" he added.

Subordinated debt issuance by bank holding companies is off by nearly 40% so far this year, though the decline also reflects the fact that the industry is, if anything, overly capitalized.

Through Sept. 16, bank holding companies had issued $6.3 billion of sub debt, compared with $10.45 billion during the same period last year, according to Securities Data Co.

In the case of Regions, the acquisition-minded company is using proceeds from the note offering to finance two of three pending purchases of banks in Louisiana, Georgia and Alabama.

Robert Houston, executive vice president and controller of Birmingham, Ala.-based Regions, said the put option enabled the company to price the issuance below the cost of a conventional 10-year subordinated note with a bullet payment, which is what the company has tended to issue in the past.

The Regions notes were priced at par to yield 47 basis points over the 10-year U.S. Treasury note. They were priced on Sept. 8 and issued late last week.

Mr. Houston said the company probably would have paid a spread of at least 60 basis points if it had issued 10-year notes.

Even if interest rates are lower 10 years from now and holders decline to exercise their put option, Mr. Houston said 7.75% 30-year financing is "not unattractive."

Formed in 1971, Regions was the first multibank holding in Alabama. Regions changed its name from First Alabama Bancshares this past May, to reflect its strategy of expanding through acquisitions in the Southeast.

In the past four years, Regions has completed 16 acquisitions, bringing its asset size to $10.8 billion at June 30.

When the three pending acquisitions are completed, Regions' assets size will exceed $12 billion.

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