Discover Bank prices exchange offer for $500 million 8.7% notes

By Marisa Wong

Madison, Wis., Nov. 1 - Discover Bank announced pricing terms for the private offer to exchange up to $500 million of its $700 million outstanding 8.7% subordinated notes for cash and new senior notes due Nov. 21, 2022 issued by parent company Discover Financial Services.

The new notes will have a coupon of 3.85%. The yield will be 3.874%, and the new notes value will be $998.03, based on the bid-side yield on the 1.625% U.S. Treasury due Aug. 15, 2022 and a spread of 135 basis points. The reference yield was 1.724% as of 11 a.m. ET on Nov. 1.

Holders who tender their notes by 5 p.m. ET on Nov. 1, the early participation date, will receive the total exchange price of $1,351.53 per $1,000 principal amount of notes. The total exchange price includes a $50.00 early exchange premium and will be paid as follows:

• $1,000 principal amount of new notes; and

• $353.50 in cash, which is equal to (a) the total exchange price minus (b) the new notes value.

Holders who tender their notes after the early participation date will not be eligible to receive the early exchange premium and will be paid

• $1,000 principal amount of new notes; and

• $303.50 in cash, which is equal to (a) the exchange price of $1,301.53 minus (b) the new notes value.

The bank will also pay accrued interest up to the settlement date.

The exchange offer began on Oct. 19 and will expire at 11:59 p.m. ET on Nov. 16. Settlement is slated for Nov. 21.

Tendered notes may be withdrawn by the early deadline.

As previously noted, the exchange offer is conditioned on a minimum issue of $250 million principal amount of new notes in exchange for the bank's 8.7% notes.

If the amount of tendered notes exceeds the offer cap, the bank will accept the notes for exchange on a pro rata basis, according to a prior company press release.

D.F. King & Co., Inc. (800 859-8509 or banks and brokerage firms 212 269-5550) is the information agent.

The exchange offer is only being made to qualified institutional buyers under Rule 144A and those who are not U.S. persons under Regulation S.

The bank is a subsidiary of Discover Financial, a Riverwoods, Ill.-based direct banking and payment services company.

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