KeyCorp gives results in exchange offers for 7.75% convertible preferreds, trust preferreds

By Jennifer Chiou

New York, July 1 - KeyCorp announced the final results of its completed exchange offers for its 7.75% non-cumulative perpetual convertible preferred stock, series A as well as the trust preferred securities issued by KeyCorp Capital I, KeyCorp Capital II, KeyCorp Capital III and KeyCorp Capital VII.

The exchange offers expired at 11:59 p.m. ET on June 30. The payment date is July 6.

The company said that 2,130,461 of the series A preferreds were validly tendered while $294,014,000 aggregate liquidation preference of the trust preferreds were tendered for exchange.

Specifically, $42.1 million of the KeyCorp Capital I trust preferreds; $77,229,000 of the KeyCorp Capital II trust preferreds; $86,403,000 of the KeyCorp Capital III trust preferreds; and $88,282,000 of the KeyCorp Capital VII trust preferreds were tendered for exchange.

The company calculated the exchange ratio for the $797,647,000 trust preferred securities issued by KeyCorp Capital I, II, III and VII on June 29.

As already noted, for securities tendered by the expiration, KeyCorp will issue 132.5732 common shares per KeyCorp floating-rate capital 1 trust preferred and 151.5123 shares for each of the remaining trust preferreds.

For securities tendered by 5 p.m. ET on June 16, the early tender date, the company will issue 142.0428 shares per each capital trust preferred and 160.9818 for each of the remaining trust preferreds.

For the series A preferreds, the company will issue 13.721 common shares for each preferred.

In all, KeyCorp said it will issue 29,232,025 common shares for the tendered series A preferreds. Upon settlement, 2,904,839 shares of the series A preferreds will remain outstanding.

And, about 46.3 million KeyCorp common shares will be issued in exchange for the trust preferreds.

KeyCorp determined the ratio based on a total exchange value of $750 for each $1,000 liquidation preference of the capital trust preferreds divided by $5.2801, the average volume-weighted average price of its common shares during the five consecutive trading days ending on June 26.

For the remaining trust preferreds, the ratio was based on an exchange value of $850 divided by the average VWAP of $5.2801.

The total exchange value for the four series included a $50 premium for notes tendered by the early tender date.

For the series A preferreds, the exchange ratio was determined by adding 7.0922 KeyCorp common shares to the number of shares equal to $35.00 divided by $5.28, the arithmetic average of the daily volume-weighted average per share price of KeyCorp common shares for each trading day in the five consecutive trading days ended June 26.

These exchanges were the principal components of KeyCorp's plan to improve its tier 1 common equity ratio as required under the Supervisory Capital Assessment Program of the U.S. Treasury and the Federal Reserve System. KeyCorp was told it must raise $1.8 billion in additional tier 1 common equity.

In the aggregate, the exchange offers generated about $540 million of additional tier 1 common equity. KeyCorp said it will also reduce its dividend and interest obligations on exchanged securities by about $70 million through the end of the SCAP assessment period.

Together with the $1.3 billion of tier 1 common equity previously raised by KeyCorp following receipt of the SCAP results, KeyCorp said it believes that it has now complied with the requirements of the SCAP assessment.

"These exchange offers are part of a broader capital plan that Key has been implementing to strengthen our capital in the event that the economy deteriorates in a manner that is consistent with the government's 'more adverse scenario' from the SCAP assessment," Henry Meyer, KeyCorp chairman and chief executive officer, said in a news release.

KeyCorp said it additionally has obtained consents from holders of a majority of the trust preferred securities of KeyCorp Capital I and KeyCorp Capital II to amend the amended and restated trust agreements to enable the redemption of any trust preferred securities. A separate cash consent fee of $2.50 per $1,000 liquidation preference will be paid to tendering and/or consenting holders.

Computershare Trust Co., NA (781 575-2332) was the exchange agent, and D.F. King & Co., Inc. (800 431-9633 or, for bankers and brokers, 212 269-5550) was the information agent.

As previously reported, the company announced plans on May 27 to hold an exchange offer for the 5.875% trust preferreds issued by KeyCorp Capital V, the 6.125% trust preferreds issued by KeyCorp Capital VI, the 7% enhanced trust preferreds issued by KeyCorp Capital VIII, the 6.75% enhanced trust preferreds issued by KeyCorp Capital IX and the $740 million 8% enhanced trust preferreds issued by KeyCorp Capital X.

KeyCorp is the holding company for KeyBank and is based in Cleveland.

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