On Monday, Connecticut-based
People's United Financial Inc.
) announced the pricing of nearly $500 million worth of senior
notes. The offering is anticipated to culminate on December 6,
2012, subject to customary closing conditions.
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The offering constitutes 3.65% senior notes having maturity date
on December 6, 2022. The proceeds from the offering are planned
to be utilized for stock buybacks, for extending credit as well
as capital to its principal subsidiary People's United Bank and
for other general and corporate purposes.
J.P. Morgan Securities LLC - a wing of
JPMorgan Chase & Co.
) - is the sole book-running manager for the offering.
Jefferies Group, Inc.
The Goldman Sachs Group, Inc.
) are acting as joint managers for the offering.
The issue of notes will increase the company's interest expenses,
thereby, leading to a fall in the net interest income. Total
interest expense in the quarter came in at $25.5 million compared
with $34.0 million in the year-ago quarter and $26.8 in the
As the company plans to utilize the proceeds from the note
issuance to repurchase shares, we think the company is not able
to generate sufficient cash form its operations. However, such
fund raising activities will help it to bring down the cost of
capital and strengthen the balance sheet. On the other hand, the
sluggish economic recovery, a low interest rate environment as
well as stringent regulations continue to be the causes of
People's United currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. Considering the
fundamentals, we also maintain our long-term Neutral
recommendation on the stock.