On Tuesday, New York-based online brokerage firm, E*TRADE Financial Corporation ( ETFC ) announced the pricing of senior notes worth $1.3 billion. This particular step reflects the company's efforts to refinance costlier debt.
The offering includes $505 million worth of senior notes maturing in 2017. These are priced at par and carry an annual coupon rate of 6.000%. These are callable from November 15, 2014. The remaining $800 million of senior notes, with expiration date in 2019, are also priced at par and bear an annual interest rate of 6.375%. These are callable from November 15, 2015.
E*TRADE anticipates the offering to be completed on November 14, 2012, subject to certain customary conditions. The sale proceeds from the offering are planned to be used for redeeming 12.500% Springing Lien Notes and 7.875% Senior Notes maturing in 2017 and 2015, respectively, with the total redemption amount being $1.3 billion. The amount includes redemption premiums, principal amount, accrued interest and also the associated fees and expenses.
In the third quarter, E*TRADE maintained its bank capital ratios well above the regulatory requirement. As of September 30, 2012, the company reported Tier 1 common ratio of 10.9%, up from 10.2% in the prior quarter and 9.3% in the year-ago quarter.
Total risk-based capital ratio was 19.3%, up from 18.0% in the prior quarter and 17.2% in the prior-year quarter. Tier 1 leverage ratio was 7.9%, in line with the last quarter, but down from 8.1% in the comparable quarter last year.
Corporate interest expense in the third quarter was $45.5 million compared with $45.3 million in the preceding quarter and $44.8 million in the prior-year quarter. Further, corporate debt was $1.5 billion as of September 30, 2012 rising marginally by 0.3% sequentially and 0.8% as of December 31, 2011.
We believe E*TRADE's proactive efforts, such as the abovementioned notes offering, will help it bring down the cost of capital and strengthen the balance sheet. Further, these steps are expected to favor the company's future growth.
However, E*TRADE still needs to work hard to remove the risky mortgage assets from its portfolio. In addition to all these, a lingering economic recovery, a low interest rate environment as well as stringent regulations continue to be the causes for concern.
E*TRADE 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.