Synovus Financial Corp., akin to what might be called a credit-card balance transfer, said today it is selling senior notes valued at $250 million to pay off just under $207 million in notes that are fast approaching their maturity date.
It’s something the Columbus-based regional bank has done before. And it positions the company to make other financial moves without the maturing debt hanging over its head waiting to be repaid, said Patrick Reynolds, Synovus director of investor relations.
“It’s a fact of life that those notes are coming due. So you have to make decisions on when you should refinance those notes,” Reynolds said of the outstanding notes valued at $206.75 million. They are due to mature Feb. 15, 2013.
“The thought process behind it is, if you can, pay them off now. It takes that off the table when you’re dealing with other issues, maybe next year,” he said. “Those issues would include, as we’ve talked about, our continued profitability, the recovering of the $800 million of our deferred tax asset allowance, and the possible repayment of TARP.”
Synovus, parent company of Columbus Bank and Trust Co., still owes $968 million through the federal Troubled Asset Relief Program. It took the money in December 2008 at the peak of the U.S. financial crisis to shore up its operations.
Kessel Stelling, Synovus chairman and chief executive officer, has repeatedly said repayment of TARP funds will occur after the company becomes consistently profitable. The bank eked out a penny-per-share profit in the third and fourth quarters of 2011. But last month he said repayment is not a “near-term event.”
The deferred tax asset, meanwhile, was accumulated over three straight years of losses. It can be used in part or in full to offset taxes owed the government, presumably boosting net earnings at some point in the future.
Reynolds said the company made the decision to sell the new senior notes, which will mature in 2019, because the debt markets are active now.
“You never know,” he said. “Three months ago, four months ago, the Greeks had blown up the debt market and nobody could issue debt at that time. So it’s a timing issue. It’s an issue of knowing that you are going to refinance that debt, picking the right time to do that and, hopefully, getting the benefit of that out of the way.”
The public offering of $250 million in senior notes began today. While individuals can buy them, Reynolds said, institutional investors [--] such as mutual fund managers [--] will likely be the primary purchasers.
Retiring the old 2013 notes involves Synovus buying them back at a certain value. Note holders have until 11:59 EST on March 6 to cash them in. However, those who do so by 5 p.m. EST on Feb. 21 receive an additional $30 per $1,000 of the principal amount on top of the accrued interest of 4.875 percent. After that, the sum paid per $1,000 is $970.
Synovus hedged everything today by saying the offer can be terminated or extended at any time if necessary. It also said J.P. Morgan Securities will handle the dealings.
Any money raised beyond the amount needed to pay off the 2013 debt will go into the bank’s operations for “general corporate purposes,” Synovus said.
“You’ve got $206 million (in notes) that are coming due and you’re looking to raise around $250 million,” Reynolds said. “That gives you a little extra cash.”
