BNY Mellon to Redeem $550M TruPS - Analyst Blog

By Zacks | October 29, 2012 AAA

The Bank of New York Mellon Corporation (BK) - also known as BNY Mellon - has announced that it will redeem trust preferred securities (TruPS) worth $550.0 million. The redemption will include 6.875% Trust Preferred Securities, Series E (BKPrE), issued by BNY Capital IV as well as 5.95% Trust Preferred Securities, Series F (BKPR), issued by BNY Capital V. Both the categories carry a scheduled redemption date of November 26, 2012.

The abovementioned categories of TruPS would be redeemed at $25 each. This represents 100% of the liquidation amount. The redemption amount will also include accrued and unpaid distributions till the redemption date. The accrued and unpaid distribution amount per TruPS is 40.582 cents for the 6.875% Trust Preferred Securities, Series E and 10.330 cents for 5.95% Trust Preferred Securities, Series F.

The Depository Trust Corporation (DTC) holds the TruPS in book-entry form and redemption of these will take place in agreement with the procedures of DTC.  

Redemption of TruPS is going to be a positive step for BNY Mellon since this will enable the bank to further bring down its interest expenses as these securities demand higher rates compared to others. The company's interest expenses were $128 million in the third quarter compared with $153 million in the prior-year quarter.  

Further, the redemption will lead to a reduction in BNY Mellon's long-term debt, which will go a long way in improving its overall financials. As of September 30, 2012, the bank's long-term debt stood at $19.5 million compared with $19.9 million as of December 31, 2011.

Apart from BNY Mellon, many other banks have redeemed TruPS in the past months. In August, BB&T Corporation (BBT) redeemed $3.1 billion of TruPS. Moreover, in July, JPMorgan Chase & Co. (JPM) has redeemed nearly $9 billion in TruPS and SunTrust Banks Inc. (STI) has redeemed TruPS worth nearly $1.19 billion.

BNY Mellon 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.
 

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