Trups are trust preferred securities. Bbt has around $3.2 billion outstanding. These securities are debentures sold to a trust which in turn sold an equivalent amount of preferred stock to investors. The preferred stock is BBT A, B and C shares outstanding. Their par value is $25 per share. They yield something like 8 to 9% at par. Bbt is calling these debentures in 2013, paying the trust $3.2 billion which is the par or liquidation amount. This money will be distributed to preferred shareholders.
Bottom line is that BBT is getting rid of high interest debt. I think however, that they are already largely hedged in 2012 via interest rate swaps which has driven down the cost of their long term debt. You can see this by looking at the cost of their long term debt overtime. Note that when they announced the redemption earlier this year they started to amortize the swap benefit into their quarterly p&l. As I recall, long term debt dropped from 4 to 3%, a major driver of their nim in 2011.
$3.2 billion is about 1 solid year of earnings and I think bbt will pay for this by building up their retained earnings, so I look for the dividend payout ratio to remain in the 30% plus range for awhile. Of course, much depends on M&A activity. It would be terrific if Sunstrust and BBT agreed to mege based on today's market cap. Sti is selling about $9 below their tangible book. There is a bonanza in cost reduction. I think it would be super accretive to BBT earnings. I don't think their cultures are similar - providing the best value proposition in the market.
Norm-Thanks for the trups lesson. I presume that BB&T was in a shoring up capital expansion mode when these were issued since they commanded such a high interest(or dividend) rate.Are any cronies involved in deals like there? Would you mind telling me what your profession is. It seems that spend a lot of time analyzing BB&T finances. Thanks again.