E*Trade to cut debt by $340 million in restructuring

[March 02, 2015]  NEW YORK (Reuters) - E*Trade Financial Corp, the discount broker and bank that almost collapsed during the financial crisis, said Monday it is retiring $800 million of debt due in 2019 and issuing $460 million of new eight-year notes at a lower interest rate.

The debt restructuring will reduce E*Trade's interest costs by about $30 million a year and cut its debt outstanding by $340 million to a 10-year low of $1 billion.

Company executives set the billion-dollar debt goal last July but none of the 16 Wall Street analysts following E*Trade forecast it would be reached this quickly. Most expected the company to retire its $800 million of 6.375 percent notes around November, when they became callable.

E*Trade's aggressive move will cost it about $70 million that it will pay to investors as a "make-whole" premium to compensate them for the early redemption. The company will recognize the loss this quarter.

Regulators this year enabled the move by removing constraints on E*Trade's cash-rich brokerage to send money to its parent. E*Trade Financial expects to receive about $525 million from E*Trade Securities this quarter to help finance the debt restructuring.

Since the second quarter of 2013, regulators also have allowed the once-crippled E*Trade Bank to pay dividends of $550 million to the company.

Last November the company used cash for the first time in its history to redeem $940 million of senior notes in two issues with coupons of 6 percent and 6.75 percent, and sold $540 million of new 5.375 percent 10-year senior notes.

The seven-year notes that E*Trade is now retiring were issued in 2012 with a coupon of 6.375 percent. The new eight-year issue, which will be callable as of March 2018, is likely to be priced Monday afternoon at 5 percent or lower based on current market conditions.

E*Trade also said Monday that it received a vote of confidence from its banks, which increased a revolving credit line of $200 million negotiated last year by another $50 million. The company has not drawn on the line, which is now at the limit set by loan covenants, a spokesman said.

Morgan Stanley, Goldman Sachs & Co and JPMorgan Chase & Co are joint book-runners on the new issue. Credit Suisse Group and Wells Fargo & Co are co-managers.

(Reporting by Jed Horowitz; Editing by Eric Walsh)

[© 2015 Thomson Reuters. All rights reserved.]

Copyright 2015 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.