CoBank, a cooperative bank serving agribusiness, rural infrastructure providers and Farm Credit System associations throughout the U.S., announces that it has repurchased $95.3 million of its 7.875% subordinated notes due in 2018.
The bank announces a cash tender offer for up to $150 million of the notes with the tender period running through Dec. 12, 2012. The amount actually repurchased was $95.3 million.
As a result of this action, CoBank officials say they will realize a net interest savings of about $6.6 million per year over the next five years.
At the same time, the bank recorded debt extinguishment costs of $28.1 million in the fourth quarter of 2012.
"We're pleased to have successfully closed this transaction, which will deliver meaningful interest savings for the bank and help us to optimize our overall capital position," says David P. Burlage, CoBank's chief financial officer.
The bank has been analyzing its capital structure through 2012 to account for a variety of factors, including the U.S. AgBank merger, which officials say strengthened CoBank's capital position, as well as the current low interest rate environment and growth conditions in the broader economy.
"CoBank's strong capital levels allow us to retire a portion of these notes, which carry a relatively high interest cost, while maintaining the capacity necessary to serve the borrowing needs of our customers," says Mary E. McBride, CoBank's chief banking officer.
This is the latest in a series of third-party transactions for CoBank in recent months. In early October, the bank redeemed $363.3 million of previously issued cumulative perpetual preferred stock and then issued a new series of higher quality, non-cumulative perpetual preferred stock totaling $400 million at a lower dividend rate.
"CoBank's status as an experienced issuer of non-member capital continues to benefit both the bank and its customer-owners," says Burlage. "We will continue to analyze conditions in the capital markets and look for opportunities that maximize the strength and flexibility of the bank while minimizing our costs."