Here's the reason the stock is down (but I think they meant to say "plans to raise $1.75 billion....
Pennsylvania-Based Sovereign Bank Plans Stock Offering
Oct. 20 (Providence Journal/KRTBN)--Sovereign Bancorp, which is poised
to become New England's third-largest bank, yesterday announced it
plans to raise $1.75 million, most of it through a public stock
offering, to pay for the purchase of 268 Fleet and BankBoston branches
throughout the region.
Officials from the Pennsylvania-based bank will travel to major cities
across the country during the next few weeks to meet with investment
bankers and large institutional investors to try to raise interest in
the offering.
Sovereign intends to offer about $300 million of common stock, $250
million of convertible trust preferred securities and $700 million in
senior debt, which is similar to a bond issue.
Sovereign will seek another $500 million from a syndicated bank loan,
which its investment bankers, Lehman Brothers and Saloman Smith Barney,
would underwrite.
Most of the stock is expected to be bought by large, institutional
investors, said Mark R. McCollom, the bank's chief accounting officer.
"We want to put the financing behind us so we can put all our efforts
into integrating the company," McCollum said.
Sovereign will spend $1.4 billion of the money it raises to pay for
the Fleet and BankBoston branches.
Sovereign must make a $500-million "down payment" for the purchase by
Dec. 15. That money will be held in escrow until the deal closes. Under
the agreement with Fleet, Sovereign must raise the rest of the purchase
money by Jan. 31.
Besides paying for the Fleet-BankBoston branches, Sovereign also needs
to raise additional money to ensure the growing bank remains well
capitalized.
Under a unique arrangement available only to savings-and-loans,
Sovereign plans to use $350 million raised by the holding company and
transfer it as "equity" to the bank, thereby reducing, at least on
paper, the amount of debt the bank is carrying, according to McCollom.
Even with this additional cushion, rating agencies such as Standard &
Poors have indicated that Sovereign's hefty debt may prompt them to
downgrade the company's bond rating.
Sovereign's McCollom said that if that happens, it still would not
impact the bank's earnings performance.
By Lynn Arditi
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