Discover prices private exchange offers for 10.25% notes, 6.45% notes

By Angela McDaniels

Tacoma, Wash., April 20 - Discover Financial Services determined the exchange prices for its $400 million of 10.25% senior notes due 2019 and $400 million of 6.45% senior notes due 2017, according to a company news release.

Private exchange offers for the notes began on April 9 and will end at 11:59 p.m. ET on May 4.

Holders who exchange will receive new 5.2% senior notes due 2022 and cash.

For each $1,000 principal amount, the exchange price is $1,357.05 for the 10.25% notes and $1,136.97 for the 6.45% notes. These amounts include an early exchange premium equal of $50.00 for each note tendered by 5 p.m. ET on April 20, the early participation date.

The exchange prices will be paid in the following manner:

• $1,000 principal amount of new notes; plus

• A cash amount equal to the exchange price minus the new notes value.

The exchange prices were determined using the yield of a reference Treasury plus a spread. The spread was 245 basis points for the 10.25% notes and 265 bps for the 6.45% notes.

The yield on the new notes will be 5.216%, and the new notes value will be $998.77, which was determined by reference to the 1.966% bid-side yield of a benchmark security.

Holders will also receive accrued interest up to but excluding the settlement date.

The early settlement date is expected to be on April 27 and will apply to all 10.25% notes tendered by the early participation date. The settlement date for the remaining tendered notes is expected to be May 8.

The company is offering to exchange any and all of the 10.25% notes. The maximum amount of 6.45% notes it will exchange is equal to the lesser of (a) $50 million and (b) the difference between $250 million and the principal amount of new notes issued in exchange for 10.25% notes.

If holders tender enough 10.25% notes to result in the issuance of more than $250 million of new notes, no 6.45% notes will be accepted for exchange.

If the company accepts any 6.45% notes and if the amount of 6.45% notes tendered exceeds the cap, the tendered 6.45% notes will be accepted for exchange on a pro rata basis.

The exchange offers are subject to conditions that include the receipt of enough tendered notes to result in the issuance of at least $250 million of new notes.

The offers are only being made to qualified noteholders.

The information agent is D.F. King & Co., Inc. (800 848-3416 or, for banks and brokerage firms, 212 269-5550).

Discover is a bank holding company based in Riverwoods, Ill., that offers direct banking and payment services.

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