E*Trade to issue $1.74 billion new convertibles in oversubscribed exchange offer for 8%, 12½% notes

By Angela McDaniels

Tacoma, Wash., Aug. 20 - E*Trade Financial Corp. said it received tenders for $431,871,000 of its 8% senior notes due 2011 and $1,407,178,248 of its 12½% springing-lien notes due 2017 during an exchange offer that expired at midnight ET on Aug. 19.

E*Trade accepted all of the 8% notes tendered and $1.31 billion of the 12½% notes, according to a company news release.

The company noted that the results for the 8% notes are preliminary and subject to change.

By midnight ET on July 1, holders had tendered $429,616,000 of the 8% notes and $1,407,178,248 of the 12½% notes. The totals include $230,245,000 and $1 billion, respectively, of notes tendered by affiliates of Citadel Investment Group LLC.

The company was offering to exchange all of the 8% notes and up to $310 million principal amount of the 12½% notes not held by Citadel. Because more than $310 million of the 12½% notes were tendered by holders other than Citadel, these notes were accepted on a pro rata basis.

New convertibles details

The company is issuing new zero-coupon convertible debentures due 2019 in exchange for the notes on a par-for-par basis.

The new debentures are convertible into common stock at an initial conversion price of $1.034 per share for class A debentures and $1.551 per share for class B debentures.

Holders who tendered by midnight ET on July 1 will receive class A debentures, and holders who tendered after that time but before the offer expiration will receive class B debentures.

The terms of the class A and class B debentures are identical except for the conversion prices.

Settlement is expected to occur Aug. 24.

Consent solicitation

The company was also soliciting consents to amendments and waivers of some provisions of the indentures governing the notes during the period that ended at midnight ET on July 1.

The needed consents were received, and E*Trade will pay a consent fee of $5 per $1,000 principal amount of notes to holders who delivered consents before July 1 but did not tender their notes.

Holders who tendered their notes before July 1 will be automatically deemed to have delivered consent to the amendments and waivers and to have waived any consent fee.

The company needed consents from holders of a majority of each series of notes. Citadel agreed to tender notes or provide consent as needed to ensure that enough consents were received.

Plans for the offer were first announced June 17, and it began June 22.

The exchange offer is one element of the company's $1.2 billion plan to strengthen its capital structure, which also includes a $400 million public offering of common stock.

The completion of the exchange offer was subject to conditions that included the closing of the stock offering and shareholder approval.

The proceeds from the stock offering will provide additional equity capital, primarily for E*Trade Bank and secondarily for other corporate purposes.

E*Trade is a financial services company based in New York.

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