E-Trade plans stock sales and debt exchange

The New York financial services and brokerage provider, E-Trade Financial Corp., on Wednesday uncovered its plan of $1.2 billion capital-raising. That plan includes sale of $400 million of common stock and a debt exchange.

"The proceeds from the common stock offering will provide additional equity capital, primarily for E-TRADE Bank and secondarily for other corporate purposes," the company said.

In April, E-Trade was ordered by the Office of Thrift Supervision to raise more capital in the near term.

As E-Trade said affiliates of company’s stock large holder, Citadel investment Group, would also take participation in the stock and bond transactions. Citadel is committed to purchase either $50 million or $100 million of stock, depending upon the price of offering.

Under the plan, E-Trade will offer $1 billion of newly minted zero coupon convertible debt maturing in 10 years in exchange for all of its outstanding 8% senior notes due in 2011, and some of another issue of 12.5% debt due in 2017. Conversion price of convertible debt will be based on the price of the concurrent common stock offering. As E-Trade said they would be between $1 and $1.2 per share. 

According to E-Trade Citadel has committed to swap at least $800 million total of the two debt issues for the new convertible issue. "This will significantly reduce the company's debt service burden by eliminating interest costs relating to those debt securities that are exchanged and lengthening the weighted-average maturity of its debt securities," the firm said.