US Bancorp Issues Senior Notes

On Sept. 2, 2009, US Bancorp (USB) announced the sale of 3.5 year senior notes worth $350 million. The size of the deal represents a 40% increase from the originally planned $250 million.

Barclays (BCS) acted as the sole book-runner for the sale of these notes. The notes carry a coupon rate of 2.125% and will mature on Feb 15, 2013. The notes will pay coupons semi-annually with the first payment expected on Feb 15, 2010. The company will use the sale proceeds of the debentures for general corporate purposes.

Standard &Poor’s Ratings Services (S&P) assigned an ‘A+’ rating while Fitch ratings assigned an ‘AA-’ rating to the senior notes. Moody’s assigned US Bancorp’s ‘AA3′ rating to the notes.

US Bancorp’s second quarter earnings of 12 cents per share were a penny short of the Zacks Consensus Estimate, reflecting deteriorating credit quality. However, we have been encouraged by the company’s exit from the TARP program. Despite the dilutive impact, the recent capital bolstering initiatives are also viewed positively as these will not only reduce government intervention but also help in maintaining a strong capital base in a soft economic environment.

Nevertheless, we think that the stressed residential real estate markets and mortgage-related industries and the impact from the U.S. economic issues on commercial and retail customers will continue to weigh on USB shares. Hence, we have a Neutral recommendation on the stock.

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