A Union branch in a Martin’s grocery store. (BizSense file photo)
One of Richmond’s biggest banks is looking to pad its coffers.
The parent of Union Bank & Trust announced Tuesday plans to raise $100 million to $125 million in fresh capital through a debt offering.
The exact amount and closing date are to be determined, but the offering is expected to be completed this week. It’s the bank’s first capital raise of any sort since 2009.
The money will be raised by the parent company, Union Bankshares, and passed down to the bank as equity for its “capital stack,” said John Asbury, who last month became head of the bank and will soon be CEO of the entire company.
John Asbury started his tenure as Union Bank CEO Oct. 1.
Asbury, CEO Billy Beale and other Union executives spent Tuesday on conference calls with large investors that have an appetite for these sorts of offerings, typically insurance companies and large money managers.
Structured as a subordinated note offering, the process is an alternative to a typical stock offering.
“It’s more shareholder friendly,” Asbury, referring to the fact that a debt offering won’t dilute current shareholders by creating more shares of Union stock.
“It’s considered a relatively inexpensive form of capital… and market conditions are excellent for this type of capital.”
They said there is an appetite from big investors to purchase debt that pays a better interest rate than U.S. Treasury notes.
And, Beale said, the interest rate on the debt, which is likely to be somewhere around 5 percent, compares favorably to the returns paid out in a typical stock offering
“If we were to issue common equity, the expected return that shareholders would want is 13-15 percent,” Beale said.
Billy Beale is retiring as CEO.
Union said the money from the offering will be used to pay down an existing of credit, to add to the bank’s capital levels and for “general corporate purposes.”
Those general corporate purposes are likely to include growing the bank’s loan portfolio, rather than use the new capital for potential acquisitions.
Beale said the recent performance of the bank’s stock price, which at an all-time high and closed Tuesday at $33.84 per share, gives it the clout to go after deals regardless of the new capital.
“Considering what our stock price is now, we’d more likely use the stock to acquire rather than cash.”
The capital raise comes as Union is in the midst of a changing of the guard.
Asbury took over as president and CEO of the bank on Oct. 1, as well as president of the holding company. He’ll step into the overall CEO chair at the beginning of the New Year, as Beale retires from the post after 25 years.
As for the succession process, Asbury, who most recently led a bank in New Mexico, said it’s been smooth and undramatic. The Radford native and graduate of Virginia Tech and William & Mary said his stints at Virginia banks in the 90s is helping with the transition.
“I’m coming up on my 60th day (at the bank) and it’s very much textbook. I have found people in the company that I worked with long ago. I feel like I’m one degree of separation from almost everyone.”
A Union branch in a Martin’s grocery store. (BizSense file photo)
One of Richmond’s biggest banks is looking to pad its coffers.
The parent of Union Bank & Trust announced Tuesday plans to raise $100 million to $125 million in fresh capital through a debt offering.
The exact amount and closing date are to be determined, but the offering is expected to be completed this week. It’s the bank’s first capital raise of any sort since 2009.
The money will be raised by the parent company, Union Bankshares, and passed down to the bank as equity for its “capital stack,” said John Asbury, who last month became head of the bank and will soon be CEO of the entire company.
John Asbury started his tenure as Union Bank CEO Oct. 1.
Asbury, CEO Billy Beale and other Union executives spent Tuesday on conference calls with large investors that have an appetite for these sorts of offerings, typically insurance companies and large money managers.
Structured as a subordinated note offering, the process is an alternative to a typical stock offering.
“It’s more shareholder friendly,” Asbury, referring to the fact that a debt offering won’t dilute current shareholders by creating more shares of Union stock.
“It’s considered a relatively inexpensive form of capital… and market conditions are excellent for this type of capital.”
They said there is an appetite from big investors to purchase debt that pays a better interest rate than U.S. Treasury notes.
And, Beale said, the interest rate on the debt, which is likely to be somewhere around 5 percent, compares favorably to the returns paid out in a typical stock offering
“If we were to issue common equity, the expected return that shareholders would want is 13-15 percent,” Beale said.
Billy Beale is retiring as CEO.
Union said the money from the offering will be used to pay down an existing of credit, to add to the bank’s capital levels and for “general corporate purposes.”
Those general corporate purposes are likely to include growing the bank’s loan portfolio, rather than use the new capital for potential acquisitions.
Beale said the recent performance of the bank’s stock price, which at an all-time high and closed Tuesday at $33.84 per share, gives it the clout to go after deals regardless of the new capital.
“Considering what our stock price is now, we’d more likely use the stock to acquire rather than cash.”
The capital raise comes as Union is in the midst of a changing of the guard.
Asbury took over as president and CEO of the bank on Oct. 1, as well as president of the holding company. He’ll step into the overall CEO chair at the beginning of the New Year, as Beale retires from the post after 25 years.
As for the succession process, Asbury, who most recently led a bank in New Mexico, said it’s been smooth and undramatic. The Radford native and graduate of Virginia Tech and William & Mary said his stints at Virginia banks in the 90s is helping with the transition.
“I’m coming up on my 60th day (at the bank) and it’s very much textbook. I have found people in the company that I worked with long ago. I feel like I’m one degree of separation from almost everyone.”
This is a curious offering to say the least. Not sure why an $8 billion dollar bank would need to raise a quick $100 million dollars in this fashion. The statement that the funds “will be used to pay down an existing of credit, to add to the bank’s capital levels and for general corporate purposes” is also interesting. Wonder if there is more to this story.
Not really that unusual – banks all over the country have been using ‘sub-debt’ as a means to supplement their capital bases. The traditional methods of raising capital (like selling common stock) have not been all that popular with investors, while the sub-debt method has seen significant interest (from institutions as well as individual investors).
Banks are now required to maintain higher levels of capital than ever before due to new regulations.
It is pretty common for banks to issue debt, I wouldn’t say this is curious at all. It’s a cheap, non-dilutive source of funding for any number of typical bank activities, including the ones mentioned in the article (paying down existing more expensive lines of credit, increasing lending, etc.)
Additionally, the company has about $90M in TruPS outstanding, so maybe they’ll repurchase some of those (that is pure speculation).
“General corporate purposes” is boilerplate language seen in almost every capital offering.