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The Charles Schwab Corporation (SCHW) has declared the pricing terms of an earlier announced exchange offer. The offer involves replacement of outstanding 4.950% old senior notes (maturing in 2014) with 3.225% new senior notes (maturing in 2022).

The total exchange price for each of $1000 worth of old senior notes will include a cash consideration of $75.18. Further, the exchange price is inclusive of early participation payment of $30. The senior notes qualified for exchange must be validly tendered and not withdrawn on or before 5:00 p.m., New York City time, on August 21, 2012, which is the early participation date accepted by the company for the exchange offer.

However, it must be mentioned that to avail the offer on the early settlement date, certain conditions are needed to be fulfilled. These conditions include the requirement of $250 million worth of senior notes validly tendered and not withdrawn prior to the early participation date. As per the offering agent – Global Bondholder Services – nearly $256 million of senior notes have been tendered and not withdrawn on or prior to the early participation date.

Moreover, the exchange offer on the final settlement date is subject to certain conditions, including the requirement that the new notes issued on the final settlement date will be fungible for U.S. federal income tax purposes.

The early settlement date for qualified old notes is August 27, 2012. The offer will reach expiration at midnight on August 28, 2012. The extension of the offer and waiving any of the requisite conditions is solely the discretion of the company’s management.

With this exchange offer, Schwab will be able to reduce its interest expense burden as the new notes carry a lower coupon rate compared to the old notes. Further, with the maturity of these notes extending to 2022, the company will be capable of withholding the amount for a longer period.

Schwab currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. One of its peers – Arlington Asset Investment Corp. (AI) – retains a Zacks #1 Rank, which translates into short-term Strong Buy rating.

 
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