KeyBank 2006 Annual Report Download - page 56

56
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
The parent has met its liquidity requirements principally through regular
dividends from KBNA. Federal banking law limits the amount of capital
distributions that a bank can make to its holding company without
prior regulatory approval. A national bank’s dividend-paying capacity is
affected by several factors, including net profits (as defined by statute) for
the two previous calendar years and for the current year up to the date
of dividend declaration. During 2006, KBNA paid the parent a total of
$1.2 billion in dividends, and nonbank subsidiaries paid the parent a total
of $11 million in dividends. As of the close of business on December 31,
2006, KBNA had an additional $68 million available to pay dividends
to the parent without prior regulatory approval and without affecting its
status as “well-capitalized” under FDIC-defined capital categories. These
capital categories are summarized in Note 14 (“Shareholders’ Equity”)
under the heading “Capital Adequacy” on page 89.
The parent company generally maintains excess funds in short-term
investments in an amount sufficient to meet projected debt maturities over
the next twelve months. At December 31, 2006, the parent company held
$2.5 billion in short-term investments, which management projected
to be sufficient to meet debt repayment obligations over a period of
approximately 32 months.
Additional sources of liquidity
Management has implemented several programs that enable the parent
company and KBNA to raise funding in the public and private markets
when necessary. The proceeds from most of these programs can be used
for general corporate purposes, including acquisitions. Each of the
programs is replaced or renewed as needed. There are no restrictive
financial covenants in any of these programs.
Bank note program. KBNA’s bank note program provides for the
issuance of both long- and short-termdebt of up to $20.0 billion.
During 2006, therewere$500 million of notes issued under this
program. These notes have original maturities in excess of one year and
areincluded in “long-termdebt.” At December 31, 2006, $18.7 billion
was available for future issuance.
Euro medium-term note program. Under Key’s euro medium-term
note program, the parent company and KBNA may issue both long- and
short-term debt of up to $10.0 billion in the aggregate ($9.0 billion by
KBNA and $1.0 billion by the parent company). The notes are offered
exclusively to non-U.S. investors and can be denominated in U.S.
dollars or foreign currencies. During 2006, there were $666 million of
notes issued under this program. At December 31, 2006, $6.1 billion was
available for future issuance.
KeyCorp medium-term note program. In January 2005, the parent
company registered $2.9 billion of securities under a shelf registration
statement filed with the SEC. Of this amount, $1.9 billion has been
allocated for the issuance of both long- and short-term debt in the
form of medium-term notes. During 2006, there were $750 million of
notes issued under this program. At December 31, 2006, unused
capacity under this shelf registration statement totaled $1.9 billion.
Commercial paper. The parent company has a commercial paper
program that provides funding availability of up to $500 million. As
of December 31, 2006, there were no borrowings outstanding under
this program.
KBNA has a separate commercial paper program at a Canadian
subsidiary that provides funding availability of up to C$1.0 billion in
Canadian currency. The borrowings under this program can be
denominated in Canadian or U.S. dollars. As of December 31, 2006,
borrowings outstanding under this commercial paper program totaled
C$387 million in Canadian currency and $119 million in U.S. currency
(equivalent to C$139 million in Canadian currency).
Key’sdebt ratings areshown in Figure36 below.Management believes
that these debt ratings, under normal conditions in the capital markets,
allow for futureofferings of securities by the parent company or KBNA
that would be marketable to investors at a competitive cost.
Enhanced
Senior Subordinated Trust
Short-term Long-Term Long-Term Capital Preferred
December 31, 2006 Borrowings Debt Debt Securities Securities
KEYCORP (THE PARENT COMPANY)
Standard & Poor’s A-2 A– BBB+ BBB BBB
Moody’s P-1 A2 A3 A3 Baa1
Fitch F1 A A– A– A–
KBNA
Standard & Poor’s A-1 A A– N/A N/A
Moody’s P-1 A1 A2 N/A N/A
Fitch F1 A A– N/A N/A
KEY NOVA SCOTIA
FUNDING COMPANY (“KNSF”)
Dominion Bond Rating Service
a
R-1 (middle) N/A N/A N/A N/A
a
Reflects the guarantee by KBNA of KNSF’s issuance of Canadian commercial paper.
N/A = Not Applicable
FIGURE 36. DEBT RATINGS
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