PNC Bank 2007 Annual Report Download - page 37

Information regarding these partnership interests is reflected in
the Non-Consolidated VIEs – Significant Variable Interests table.
Perpetual Trust Securities
We issue certain hybrid capital vehicles that qualify as capital
for regulatory and rating agency purposes.
In December 2006, one of our indirect subsidiaries, PNC REIT
Corp., sold $500 million of 6.517% Fixed-to-Floating Rate
Non-Cumulative Exchangeable Perpetual Trust Securities (the
“Trust Securities”) of PNC Preferred Funding Trust I (“Trust
I”) in a private placement. PNC REIT Corp. had previously
acquired the Trust Securities from the trust in exchange for an
equivalent amount of Fixed-to-Floating Rate Non-Cumulative
Perpetual Preferred Securities (the “LLC Preferred Securities”),
of PNC Preferred Funding LLC (the “LLC”), held by PNC
REIT Corp. The LLC’s initial material assets consist of indirect
interests in mortgages and mortgage-related assets previously
owned by PNC REIT Corp.
In March 2007, PNC Preferred Funding LLC sold $500
million of 6.113% Fixed-to-Floating Rate Non-Cumulative
Exchangeable Perpetual Trust Securities of PNC Preferred
Funding Trust II (“Trust II”), in a private placement. In
connection with the private placement, Trust II acquired $500
million of LLC Preferred Securities.
In February 2008, PNC Preferred Funding LLC sold $375
million of 8.700% Fixed-to-Floating Rate Non-Cumulative
Exchangeable Perpetual Trust Securities of PNC Preferred
Funding Trust III (“Trust III”) in a private placement. In
connection with the private placement, Trust III acquired $375
million of LLC Preferred Securities.
PNC REIT Corp. owns 100% of the LLC’s common voting
securities. As a result, the LLC is an indirect subsidiary of PNC
and is consolidated on our Consolidated Balance Sheet. Trust I,
Trust II and Trust III’s investment in the LLC Preferred
Securities is characterized as a minority interest on our
Consolidated Balance Sheet since we are not the primary
beneficiary of Trust I, Trust II or Trust III. This minority
interest totaled approximately $980 million at December 31,
2007 (excluding Trust III, which was not yet formed). Each
Trust I Security is automatically exchangeable into a share of
Series F Non-Cumulative Perpetual Preferred Stock of PNC
Bank, N.A. (the “PNC Bank Preferred Stock”), each Trust II
Security is automatically exchangeable into a share of Series I
Non-Cumulative Perpetual Preferred Stock of PNC (the “Series
I Preferred Stock”), and each Trust III Security is automatically
exchangeable into a share of Series J Non-Cumulative Perpetual
Preferred Stock of PNC, in each case under certain conditions
relating to the capitalization or the financial condition of PNC
Bank, N.A. and upon the direction of the Office of the
Comptroller of the Currency.
We entered into a replacement capital covenant in connection
with each of the closing of the Trust Securities sale (the “Trust
Covenant”) and the closing of the Trust II Securities sale (the
“Trust II Covenant”), in each case for the benefit of holders of
a specified series of our long-term indebtedness (the “Covered
Debt”). As of December 31, 2007, Covered Debt consists of
our $200 million Floating Rate Junior Subordinated Notes
issued on June 9, 1998.
We agreed in the Trust Covenant that neither we nor our
subsidiaries (other than PNC Bank, N.A. and its subsidiaries)
would purchase the Trust Securities, the LLC Preferred Securities
or the PNC Bank Preferred Stock (collectively, the “Trust
Covered Securities”) unless: (i) we have received the prior
approval of the Federal Reserve Board, if such approval is then
required under the Federal Reserve Board’s capital guidelines
applicable to bank holding companies and (ii) during the 180-day
period prior to the date of purchase, we or our subsidiaries, as
applicable, have received proceeds from the sale of Qualifying
Securities in the amounts specified in the Trust Covenant (which
amounts will vary based on the type of securities sold). The Trust
Covenant does not apply to redemptions of the Trust Covered
Securities by the issuers of those securities.
We agreed in the Trust II Covenant that until March 29, 2017,
neither we nor our subsidiaries would purchase or redeem the
Trust II Securities, the LLC Preferred Securities or the Series I
Preferred Stock (collectively, the “Trust II Covered
Securities”), unless: (i) we have received the prior approval of
the Federal Reserve Board, if such approval is then required
under the Federal Reserve Board’s capital guidelines
applicable to bank holding companies and (ii) during the
180-day period prior to the date of purchase, PNC, PNC Bank,
N.A. or PNC Bank N.A.’s subsidiaries, as applicable, have
received proceeds from the sale of Qualifying Securities in the
amounts specified in the Trust II Covenant (which amounts
will vary based on the type of securities sold).
“Qualifying Securities” means debt and equity securities
having terms and provisions that are specified in the Trust
Covenant or the Trust II Covenant, as applicable and that,
generally described, are intended to contribute to our capital
base in a manner that is similar to the contribution to our
capital base made by the Trust Covered Securities or the Trust
II Covered Securities, as applicable. We filed a copy of each
of the Trust Covenant and the Trust II Covenant with the SEC
as Exhibit 99.1 to PNC’s Form 8-K filed on December 8, 2006
and as Exhibit 99.1 to PNC’s Form 8-K filed on March 30,
2007, respectively.
PNC Bank, N.A. has contractually committed to Trust I that if
full dividends are not paid in a dividend period on the Trust
Securities, LLC Preferred Securities or any other parity equity
securities issued by the LLC, neither PNC Bank, N.A. nor its
subsidiaries will declare or pay dividends or other
distributions with respect to, or redeem, purchase or acquire or
make a liquidation payment with respect to, any of its equity
capital securities during the next succeeding period (other than
to holders of the LLC Preferred Securities and any parity
equity securities issued by the LLC) except: (i) in the case of
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