SunTrust 2009 Annual Report Download - page 65

III. The Agreements
The final piece of the strategy related to the remaining 30 million Coke common shares and was executed in July
2008. We entered into The Agreements, which were comprised of two variable forward agreements and share
forward agreements effective July 15, 2008 with a major, unaffiliated financial institution (the “Counterparty”)
collectively covering our 30 million Coke shares. Under The Agreements, we must deliver to the Counterparty at
settlement of the variable forward agreements either a variable number of Coke common shares or a cash payment
in lieu of such shares. The Counterparty is obligated to settle The Agreements for no less than approximately
$38.67 per share, or approximately $1.16 billion in the aggregate (the “Minimum Proceeds”). The share forward
agreements give us the right, but not the obligation, to sell to the Counterparty, at prevailing market prices at the
time of settlement, any of the 30 million Coke common shares that are not delivered to the Counterparty in
settlement of the variable forward agreements. The Agreements effectively ensure that we will be able to sell our
30 million Coke common shares at a price no less than approximately $38.67 per share, while permitting us to
participate in future appreciation in the value of the Coke common shares up to approximately $66.02 per share and
approximately $65.72 per share, under each of the respective Agreements.
During the terms of The Agreements, and until we sell the 30 million Coke common shares, we generally will
continue to receive dividends as declared and paid by Coke and will have the right to vote such shares. However,
the amounts payable to us under The Agreements will be adjusted if actual dividends are not equal to amounts
expected at the inception of the derivative.
Contemporaneously with entering into The Agreements, the Counterparty invested in senior unsecured promissory
notes issued by SunTrust Bank and SunTrust Banks, Inc. (collectively, the “Notes”) in a private placement in an
aggregate principal amount equal to the Minimum Proceeds. The Notes carry stated maturities of approximately
ten years from the effective date and bear interest at one-month LIBOR plus a fixed spread. The Counterparty
pledged the Notes to us and we pledged the 30 million Coke common shares to the Counterparty, securing each
entity’s respective obligations under The Agreements. The pledged Coke common shares are held by an
independent third party custodian and the Counterparty is prohibited under The Agreements from selling, pledging,
assigning or otherwise using the pledged Coke common shares in its business.
We generally may not prepay the Notes. The interest rate on the Notes will be reset upon or after the settlement of
The Agreements, either through a remarketing process or based upon dealer quotations. In the event of an
unsuccessful remarketing of the Notes, we would be required to collateralize the Notes and the maturity of the
Notes may accelerate to the first anniversary of the settlement of The Agreements. However, we presently believe
that it is substantially certain that the Notes will be successfully remarketed.
The Agreements carry scheduled settlement terms of approximately seven years from the effective date. However,
we have the option to terminate The Agreements earlier with the approval of the Federal Reserve. The Agreements
may also terminate earlier upon certain events of default, extraordinary events regarding Coke and other typical
termination events. Upon such early termination, there could be exit costs or gains, such as certain breakage fees
including an interest rate make-whole amount, associated with both The Agreements and the Notes. Such costs or
gains may be material but cannot be determined at the present time due to the unlikely occurrence of such events
and the number of variables that are unknown. However, the payment of such costs, if any, will not result in us
receiving less than the Minimum Proceeds from The Agreements. We expect to sell all of the Coke common shares
upon settlement of The Agreements, either under the terms of The Agreements or in another market transaction.
See Note 17, “Derivative Financial Instruments”, to the Consolidated Financial Statements for additional
discussion of the transactions.
The Federal Reserve determined that we may include in Tier 1 capital, as of the effective date of The Agreements,
an amount equal to the Minimum Proceeds minus the deferred tax liability associated with the ultimate sale of the
30 million Coke common shares. Accordingly, The Agreements resulted in an increase in Tier 1 capital during the
third quarter of approximately $728 million.
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