KeyBank 2008 Annual Report Download - page 103

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
Principal Interest Rate Maturity
Capital Amount of of Capital of Capital
Securities, Common Debentures, Securities and Securities and
dollars in millions Net of Discount
(a)
Stock Net of Discount
(b)
Debentures
(c)
Debentures
DECEMBER 31, 2008
KeyCorp Capital I $ 197 $ 8 $ 201 4.623% 2028
KeyCorp Capital II 235 8 231 6.875 2029
KeyCorp Capital III 295 8 271 7.750 2029
KeyCorp Capital V 175 5 195 5.875 2033
KeyCorp Capital VI 75 2 82 6.125 2033
KeyCorp Capital VII 327 8 295 5.700 2035
KeyCorp Capital VIII 288 — 360 7.000 2066
KeyCorp Capital IX 563 — 562 6.750 2066
KeyCorp Capital X 837 — 836 8.000 2068
Union State Capital I 20 1 21 9.580 2027
Union State StatutoryII 20 — 20 7.000 2031
Union State Statutory IV 10 — 10 7.619 2034
Total $3,042 $40 $3,084 6.931% —
DECEMBER 31, 2007 $1,848 $39 $1,896 6.599% —
(a)
The capital securities must be redeemed when the related debentures mature, or earlier if provided in the governing indenture. Each issue of capital securities carries an interest rate identical
to that of the related debenture. Included in certain capital securities at December 31, 2008 and 2007, arebasis adjustments of $459 million and $55 million, respectively,related to fair value
hedges. See Note 19 (“Derivatives and Hedging Activities”), which begins on page 115, for an explanation of fair value hedges.
(b)
KeyCorp has the right to redeem its debentures: (i) in whole or in part, on or after July 1, 2008 (for debentures owned by Capital I); March 18, 1999 (for debentures owned by Capital II);
July 16, 1999 (for debentures owned by Capital III); July 31, 2006 (for debentures owned by Union State Statutory II); February1, 2007 (for debentures owned by Union State Capital I);
July 21, 2008 (for debentures owned by Capital V); December 15, 2008 (for debentures owned by Capital VI); April 7, 2009 (for debentures owned by Union State Statutory IV); June 15, 2010
(for debentures owned by Capital VII); June 15, 2011 (for debentures owned by Capital VIII); December 15, 2011 (for debentures owned by Capital IX); and March 15, 2013 (for debentures
owned by Capital X); and (ii) in whole at any time within 90 days after and during the continuation of a “tax event,” an “investment company event” or a “capital treatment event” (as defined
in the applicable indenture). If the debentures purchased by Union State Statutory IV, Capital I, Capital V, Capital VI, Capital VII, Capital VIII, Capital IX or Capital X are redeemed before they
mature, the redemption price will be the principal amount, plus any accrued but unpaid interest. If the debentures purchased by Union State Capital I are redeemed before they mature, the
redemption price will be 104.31% of the principal amount, plus any accrued but unpaid interest. If the debentures purchased by Union State Statutory II are redeemed before they mature,
the redemption price will be 104.5% of the principal amount, plus any accrued but unpaid interest. If the debentures purchased by Capital II or Capital III are redeemed before they mature,
the redemption price will be the greater of: (a) the principal amount, plus any accrued but unpaid interest or (b) the sum of the present values of principal and interest payments discounted
at the TreasuryRate (as defined in the applicable indenture), plus 20 basis points (25 basis points for Capital III), plus any accrued but unpaid interest. When debentures are redeemed
in response to tax or capital treatment events, the redemption price generally is slightly more favorable to KeyCorp. Included in the principal amount of debentures at December 31, 2008
and 2007, are adjustments relating to hedging with financial instruments totaling $461 million and $64 million, respectively.
(c)
The interest rates for Capital II, Capital III, Capital V, Capital VI, Capital VII, Capital VIII, Capital IX, Capital X and Union State Capital I are fixed. Capital I has a floating interest rate equal to
three-month LIBOR plus 74 basis points that reprices quarterly. Union State Statutory II has a floating interest rate equal to three-month LIBOR plus 358 basis points that reprices quarterly.
Union State Statutory IV has a floating interest rate equal to three-month LIBOR plus 280 basis points that reprices quarterly. The rates shown as the totals at December 31, 2008 and 2007,
are weighted-average rates.
KeyCorp owns the outstanding common stock of business trusts that
issued corporation-obligated mandatorily redeemable preferred capital
securities. The trusts used the proceeds from the issuance of their
capital securities and common stock to buy debentures issued by
KeyCorp. These debentures are the trusts’ only assets; the interest
payments from the debentures finance the distributions paid on the
capital securities.
The capital securities provide an attractive source of funds: they
constitute Tier 1 capital for regulatory reporting purposes, but have the
same tax advantages as debt for federal income tax purposes. During the
first quarter of 2005, the Federal Reserve Board adopted a rule that
allows bank holding companies to continue to treat capital securities as
Tier 1 capital, but imposed stricter quantitative limits that take effect
April 1, 2009. Management believes the new rule will not have any
material effect on Key’s financial condition.
KeyCorp unconditionally guarantees the following payments or
distributions on behalf of the trusts:
• required distributions on the capital securities;
• the redemption price when a capital security is redeemed; and
• the amounts due if a trust is liquidated or terminated.
During the first quarter of 2008, the KeyCorp Capital X trust issued
$740 million of securities. Also included in the table below are the capital
securities held by the Union State Capital I, Union State Statutory II and
Union State Statutory IV business trusts. The outstanding common
stock of these trusts was owned by U.S.B. Holding Co., Inc., which Key
acquired on January 1, 2008.
The capital securities, common stock and related debentures are
summarized as follows:
13. CAPITAL SECURITIES ISSUED BY UNCONSOLIDATED SUBSIDIARIES
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