Last week we were informed by the staff at the Board of Governors of the Federal Reserve System (the “Fed”) that they had recently approved a new variation on the
WITS structure for Tier 1 bank holding company capital. WITS typically involve the issuance of securities by a trust that evidence a beneficial interest in: (i) a forward stock purchase contract by a trust to purchase noncumulative perpetual preferred stock of the bank holding company issuer; and the (ii) purchase by the trust of long dated junior subordinated notes of the issuer. The trust would remarket the junior subordinated notes at the forward stock purchase date for the perpetual preferred stock in order to obtain funds to fulfill the forward purchase agreement. If the junior subordinated notes could not be remarketed, they would be delivered to the issuer to satisfy the requirement to purchase the noncumulative perpetual preferred stock. Once issued, subject to Fed
approval, the noncumulative perpetual preferred stock could be redeemed and replaced with another comparable capital instrument.
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