First Republic Prices Senior Notes Offering - Analyst Blog

San Francisco-based private bank and wealth management company – First Republic Bank FRC priced senior notes worth $400 million. Recently, in March the company also announced the pricing of the public offering of 4 million shares of its common stock.

The senior notes, which are set to mature on Jun 17, 2019, will carry an annual interest of 2.375%. First Republic will make interest payment on the senior notes on a semi-annual basis. Such payment will be made in arrears on Jun 17 and Dec 17 of each year, starting Dec 17, 2014.

Joint book-running managers for the transaction include Goldman, Sachs & Co – the subsidiary of The Goldman Sachs Group, Inc. GS, Morgan Stanley & Co. LLC – an arm of Morgan Stanley MS and JPMorgan Chase & Co. JPM.

The company anticipates utilizing the net proceeds from the offering in a number of purposes including financing loans and purchasing investment securities. However, we believe the senior notes offering might lead to further increase in interest expenses thereby affecting overall profitability.

Notably, for the quarter ended Mar 2014, interest expenses increased 42.4% year over year to $36.7 million. Long-term debt stood at $5.65 billion, up from $5.15 billion in the prior quarter.

First Republic exhibits decent fundamentals amid a competitive banking environment. However, the company is combating several issues including a continuous decline in net interest margin amid a still low interest rate environment and persistent rise in operating expenses.

First Republic currently holds a Zacks Rank #2 (Buy).

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