Discover Financial Services Announces Transition of USD LIBOR-based Securities to Term SOFR and SOFR Spread-adjusted Swap Rates
30 Giugno 2023 - 10:33PM
Business Wire
Discover Financial Services (NYSE: DFS) and Discover Bank
(collectively “Discover”) have certain outstanding preferred stock
and debt securities, listed in this press release (the “LIBOR-based
Securities”), that use 3-month USD LIBOR or the 5-year USD LIBOR
Mid-Swap Rate (collectively “LIBOR-based Benchmarks”) administered
by ICE Benchmark Association Limited (“IBA”) as reference rates for
determining interest rates and amounts payable to investors in the
LIBOR-based Securities.
On March 5, 2021, the U.K. Financial Conduct Authority (the
“FCA”) announced that all USD LIBOR settings will either cease
publication or no longer be representative after June 30, 2023 (the
"Cessation Date"). Following the FCA’s announcement, IBA announced
on November 14, 2022, that it will cease publication of all USD
LIBOR ICE Swap Rate settings based on USD LIBOR immediately after
the Cessation Date.
Discover is issuing this press release to provide notice that,
after the Cessation Date, it expects that calculations referencing
the LIBOR-based Benchmarks in the LIBOR-based Securities specified
here will no longer be made by reference to the LIBOR-based
Benchmarks, but instead will be calculated pursuant to the
applicable fallback provisions as described below. Use of such
fallback provisions is expected to result in use of the 3-month
Term SOFR or 5-year SOFR Swap Rate, as the case may be, with the
appropriate tenor spread adjustments, on the first applicable date
after the Cessation Date.
CUSIP
Security
First Applicable Date
254709AN8
Depositary shares representing a 1/100th
interest in a share of 5.50% fixed-to-floating rate non-cumulative
preferred stock, series C (“Series C Preferred Stock”)
October 28, 2027(1)
25466AAN1
Fixed-to-fixed rate subordinated bank
notes (“Subordinated Notes”)
August 7, 2023(2)
(1)
Redeemable at Discover’s option, subject
to regulatory approval, either (i) in whole or in part on any
dividend payment date on or after October 30, 2027, or (ii) in
whole but not in part, at any time within 90 days following a
regulatory capital treatment event.
(2)
Redeemable at Discover’s option, subject
to regulatory approval, in whole but not in part, (i) on August 9,
2023, or (ii) at any time within 90 days following a regulatory
capital treatment event.
In accordance with the Adjustable Interest Rate (LIBOR) Act (the
“LIBOR Act”) and the final regulations issued by the Board of
Governors of the Federal Reserve System on December 16, 2022
implementing the LIBOR Act (the “LIBOR Rule”), the Series C
Preferred Stock will transition to 3-month Term SOFR (as
administered by CME Group Benchmark Administration, Ltd.) plus the
relevant tenor spread adjustment of 0.26161% on the first
applicable date after the Cessation Date, provided Discover does
not exercise its option to redeem the Series C Preferred Stock on
or before the first applicable date.
In March 2021, the U.S. Alternative Reference Rates Committee
(“ARRC”) recommended a specific formula to determine the fallback
rate for USD LIBOR Swap Rates. The ARRC’s recommended formula uses
the applicable tenor of the USD SOFR ICE Swap Rate, adds the tenor
spread adjustment for 3-month USD LIBOR of 0.26161% and applies
technical adjustments to account for differences in payment
frequency and day count conventions between swaps referencing USD
LIBOR and SOFR (referred to as “SOFR Spread-adjusted Swap Rate”).
On April 13, 2023, IBA announced that it intends to publish SOFR
Spread-adjusted Swap Rates calculated in this manner starting on
June 30, 2023, for use by market participants.
The terms of the Subordinated Notes currently provide that
interest will accrue from August 9, 2023 at a rate per annum which
will be 1.730% above the 5-Year Mid-Swap Rate. The 5-Year Mid-Swap
Rate will be determined by reference to a designated screen page.
If the designated screen page is not populated and no successor
page is identified, the rate for such tenor will be determined by
the Fiscal and Paying Agent by reference to a dealer poll, the
parameters of which are expected to be in accordance with the
ARRC’s recommended formula and result in a rate substantially
similar to the SOFR Spread-adjusted Swap Rate. Any transition to a
SOFR-based benchmark rate described above will only apply if
Discover does not exercise its option to redeem the Subordinated
Notes in August 2023.
Each of the LIBOR-based Securities will transition to a
replacement rate as described herein. For the avoidance of doubt,
this press release should not be construed as a notice of early
redemption for any of these securities; Discover will determine
whether to exercise its redemption options at an appropriate future
date.
Forward-looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. Such statements, which speak to our expectations with respect
to the availability of SOFR Spread-adjusted Swap Rate and the
Fiscal and Paying Agent’s determination of a fallback rate, among
other matters, contain words such as “believe,” “expect,”
“anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,”
“could,” “would,” “likely,” and similar expressions. Such
statements are based upon the current beliefs and expectations of
the company's management and are subject to significant risks and
uncertainties. Actual results may differ materially from those set
forth in the forward-looking statements. These forward-looking
statements speak only as of the date of this press release, and
there is no undertaking to update or revise them as more
information becomes available.
About Discover
Discover Financial Services (NYSE: DFS) is a digital banking and
payment services company with one of the most recognized brands in
U.S. financial services. Since its inception in 1986, the company
has become one of the largest card issuers in the United States.
The company issues the Discover® card, America's cash rewards
pioneer, and offers private student loans, personal loans, home
loans, checking and savings accounts and certificates of deposit
through its banking business. It operates the Discover Global
Network® comprised of Discover Network, with millions of merchants
and cash access locations; PULSE®, one of the nation's leading
ATM/debit networks; and Diners Club International®, a global
payments network with acceptance around the world. For more
information, visit www.discover.com/company.
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version on businesswire.com: https://www.businesswire.com/news/home/20230630224546/en/
Investor Contact: Eric
Wasserstrom Investor Relations 224-405-4555
investorrelations@discover.com
Media Contact: Matthew
Towson Public Relations 224-405-5649 matthewtowson@discover.com
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