Bank of America will likely issue $1-2 billion of subordinated debt to buy back equity shares it plans to issue to purchase FleetBoston Financial, according to a pair of analysts who follow the banking sector. The new subordinated debt would likely qualify as "Tier 2" capital, enabling B of A to meet regulatory requirements, according to Joe Labriola, head of U.S. credit research at BNP Paribas. "Within a 90 day window [after an acquisition closes] you always see the acquiring bank come and issue Tier 2 capital," he says. Jeff Kane, global head of high-grade syndicate at B of A, declined comment on any possible issuance and a call to Tom Houghton, the bank's senior v.p. for domestic funding, was not returned.
While the increased supply might cause three to five basis points of widening on outstanding B of A issues, it should recover that premium in less than a quarter, says David Hendler, analyst at CreditSights, who is bullish on the credit in the wake of the proposed merger. "There's a FleetBoston on every corner in Boston, so we think they'll keep their customers, and they'll also get more money out of those customers because B of A has better products," he says.