Rex Copeland: The bond offering gives Great Southern capital for future growth.
In less than a week, Springfield-based Great Southern Bancorp Inc. (Nasdaq: GSBC) issued and completed a $75 million public bond offering.
The first such offering in recent history for the Springfield banking company points to a popular investment and fundraising option, particularly given historically low interest rates.
But there’s competition for investment dollars.
Through the first six months of the year, foreign central banks sold $192 billion worth of U.S. Treasury bonds, which more than doubled the pace of the prior year. It was the largest selloff of U.S. debt since at least 1978, according to CNNMoney’s examination of Treasury Department data.
Steve Mullins, a professor of economics at Drury University, said the purchase of Treasury bonds is a nearly zero-risk scenario for investors. But with that comfort – and the fact many are investing in U.S. bonds because of Brexit and other factors – comes lower yields.
Great Southern’s bond offering promised a 5.3 percent fixed-to-floating interest rate for the debt that matures Aug. 15, 2026. Comparatively, interest rates for U.S. Treasuries are currently around the 1.57 percent mark.
“You’re compensated for that risk with a slightly higher interest rate,” Mullins said of bond offerings.
Great Southern’s offering provided investors the option to purchase subordinated debt, referring to lesser-ranking loans or securities. In the case of a default, subordinated debtholders would be paid after senior debtholders, according to Investopedia.com.
Company bonds carry inherent risk, as the possibility exists investors might not get paid back. That risk increases further down the line of bond types.
Then there’s the interest rate risk.
“You lock yourself into a particular interest payment,” Mullins said. “The market value of those things can go down if current interest rates go up. That’s the risk any bond purchaser bares regardless of who they buy the bond from.”
For Great Southern, the offering was unique but not particularly risky for interest rates, company officials say.
The biggest challenge was packing a lot of work into information packets so the company’s hired underwriter, New York-based Sandler, O’Neill & Partners LP, could quickly solicit investors after the bonds were offered Aug. 8, a Monday.
Quick market demand necessitated an increase to $75 million from the original $50 million offering.
“All the orders were placed on Tuesday,” Great Southern Chief Financial Officer Rex Copeland said, noting the investments made largely by other banks, insurance companies and money-management funds were completed three days later. “When you get to the point where you’re actually finalizing the marketing of the securities, then it does go very quickly.”
Leading up to the bond offering, in July, Great Southern filed a prospectus with the U.S. Securities and Exchange Commission, notifying the agency the bank’s board approved the sale of $250 million in debt and equity securities.
The filing was worthwhile in making the company’s August offering move smoothly and efficiently, officials say.
“We were really pleased by the acceptance as a market,” Great Southern spokeswoman Kelly Polonus said.
All told, Great Southern netted $73.9 million after figuring underwriting discounts and commissions paid to Sandler, O’Neill & Partners.
The company plans to use the proceeds for general corporate purposes, including capital for organic growth or potential acquisitions.
Officials say that doesn’t necessarily mean a purchase is on the horizon, but rather the time was right given the interest rate environment.
“When you look at the other offerings that have come to the market in the last 12-18 months, we think it’s an attractive rate,” Copeland said. “We’ve had a lot of growth in our company in the last couple of years. When you grow, you’ve got to have adequate capital to cover that.”
He pointed to Great Southern’s roughly $175 million purchase in January of Cincinnati-based Fifth Third Bank’s St. Louis branches, deposits and loans. That kind of capital is worth having on hand should another deal arise.
“We’re open to other opportunities,” Polonus said.
While Drury’s Mullins didn’t follow Great Southern’s bond offering, he understands the attraction by investors.
The creditworthiness of the issuer is key when investing.
“If I personally were going to be buying bonds from a financial institution, Great Southern would be high on my list to buy from,” he said.
