E*Trade Financial Corp. (NASDAQ:ETFC) dodged a bullet, and Moody's Investors Service knows it. Still the rating agency affirmed on Monday its B-3 long-term issuer rating and upgraded its senior unsecured debt to B-3 on the online brokerage.
The ratings move follows E*Trade's announcement last week of a debt exchange tender offer: $1.7 billion of its interest-bearing senior unsecured bonds to be swapped for zero-coupon 10-year senior unsecured convertibles. The move still needs approval from Office of Thrift Supervision and company shareholders.
The deal drastically lowers E*Trade's interest expenses -- a 60% decline to $160 million from $360 million -- and gives it a longer debt maturity profile. But the company is still in a precarious situation as Moody's also gave E*Trade a negative outlook. The agency fears: "Ongoing mortgage loss provisions are unlikely to permit a return to profitability in the foreseeable near-term future, while greater than anticipated losses would materially increase creditor risks."
That prediction echoes what many Wall Street analysts have already said: There won't be a profit for 2009 for E*Trade, and making money in 2010 is also a long shot. E*Trade's long-term salvation may lie in an acquisition by its larger rivals, but for now its content with enough breathing room to possibly wait out the economy's doldrums instead of drowning from mounting debt. - Gerald Magpily
See Moody's press release
See Dealscape's E*Trade living on borrowed time
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