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TARPedBanks (< 20)

Bank of America Warrants Being Auctioned

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March 01, 2010 – Comments (1) | RELATED TICKERS: BAC

The Treasury Dept announced it will be auctioning off the Bank of America warrants it holds on Wed, 3 March.

The warrants were issued along with preferred stock under the TARP Capital Purchase Program.  BAC repurchased the preferred stock late last year, but either couldn't agree on a price for the warrants or opted to let them go to auction.

There are two series of warrants, corresponding to the two CPP investments.  

There are a little over 150 million "A" warrants with an expiration date of Jan 16, 2019.  Each warrant entitles the holder to purchase one share of BAC common at a strike price of $13.30.  The minimum bid price for the A warrants is $7 per warrant.  The prospectus for the A warrants is here.

There are also nearly 120 million "B" warrants with an expiration date of Oct 28, 2018. Each warrant entitles the holder to purchase one share of BAC common at a strike price of $30.79.  The minimum bid price for the B warrants is $1.50 per warrant.  The prospectus for the B warrants is here.

The auction is being run by Deutsche Bank Securities; contact information should be somewhere in the prospectus.  The minimum bid size for both auctions is 100 warrants.  Actual prices for each series fo warrants will be set in a Dutch auction.  After the auction, the warrants are expected to trade on the NYSE; symbols will be BAC WS A and BAC WS B.

Warrants are very similar to call options.  The holder has the option to purchase one share of common stock at the strike price for each warrant held.  They offer a chance to get the stocks upside at a lower cost than purchasing shares.  Like options, warrants are risky investments - if the share price doesn't climb above the strike price before the expiration date, the warrant expires worthless.

These warrants would be interesting to someone who thinks BAC will recover and it's stock will do well over the next eight or nine years.

I have no position in BAC at time of posting.

 

 

 

1 Comments – Post Your Own

#1) On March 02, 2010 at 2:27 AM, awallejr (82.72) wrote:

Seems to me the B series looks like the one to play.  8 years from now it wouldn't surprise me to see BAC in the 50s.

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