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Preferred Play on N.Y. Community Bancorp

New York Community's challenge will be to continue improving its net-interest spread over the coming quarters as well as its earnings. The company consistently posted returns on average assets exceeding 1% through 2005, and returns on equity approaching 20% in 2002 and 2003.

Exchange details

At New York Community Bancorp, each BONUS consists of one trust-preferred share of New York Community Capital Trust V and a warrant to purchase about 2.5 common shares for $50, or about $20 each, at any time before May 7, 2051.

The company has the option of redeeming the warrants if common shares trade at 125% of the conversion price for 20 of the previous 20 trading days.

The BONUS units trade on the New York Stock Exchange under the symbol "NYB.PRU" and have a par value of $50 and a 6% coupon.

New York Community's common shares peaked at $35.57 on March 1, 2004, according to Bloomberg data, but investors holding the BONUS shares weren't allowed to exercise the warrants until Nov. 4, 2007, after which the stock peaked at $22 on Sept. 19, 2008.

The exchange offer expires Aug. 25, and the exchange ratio will be set Aug. 21. The ratio will be 2.4953 common shares plus $10 divided by the daily volume-weighted average price of the common shares for the five trading days ending Aug. 21.

Based on an average closing price of $11.31 for the five trading sessions through Thursday, the exchange ratio would be 0.8842 plus 2.4953 shares, or 3.3777 common shares for each BONUS unit.

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