What are the implications of the redemption for the company's credit ratings and borrowing costs?

Credit‑rating impact

By redeeming the $88 million of 6.875 % Series I perpetual preferred stock, United Community Banks is removing a fixed‑‑cash‑‑outflow and a sizable liquidation‑preference claim from its capital structure. The preferred issue, while non‑cumulative, still counted as senior‑subordinated debt in most rating‑agency models and inflated the bank’s leverage and risk‑based capital ratios. Its elimination will improve the Tier 1 leverage ratio and the total‑capital‑ratio, both key metrics that rating agencies monitor. Consequently, agencies are likely to view the move as a proactive step toward a stronger balance sheet and could either maintain the current rating with a “positive” outlook or, if the improvement is material relative to the bank’s overall capital profile, upgrade the rating by one notch. No new debt is being issued, so the net effect is a cleaner, less complex capital structure.

Borrowing‑cost implications

The preferred dividend of 6.875 % represented a permanent, relatively high‑cost funding source. Its removal cuts United’s overall cost of capital and frees cash that can now be allocated to core loan‑growth or to more efficient debt financing. With a higher credit rating (or at least a rating that is no longer depressed by the perpetual preferred layer), the bank’s existing senior unsecured bonds and any future term‑loan facilities should trade at tighter spreads. In practice, we can expect a compression of UCB’s bond yields by 10–15 bps and a modest reduction in the bank’s weighted‑average borrowing rate, especially on any new term‑loan or revolving credit facilities.

Actionable take‑away

Investors should anticipate a short‑term upside in United’s common equity as the market prices in the expected rating‑upgrade and lower funding costs. A modest long‑position or buy‑on‑dip if the stock pulls back after the redemption announcement could capture this upside. Keep an eye on any rating‑agency commentary in the next 4‑6 weeks; a confirmed upgrade would likely trigger a further equity rally and a narrowing of the bank’s credit‑spread.