Byline Bancorp Completes $75M Subordinated Notes Placement to Enhance Capital Structure and Financial Flexibility.

Byline Bancorp completed a $75M subordinated notes placement, to redeem existing notes due in 2030 and potentially optimize its capital structure and strengthen its market position. The company plans to use the proceeds to redeem the existing notes due in 2030. Byline Bancorp's overall stock score reflects its strong financial performance, attractive valuation, and positive earnings call sentiment.

Byline Bancorp, Inc. (NYSE: BY) has completed a private placement of $75 million in aggregate principal amount of 6.875% Fixed-to-Floating Rate Subordinated Notes due 2035 [1]. The company intends to use the net proceeds to redeem $75 million of outstanding 6.00% Fixed-to-Floating Rate Subordinated Notes due 2030 [1].

The newly issued notes will initially bear interest at an annual rate of 6.875% from August 7, 2025, to August 15, 2030, with interest payable semi-annually in arrears. Post-August 15, 2030, the interest rate will be reset quarterly to a floating rate equal to the then current three-month term Secured Overnight Financing Rate (SOFR) plus 322 basis points, with interest payable quarterly in arrears [1]. The notes are redeemable by the company at its option, in whole or in part, on or after August 15, 2030, and at any time upon the occurrence of certain events.

Byline Bancorp's capital restructuring is a strategic move to optimize capital costs and enhance regulatory capital ratios. The fixed-to-floating rate structure locks in higher rates until 2030, reducing long-term debt costs while qualifying as Tier 2 capital under Basel III requirements [2]. This move strengthens capital efficiency, supports its First Security Bancorp acquisition, and positions the bank to navigate interest rate volatility and regulatory stress scenarios [2].

The mechanics of the restructuring involve the new $75 million in subordinated notes carrying a higher fixed rate of 6.875% until 2030, after which it transitions to a floating rate of SOFR + 322 basis points. This compares to the older 6.00% notes, which, post-2025, would have shifted to SOFR + 588 bps—a significantly wider spread. By locking in a higher fixed rate for five years and reducing the floating rate margin, Byline effectively hedges against near-term interest rate volatility while lowering its long-term cost of debt [2].

Byline's capital ratios have already shown strength, with a CET1 ratio of 11.70% and a leverage ratio of 11.74% as of December 2024. The redemption of the older, lower-yielding notes and the issuance of higher-yielding Tier 2 capital should further stabilize these metrics, providing a buffer as the company executes its M&A strategy [2].

The pending acquisition of First Security Bancorp, for instance, will require disciplined capital allocation, and a robust Tier 2 position ensures Byline can meet regulatory thresholds without diluting shareholder equity [2]. Moreover, the restructuring aligns with broader industry trends. As banks seek to reduce reliance on volatile funding sources, Tier 2 instruments offer a hybrid solution—combining debt's tax advantages with capital's regulatory benefits [2].

While post-2030 SOFR-linked costs pose risks, the restructuring signals proactive management of debt flexibility and long-term resilience in a competitive banking sector [2]. For investors, this move raises critical questions: How does this restructuring enhance Byline's long-term capital efficiency? What does it signal about the company's strategic priorities? And what are the implications for its pending acquisition of First Security Bancorp?

References:
[1] https://www.nasdaq.com/press-release/byline-bancorp-inc-completes-private-placement-750-million-6875-fixed-floating-rate
[2] https://www.ainvest.com/news/byline-bancorp-capital-restructuring-strategic-move-long-term-efficiency-regulatory-resilience-2508/