(RTTNews) - Bank and online brokerage firm E*TRADE Financial Corp. (ETFC: News ) announced Wednesday a $1.2 billion capital raising plan in order to strengthen its capital structure. As part of the plan, the company launched a registered public offering of $400 million of its common stock, and also intends to launch significant debt swap transactions for more than $1 billion of existing outstanding notes, upon pricing of the common stock offering.

The proceeds from the common stock offering would provide additional equity capital to E*TRADE Bank as well as for working capital and general corporate purposes. The consummation of the debt swap is subject to certain conditions, including the closing of the common stock offering and shareholder approval.

The company noted that affiliates of hedge fund Citadel Investment Group LLC, E*TRADE's largest share and bond holder, have agreed to participate in both the stock offering and the debt swap. Depending on the public offering pricing, Citadel intends to purchase either $50 million or $100 million of stock in the common stock offering.

E*TRADE has granted the underwriters of the common stock offering, an option for a period of 30 days from the date of this prospectus supplement, to purchase up to an additional $60 million of common stock at the public offering price, less applicable underwriting discounts and commissions, to cover over-allotments, if any.

Citadel also agreed to participate in the debt swap for an aggregate principal amount of at least $800 million face value of E*TRADE's long-term debt. Apart from shareholder approval for Citadel's participation in the debt swap program, the extent of Citadel's participation is subject to approval from E*TRADE's primary federal banking regulator, the Office of Thrift Supervision.
Citadel holds about 15% of E*TRADE's common stock owning about 89.1 million shares. E*TRADE also believes that Citadel owns more than 70% of its outstanding high-yield debt securities, including more than 81% of 2017 notes and a majority of each of the 2011 notes, 2013 notes and 2015 notes. Additionally, Kenneth Griffin, President and CEO of Citadel, joined the Board of Directors of E*TRADE on June 8, 2009.

On completion of the stock offering, E*TRADE will launch the debt swap program to exchange more than $1 billion of its outstanding debt due in 2011 and 2017 for newly-issued zero coupon convertible notes. As part of the debt swap program, the company would exchange all of its 8% Senior Notes due 2011 and a portion of its 12.5% Springing Lien Notes due 2017, for newly-issued zero coupon convertible notes due 2019, and convertible into common stock based on the common stock offering price. However, the conversion price should be in a range of $1.00 to $1.20 per share.

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