XL Capital to price $500 million three-year mandatory equity security units to yield 10.75%, up 18%

By Rebecca Melvin

New York, July 28 - XL Capital Ltd. plans to price $500 million of three-year mandatory convertibles at par of $25 to yield 10.75% with an initial conversion premium of 18% on Tuesday, according to a market source.

There is an over-allotment option of 15%, or $75 million.

Goldman Sachs & Co. and UBS Investment Bank are joint bookrunners for the registered offering.

Concurrently, XL Capital will price $2 billion of common stock.

The equity security units consist of a purchase contract for a number of ordinary shares for $25 and a 1/40, or 2.5%, interest in a $1,000 senior note.

The equity units will mature Aug. 15, 2011, while the senior notes will mature August 2021. The notes' maturity may be shortened if they are successfully remarketed.

If the ordinary share price is equal to or greater than the threshold appreciation price, then the settlement rate will be $25 divided by the threshold appreciation price. But if the ordinary share price is less than the threshold appreciation price, but greater than the reference price, the settlement rate will be equal to $25 divided by the applicable market value of the ordinary shares per purchase contract.

The units will have full dividend protection in the form of a settlement rate adjustment for cash dividends in excess of the $0.19 per quarter. There is also early settlement in case of a cash fundamental change.

XL Capital, a Bermuda-based insurance and reinsurance company, plans to use proceeds from the offering, together with the $500 million of net proceeds from the put option exercise in connection with its Mangrove Bay contingent capital transaction, to pay $1.775 billion to Security Capital Assurance as part of the SCA notes redemption.

Any remaining proceeds are earmarked for general corporate purposes, including capital funding of certain subsidiaries.

The equity units will be listed on the New York Stock Exchange under the ticker symbol XL-PrY.

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