14. Trust Preferred Securities Issued by Unconsolidated Subsidiaries

We own the outstanding common stock of business trusts formed by us that issued corporation-obligated mandatorily redeemable trust preferred securities. The trusts used the proceeds from the issuance of their trust preferred securities and common stock to buy debentures issued by KeyCorp. These debentures are the trusts’ only assets; the interest payments from the debentures finance the distributions paid on the mandatorily redeemable trust preferred securities.

We unconditionally guarantee the following payments or distributions on behalf of the trusts:

•

required distributions on the trust preferred securities;

•

the redemption price when a capital security is redeemed; and

•

the amounts due if a trust is liquidated or terminated.

The Regulatory Capital Rules, discussed in “Supervision and regulation” in Item 2 of this report, implement a phase-out of trust preferred securities as Tier 1 capital, consistent with the requirements of the Dodd-Frank Act. For “standardized approach” banking organizations such as Key, the phase-out period began on January 1, 2015, and by 2016 will require us to treat our mandatorily redeemable trust preferred securities as Tier 2 capital.

As of March 31, 2015, the trust preferred securities issued by the KeyCorp capital trusts represent $85 million, or .9%, of our total qualifying Tier 1 capital, net of goodwill.

The trust preferred securities, common stock, and related debentures are summarized as follows:


dollars in millions	Trust Preferred Securities, Net of Discount^(a)		Common Stock		Principal Amount of Debentures, Net of Discount^(b)		Interest Rate of Trust Preferred Securities and Debentures^(c)			Maturity of Trust Preferred Securities and Debentures
March 31, 2015
KeyCorp Capital I	$	156	$	6	$	162		.995	%		2028
KeyCorp Capital II		112		4		116		6.875			2029
KeyCorp Capital III		146		4		150		7.750			2029

Total	$	414	$	14	$	428		4.968	%		—

December 31, 2014	$	408	$	14	$	422		4.926	%		—

March 31, 2014	$	391	$	14	$	405		4.823	%		—

(a)

The trust preferred securities must be redeemed when the related debentures mature, or earlier if provided in the governing indenture. Each issue of trust preferred securities carries an interest rate identical to that of the related debenture. Certain trust preferred securities include basis adjustments related to fair value hedges totaling $74 million at March 31, 2015, $68 million at December 31, 2014, and $51 million at March 31, 2014. See Note 7 (“Derivatives and Hedging Activities”) for an explanation of fair value hedges.

(b)

We have the right to redeem these debentures. If the debentures purchased by KeyCorp Capital I are redeemed before they mature, the redemption price will be the principal amount, plus any accrued but unpaid interest. If the debentures purchased by KeyCorp Capital II or KeyCorp Capital III are redeemed before they mature, the redemption price will be the greater of: (i) the principal amount, plus any accrued but unpaid interest, or (ii) the sum of the present values of principal and interest payments discounted at the Treasury Rate (as defined in the applicable indenture), plus 20 basis points for KeyCorp Capital II or 25 basis points for KeyCorp Capital III or 50 basis points in the case of redemption upon either a tax or a capital treatment event for either KeyCorp Capital II or KeyCorp Capital III, plus any accrued but unpaid interest. The principal amount of certain debentures includes basis adjustments related to fair value hedges totaling $74 million at March 31, 2015, $68 million at December 31, 2014, and $51 million at March 31, 2014. See Note 7 for an explanation of fair value hedges. The principal amount of debentures, net of discounts, is included in “long-term debt” on the balance sheet.

(c)	The interest rates for the trust preferred securities issued by KeyCorp Capital II and KeyCorp Capital III are fixed. KeyCorp Capital I has a floating interest rate, equal to three-month LIBOR plus 74 basis points, that reprices quarterly. The total interest rates are weighted-average rates.