E*Trade's (NASDAQ:ETFC) debt exchange offer is a success. The online discount broker received commitments from its creditors to swap more than $1.8 billion in debt for new convertible bonds.

The healthy reception during the early tender period is the result of several factors.

  • The new bonds don't bear interest as zero coupons, but the conversion terms are sweet. The Class A debentures can be turned into E*Trade stock, at a rate of just $1.034 per share.
  • Citadel, E*Trade's largest shareholder and creditor, already committed to the deal, leading by example.
  • With fears of even greater capital requirements looming, creditors realize that this is the best move to keep the discounter from buckling.

E*Trade still has a long way to go before it catches up to larger, profitable rivals TD AMERITRADE (NASDAQ:AMTD) and Charles Schwab (NASDAQ:SCHW). All 12 of the major analysts following the company expect E*Trade to post another loss this year. They're all over the map in their expectations for 2010, with a profit target range between a loss of $1.00 a share and a profit of $0.12 a share.

Trading activity has been brisk, and E*Trade continues to pad to its brokerage account totals. The recent rollout of apps for Apple (NASDAQ:AAPL) and Research In Motion (NASDAQ:RIMM) smartphones can only help, making its Web-based trading platform even stickier.

E*Trade's non-brokerage business has been going the other way, but it's hard to win online banking clients when money market yields are pathetic and borrowing standards are tightening.

The road to recovery will be long for E*Trade, but at least the discounter isn't making the dangerous mistake of standing still.

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Longtime Fool contributor Rick Munarriz has been trading exclusively through discount brokers since 1990 but he does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.