Charles Schwab Corporation Sells a 5.95% Non Cumulative Preferred

The investment firm Charles Schwab (NYSE:SCHW) sold a new 5.95% preferred stock offering and the investment-grade shares are now trading on the OTC Grey Market under the temporary ticker SCWBP.

In the first day of trading, the share price ranged between $25.00 and $25.25. While that coupon appears stingy, we expect that these shares will climb up to the $25.25 to $25.50 area once trading moves to the NYSE in a few days, as the demand for high quality issues seems to be insatiable.

As a financial services company, Charles Schwab is required to issue non-cumulative preferred shares, so if its board of directors doesn’t declare dividends on the shares, the omitted dividend payments are gone forever. The 5.95% preferred shares are perpetual and thus have no maturity date.

SCHW is issuing 30 million shares to raise $750 million for general corporate purposes, offering expenses and to provide a discount of $23 million to the issue’s underwriters.

The issue has a typical five-year optional redemption that allows the company’s management to redeem the shares at its discretion as early as June 1, 2021. Typically, the issuer will redeem the shares in what we call a “refinancing” transaction on the optional redemption date if it can issue new shares at a coupon at least 0.25-0.50% below the coupon on the just-issued shares.

Complete details on this issue can be found here.

To compare this issue with other preferred issues outstanding for Charles Schwab, you can easily check them on our “swaps” page. The company has two other issues outstanding.

For those who are interested in buying shares on the OTC Grey Market, I invite you to check out our “primer” to gain an understanding of the process.