Highlighting Recently Issued Preferred Stock and Baby Bonds
By: Tim McPartland,
New preferred stock and baby bond issues are moving forward at a fairly normal pace to continue a pattern I reported a few weeks ago, after enduring turmoil in the income security market during December.
Here is a brief review of new income issues that have come to the market in the last 10 days. Consider your own investment goals when assessing whether to invest in any of them.
Stifel Financial Corporation (NYSE:SF) sold a new issue of perpetual preferred stock with a fixed rate coupon of 6.25%. As a financial company, the issue is non-cumulative in respect to dividends, but the payouts received will be qualified and thereby eligible for preferential tax treatment.
This issue will have a permanent ticker symbol of SF-B when it begins to trade on the NYSE. But in the meantime, Stifel Financial’s new issue is trading under the temporary ticker symbol of SFEIP on the OTC Grey Market, which we sometimes refer to as the “wholesale” marketplace. Investors generally can realize a superior purchase price by buying shares on the OTC market prior to big board trading. We have a primer on purchasing on the OTC market which can be found here. Further information on the new issue can be found here.
Priority Income Fund, which is a non-traded closed end fund, has sold a new issue of a “term” preferred stock with a fixed rate coupon of 6.625%. Shares are cumulative with respect to dividends, but the payouts may or may not be qualified for preferential tax treatment depending upon the closed-end fund’s (CEFs) financial situation at the time of payment.
This issue of the Priority Income Fund will have a mandatory redemption date of June 30, 2024. “Term” preferred shares differ from a perpetual preferred stock in that they have a mandatory redemption date, which allows the issuer to garner a slightly lower coupon. Perpetual preferred shares have no maturity date whatsoever and thus the issuer has to pay a higher coupon to compensate for interest rate risk. This new issue will have a ticker symbol of PRIF-C when it begins to trade on its permanent exchange, but right now it is trading on the OTC Grey Market under ticker PRNCP. Details of this issue can be found here.
Recreational boat builder Brunswick Corporation (NYSE:BC) has sold a new issue of $25 “baby bonds” (any bond with a face value of less than $1,000 is a baby bond) with a fixed coupon rate of 6.375% and a maturity date in 2049. This issue is investment grade. As a debt issue, the quarterly payment received is interest and will not be qualified for preferential tax treatment.
This issue will trade under ticker symbol BC-C when it becomes available on the big board in the next week or so. Baby bonds do not trade on the OTC Grey market prior to permanent exchange trading. Details of the issue can be found on this page
Lastly, giant aircraft leasing company Air Lease Corporation (NYSE:AL) has sold a fixed-to-floating rate preferred stock with an initial coupon of 6.15%. The issue trades with the fixed coupon until March 15, 2024, after which it will float at three-month Libor (the London Inter-bank Offered Rate, an interest-rate average calculated from estimates by the leading banks in London), plus a spread of 3.65%. The dividends from this issue will be qualified, but the issue is non-cumulative. Details of the issue can be found here.
With the diversity of terms of the above recent income issues, there should be something of interest for everyone. Investors are encouraged to perform their own due diligence on the issuer, if considering an investment in one of these issues.