Insurers Sell Preferreds
By: Tim McPartland,
In the last couple of days 2 insurance companies have moved to take advantage of the current ultra low interest rate environment by selling new preferred stock issues.
AmTrust Financial Services (NASDAQ:AFSI), a property and casualty insurer, has sold a new preferred issue with a coupon of 6.95%. AFSI has been one of the most active issuers of preferred stock with 5 issues sold in the last 3 years (there will be 6 issues outstanding after this issue). The older issues have coupons ranging from 6.75% to 7.75%. Additionally, they have 1 “baby bond” issue with a coupon of 7.25% outstanding. None of the older issues is yet redeemable so the entire proceeds of this issue will be used for general corporate purposes.(which just means they can use it for anything they desire).
The terms of this new issue are the typical terms for a financial company, meaning they are optionally redeemable in about 5 years, are non-cumulative in respect to dividends and are qualified for favorable tax treatment (taxed at your capital gains rate instead of ordinary tax rates). Shares are perpetual so prices will move higher or lower depending on the general direction of interest rates.
AFSI has had solid financial performance with growing revenue and net income and we see no reason why this will not continue, but it must be understood that the preferred shares of the company are unrated.
Shares are now trading on the OTC Grey market now under the ticker AMTRP and are trading at $25.09/share. We would expect these shares to move into the $25.50 to $25.75/share range once NYSE trading begins.
Potential investors should compare this new issue to the 5 older preferred issues to see which of them might best meet their needs. Our “swaps” page is here and all issues can be compared easily here.
Arch Capital Group Ltd (NASDAQ:ACGL), an investment grade rated, Bermuda based, reinsurance company has sold a large preferred issue with a coupon of 5.25%. This modest coupon reflects the investment grade rating of the shares. Shares are rated BBB by Standard and Poor’s and Baa2 by Moody’s.
ACGL has 1 other issue outstanding with a coupon of 6.75% which is not redeemable until April, 2017. The proceeds from this new issue will help fund acquisitions.
The normal terms as outlined above for the AmTrust Issue apply to this new Arch Capital issue as well.
Arch Capital has solid financials and buyers of this issue would be most concerned about quality as the 5.25% coupon is not much of an enticement to purchase shares.
Shares will be trading on the OTC Grey market under the ticker ARHPF. Our Grey Market primer is here for those note familiar with trading on the “wholesale” marketplace.
To get more information on preferred stocks, screen them, set up your own portfolio and receive email alerts, go to www.preferred-stock.com now.