New Issues Raining Down
By: Tim McPartland,
So much for taking a week-long vacation, since it seems that when you plan to take a little time off, you pay a price trying to catch up upon returning and issuers of new preferred stock and baby bonds have made sure we have plenty to do.
March thus far has been the busiest new issue month in the last year. We have five new issues that we haven’t previously covered, so we want to make sure you know that these issues are available.
First, Internet banking company BOFI Holding (NASDAQ:BOFI)has issued a new 6.25% $25 subordinated note (baby bond). The financials of BOFI would indicate this is a quality issue (although officially unrated and there is a short seller on Seeking Alpha trashing the company) that matures in 2026. The notes may be called by the company any time after 3/30/2021. The company will use the proceeds from this small offering for general corporate purposes.
In a debt offering such as this one, the issue pays interest (not dividends) and interest is NOT eligible for preferential tax treatment. Thus, the income will be taxed at ordinary rates.
Insurance company AmTrust Financial Services (NASDAQ:AFSI) recently issued a non-cumulative preferred stock issue. The new issue has a coupon of 7.75% and, as is normal, the issue is perpetual with an optional redemption available to the company beginning March 15, 2021. The shares currently are trading on the OTC Grey market, but begin trading on the NYSE today March 18. Currently, the shares are trading in the $25 area. But based upon the other four issues AFSI has outstanding, we would expect these shares to move up to the $25.40 range. The company will use the proceeds from this issue for general corporate purposes.
Plus, the dividends paid by AFSI should qualify for preferential tax treatment. Thus, taxes would be assessed at your capital gains tax rate instead of ordinary income tax rates. Since AFSI has four other issues outstanding, investors should check out how the new issue is trading relative to the older issues before making purchase decisions. You can check our “swaps” page to find all of the issues for a particular company in one spot.
Master limited partnership (MLP) KKR & Co. L.P. (NYSE:KKR)has issued a new high quality preferred stock with a coupon of 6.75%. This issue is rated BBB+ by Standard and Poor’s and the coupon of 6.75% is the highest offered in the last couple of months for this level of quality. The issue is non-cumulative, perpetual and has the typical optional redemption date starting June 15, 2021. This $300 million offering is a large one and proceeds will be used for general corporate purposes.
The issue is trading on the OTC Grey market now at $24.95/share. We believe (although obviously not guaranteed) with the high quality and nice coupon this issue will trade up to $26/share soon.
Buyers should be aware that owners of this issue will receive a K-1 at tax time.
Industrial real estate investment trust (REIT) Stag Industrial (NYSE:STAG) has sold a new cumulative preferred issue. Terms are typical — cumulative, perpetual and an optional redemption date beginning in five years. Preferred stock of REITs pay dividends that are NOT qualified for preferential tax treatment. The issue has a coupon of 6.875% — a strong rate for a quality company (although the preferred shares are unrated). Proceeds of this issue are to be used for general corporate purposes.
STAG has two other issues outstanding and you should check the“swaps” page before making a purchasing decision.
Lastly, Huntington Bancshares (NASDAQ:HBAN) has sold a new non-cumulative, perpetual preferred stock. The issue is investment grade, according to Moody’s, but under investment grade per Standard and Poor’s. The share price on the OTC Grey market is $25.10, which is a strong price for what we believe is a substandard coupon of 6.25%. Proceeds of the issue are to be used for general corporate purposes.