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New Preferred Issues Just Keep Coming

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September 14, 2017

By Tim McPartland

In a continuation of the active new issue market in August, September is shaping up to be just as active.

Below are three new issues that are now trading on either the OTC Grey Market or on their respective permanent exchange. Each new issue warrants analysis.

TCF Financial Corporation (NYSE: TCF) has sold a new non-cumulative preferred offering with a coupon of 5.70%. Once again, a junk-rated bank is able to sell a new preferred with a coupon under 6%. The company will redeem the TCF-B issue, which has a coupon of 7.50%, with the proceeds from the offering. Dividends will be qualified for preferential tax treatment. Shares have been trading on the OTC Grey Market for a couple of days in the $25.05 a share area.

Check for further information on this new issue here.

Alabama Power, a division of The Southern Company (NYSE: SO), has sold a large issue of cumulative preferred stock with a coupon of 5%. While the coupon is meager, at least this issue is investment grade, so it is worthy of a more modest dividend. The proceeds will be used to redeem the 6.50% and 6.45% outstanding preferred stock issues, as well as a portion of the 5.83% preferred issue. Dividends are qualified for the lower preferential tax rate. Shares are trading on the NYSE and jumped up to $25.70 a share right away.

Further details can be found here.

The Carlyle Group (Nasdaq: CG), a giant global asset management firm, has sold a big issue of 16 million shares of $25 a share preferred units, which offer a coupon of 5.875%. Proceeds from the offering will be used for general corporate purposes. Shares are trading on the OTC Grey Market in the $24.90 a share area. Please note that The Carlyle Group is a limited partnership and, as a result, holders of these preferred shares will receive the dreaded K-1 at tax time instead of the 1099, which is easier to deal with. This offering is a low-investment-grade issue.

Further details of this issue can be found here.

Depending on an investor’s circumstances, either the Alabama Power issue or the Carlyle Group issue may be worth a look. For the ultra-cautious investor looking for a solid, yet modest, income stream, Alabama Power could be considered. For investors who have a bit more risk tolerance, the Carlyle issue offers a reasonable coupon for an investment-grade issue. The TCF Financial issue is rated BB- and the 5.70% coupon really is inadequate for this lower-rated issue.


Tim McPartland

Tim McPartland is a private investor with over 45 years of investment experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.

 

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