Reinsurance Company Maiden Holdings Sells a 7.125% Preferred Issue

Reinsurance company Maiden Holdings LTD (ticker: MHLD) sold a new preferred stock offering.

As an insurance company, Maiden Holdings’ new preferred stock issue is required to be non-cumulative. While it is rare that dividends are suspended by a relatively safe insurance company, it can happen.

If an issue is non cumulative and a dividend is not declared by the normal quarterly payment date, the dividend will not be paid in the future. While there are some conservative investors who refuse to purchase non-cumulative shares, there are others who are willing to incur the slight additional risk posed by such securities. Even though the issue is non-cumulative, the dividends will qualify to be taxed at a lower capital gains tax rate, which should allow most investors to keep a larger share of the dividends in their pocket.

This issue has a 7.125% coupon and is rated BB (below investment grade) by Standard and Poor’s. For further information on the ratings scale you can check our Credit Rating Info page.

The issue’s five-year call protection window is commonplace but it becomes optionally redeemable, at the option of the issuer, beginning in December 2020.

MHLD has not announced firm plans for the use of the proceeds from this offering, although the company has declared in the offering documents that it may call its $25 8.25% Baby Bonds (MHNA) as soon as June 2016.

The company currently has three issues of Baby Bonds outstanding, as well as one additional issue of preferred stock. Each of them are trading at least 4% above par (all are $25 issues), with coupons ranging from 7.75% to 8.25%. The previous bond issues offer more generous coupons than the 7.125% of this new preferred issue.

This issue began to trade on the OTC Grey Market last Friday and it is trading around $24.75. For information on how to purchase shares of new issues on the OTC Grey Market at wholesale prices, you can read our primer on this method of purchase.

Further details on this new issue can be found here.

We have a page that focuses exclusively on banking and insurance preferred issues that allows you to compare this new issue to the current issues outstanding at this link.