Annaly Prices New F-T-F Preferred

NOTE – I am out of town at the moment so a little late with this (announced yesterday) and my new method for listing details will be posted later in the weekend.

Giant mREIT Annally Capital (NYSE:NLY) has priced a new issue of fixed-to-floating rate preferred.

The issue will have an initial coupon of 6.75% which will change to floating rate in 2024 and will float with a rate of 4.989% plus 3 month Libor.

The issue will trade under OTC ticker ACAXP immediately.

The final pricing document can be read here.

The company will redeem their NLY-C issue with a coupon of 7.625% issue with the proceeds.

32 thoughts on “Annaly Prices New F-T-F Preferred”

  1. If I can pick up a capital gain that is equivalent to 12+ months of dividends, then I sell. Assumption is that within the next 6 months, I will be able to find an equivalent replacement for the sold preferred stock or baby bond.

  2. AGO-E
    I picked up a position in this way past call 2xIG, 6.25% sweetie in February @24.62. Now I’m sitting on a 7.3% capital gain with it and am on the horns of a dilemma. Should I sell and capture the short term cap gain or hold and enjoy the security of 2xIG with effective yield of 6.3% unit its called, if ever? All opinions welcome.

    1. AGO also has 4 million B-shares with a 6.88% coupon. One would assume the company would redeem them first, before calling the lower coupon A-shares.

      That said, scalping a 7% gain in four months is nothing to sneeze at, especially if you have another preferred stock lined up. I’d sell and try to buy it back at a lower price later.

    2. Nobody knows what’s going to happen, mikeo, not even the best of us. So there’s that certain truth to start with.

      My only opinion–which is likely not worth much of anything to anyone but me–is that you need to git off them horns. They’ve got to be very uncomfortable.

      So my advice is to sit someplace quiet and ask yourself which would make you feel best. Then just do it. You’ll feel better.

      I have to make that same decision with several past call and over par IG things I hold. What it’s come down to is that when the price gets about 2 years worth of divvies over par my trigger finger gets itchy. But AILLL popped up to 27.60 last week and I didn’t flinch. If it’s called @ 25 I’ll just eat it. On the other hand, if it tops 28, maybe I’ll let someone else hold it.

      But nobody else’s opinion matters to me. It’s all about my own internal search for peace and sleeping well at night with what’s in my bag.

      JMO, of course…

      1. Camroc, you would be at the dinner table feasting for a long long time eating all of the AILLL that would be served to you on a call. 🙂

    3. Mikeo, I personally wouldnt view it as an all or nothing proposition. Assuming you have others that are called protected, just view this one as another “diversifier”. That being its relative outsized yield, and more of a lean to “anchoring to par” from past call status in todays yield. Look how fast sentiment has changed this year alone. Who is to say Fed doesnt drop Funds rate a couple times and long end stabilizes at present yield? No need to load the boat up on lower yields just for call protection for all your little preferred nuts stored in the tree.
      Now if you have a max position in issue, and a call smack would tick you off personally that understandably changes the variables and your thought process too. I lived on the edge with max positions during 2016 rate plummet, that were above relative market yield, past call, and way above par and didnt ever get smacked with a call loss. But I was moving around in them too. Presently I only own one past call issue that is above par (AILLL). Everything else I presently is old safe low yielders well below par, term dated, non callable, resets below par, or still call protected. So I have no problem sitting beside Camroc with fork in hand eating a call loss there.
      The one thing in your pocket seems to be AGO has very little interest in redeeming issues. Of course that could change quickly. It is quite confounding how certain insurers are a little blasé’ to redemptions being “the spread” is all important to a sector such as this.

    4. I mentally rank all my past call and coming-up-to-call issues to decide how much over stripped par I’m willing to go, and for how many shares.

      I consider AGO unlikely to be called (say a 3 or 4 out of 5), so I’d be willing to go perhaps 4 payments over par. No structural issues arguing against a call; just apparent corporate policy.

      I wouldn’t hold 5,000 shares this far over but 500-1,000, no problem.

    5. Thank you all for your input, there are many viewpoints, opinions, and tactics that will help mulling this decision over the weekend.
      I’ll add that the AGO-E position is my standard 3% of investable funds and will not cause sleepless nights one way or the other (I have other, much scarier positions that still allow restful nights). At present I’m leaning toward using 6.875% AGO-B as the early warning call signal (tip of the hat to Citadel West) because if the Fed actually does begin lowing interest rates in coming months would not the price of AGO-E tend to rise? Staying on the position might reap even more that 7.3% and could turn it into a long-term capital gain next February while drawing down 6.3% annual divvy. Maybe worth the rate risk.
      I also must say Grid was right (as he seems to be most all the time) when he enthusiastically welcomed camroc to this group. Keep up the posts camroc, I look forward to your fresh perspective.

      1. Mikeo, one cannot make a complete informed decision until the curmudgeons speak their mind. And Camroc will always star in that leading man’s role there. :)….. One can never totally formulate a long end yield rate expectation from Feds lowering Funds rate. Remember in 2013 when Funds rate was near 0%, the 10 year jumped quickly above 3% before falling back just like this past year. Economic cycle, inflation, sentiment, Central Bank buying, yada yada, etc. all factor in.

      2. I hold B and E, up 7.8% and 8.9% respectively as of Friday close. I had a bunch but been selling it down when I want cash for a buy because I haven’t had any cash just sitting around this year. I have about half left and l probably will hold that level. Reduce a different past call next time I want cash. If I had cash laying around it would have been hard to part with AGOs but I still probably would have halved. They could sweep the board at 5.5% on Monday for all I know and don’t understand any reason why they wouldn’t.

    6. Grid, curmudgeonly input is important to me as it helps temper my occasional over-optimism. And I do remember 2013 as I was making very nice gains indeed with REIT ETF VNQ which reflected how much REITs loved the interest rates of the time.

      P, if I had a double position I would definitely take some cap gains here but that’s not the case. And equally attractive issues are rare indeed in the present market. Thanks for your comments.

    7. Mikeo, this is one of the toughest calls, i think (a good dilemma but still a dilemma). I had ago-b for years and had more than 2 years of dividends on the table and it was past call. I sold it a few weeks ago at a slightly higher price than it is now because i just didn’t want to lose that profit. The viewpoints of some of the very, very smart people here definitely factored into my decision. Tough call between that one-time profit and ongoing income stream but if you’re walking away with a good profit you can’t be too upset no matter what happens, I believe.

      1. Mikeo, if conjecture fails us then let’s try to put some numbers on it…hypothetical but in the same ballpark. Trading @ $27 yielding 6% on $27 = $1.62 yr. Take about 1.23 yr to break even if $25 call. Now let’s sell it, pocket the $2 and buy a IPO $25 yielding 5.5% = $1.375 yr. So $1.62 yr – $1.375 yr = $.245 yr spread. So 8.16 yr to break even if $25 call. If I kick in my $2 that buys 8% more of the 5.5% IPO and pushes break even out a little longer. I’m not close to genius so check my math. Lots can change in the future but then we would be back to conjecture.

        1. Great math P. Would also include the cost of the penalty period post-call when the funds are sitting in the 2% bin waiting to be re-assigned. Also the lower risk achieved through an improved YTC/YTW of the new position (unless one is buying well-over-par issues).

  3. Fairly priced based on other similar issues. Not sure I would but if I was intending to flip. But I did buy intending to hold as I have been waiting to replace some GLOP preferreds I hold but hated to give up the yield. This yields 1.75% less than those but to me safer than the GLOP issue I plan to replace

    Not an exact comparison give the FTF feature and different floating rates down the road but It compares to

    NLY-F – currently yielding 6.80%
    NLY-G – currently yielding 6.62%
    AGNCM – currently yielding 6.75%
    AGNCN – currently yielding 6.61%

  4. SCHWAB struggling to get this into their system. Please let me know if anyone can trade this on Schwab. Thanks !!

  5. Everyone seems pretty negative on this one. To me, I compare it to NLY-F with a coupon of 6.95% and a spread of 4.993 over 3mL. The yield to call is 5.88% and it trades at 25.70. Isn’t this one under par better?

    1. I like it Roger. 6.75% and 4.989 at float in 2024 are great in today’s environment. Tim rates these a B too and I feel very safe with this REIT which has a $13.2M market cap. I bought a full position (2%) in my portfolio this morning at $24.70…..and Schwab is trading it now

  6. I bought some at 24.75 around 9:45a – initially asking price was 24.65, but Vanguard’s automated system couldn’t handle the order, as usual. The brokerage staff knew how to get the order placed and they are very nice people, but it cost me a dime. Not a big deal in the big scheme of things, but it still astonishes me that they are often not ready for a new issue when it starts trading. It’s not like there are a hundred new issues every day. I thought their final advice was interesting: go ahead and place an order on-line, and then call us immediately if/when it is dropped/rejected.

  7. Zero meat on the bone and lots of NLY prefs outstanding ………. so it’s trading well under 25.

  8. TDAM just took a trade under that symbol, ask was $24.50. I’ve been watching NLY-G to see if price wobbles when the new one comes out. Currently at $24.60 with 6.6% yield, can’t be called ’til 2023.

    1. Sold my -C’s yesterday @ $25.30 due to the impending call; held since 2012. Great yield and steady. Will miss those. Dumped my -G’s this morning @ $24.52, and replaced all with the new issue @ $24.65. Higher yield & better FF. Still due a div each from the C and G.

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