As noted by some of our readers Bank of America (NYSE:BAC) has sold a new con-cumulative preferred issue with a fixed rate coupon of 5.875%.
As is usual with Bank of America (or any of the massive banks) the issue is large with 34,000,000 shares being offered.
The terms are the normal banking terms–non-cumulative, qualified dividends and quality payments. The issue begins the optional redemption period in July, 2023.
The issue is trading on the OTC Grey Market under the temporary ticker of BKAML and was recently priced at $25.10
The company has stated they may call other preferred issues with the proceeds and this issue is large enough to call either the BML-I issue which carries a 6.375% coupon or the BAC-D issue which has a 6.20% coupon. Both are now redeemable and trading at slight premiums to call prices ($25 plus accrued dividends).
The company has many preferred issues, but some are floating rate issues which likely won’t be called for years or years as they have either 3% or 4% minimums. An entire listing on all bank and insurance company issues can be found here.
The final offering documents can be found here.
We personally have no interest in this issue, but certainly it may be of interest to those looking for a very conservative issue and are comfortable with the non cumulative feature.
Leonard, I dont think near term there is any problems as Fed doesnt seem intent on anything until Sept it appears. So you got time to think. Plus some people like counter intuitive plays. Libor has been so low for so long, the low adjustables with high minimum floors have never been in this possible situation before.
Just for closure on this thread, I had a very tight stop which triggered today. My thesis that selling pressure would be over today seems incorrect and holding and “watching and hoping” for such a low-yielder doesn’t make sense. As they say, you learn the most from your losses.
Thanks for the info Tim. I bought BKAML today at $25.10. Could have bought a couple of pennies lower but I was impatient and didn’t want to miss out. I expect it will run up to ~$25.50 in a month or so but if not, it won’t keep me awake at night. Also bought STI-A today as it was getting killed, apparently from being dropped by the S&P Preferred Stock Index and I think today is the last day of selling by the index since they state “the changes will be effective prior to the open of trading on July 23.” My order filled at $23.77 as part of huge block of over 600K shares in the last 2 min of trading. Hope that was the end of re-balancing!
I have an adjustable floor issue like your STI-A, Leonard. Except mine is a synthetic adjustable (3 month TBill plus 1.15%, 3% floor) backed in trust by a senior Dominion note maturing in 2035 ticker symbol GJP. Im not real enthused about significant rate increeases, but do have some issues that would minimize that risk though.
Gridbird, I appreciate you giving me the link to the rebalancing results and it was quite useful in understanding how some, but not all, of the ADD and DROP issues performed over the past several days. Of the DROP group {NGHCO, PMT-A, STI-A}, I already owned NGHCO & PMT-A; PMT-A was hit hard first so I tried to sell NGHCO @ $25.65 but was too stubborn to let it go for $25.50, then the bottom dropped out and it went to $24.90 today, and already overweight so didn’t buy more, but I did add to my PMT-A this week. Then I saw STI-A (never heard of it until I saw the list) well below all recent prices so I decided to buy with the expectation it should drift back to its normal trading range so I already set a GTC sell order. On the ADD side I’ve been holding DDT for about 9 months so let it go for a very nice run-up but still sold too early, but I expect it to drift lower to its normal trading range soon. This list does provide some very trad-able information and is still useful many days or weeks after it was first published, so I’ll be watching for the next rebalancing; do you know how often they rebalance? Quarterly? Thanks.
Leonard, that is a good question, and I dont know the answer. Plus their are a few other preferred indexs out there also. I just kind of stumble onto the info usually, but dont know from any advance knowledge. These are arbitrary and dumb indexes that definitely can be exploited, which I didnt as I really dont want to sell what I own as much is illiquid and too hard to repurchase. But its just incredible. I mean, DDT added? That was just am embarrassing add on. An old an illiquid trust debt from Dillards suddenly added? Of course it jumped 8% when added.
DDT being added bewildered me too, since according to quantumonline, it is “redeemable at the issuer’s option on or after 8/12/2003 at $25 per share plus accrued and unpaid dividends, maturing 8/01/2038.” So why would they add DDT when it can be called anytime? I looked at the DDT prospectus to see if there are constraints that are preventing it from being called, but I became lost (and bored) in the reading and gave up. Anyway, it jumped from trading around $25.50 to over $27, plus it went ex-div last week to boot!
Leonard, you may know this already but in case you didnt I was going to pass on my thoughts about STI-A. This one could be potentially in a unique situation that one hasnt encountered since its last dip in 2008 ish… This being that fact that its yield floor at par is sitting at 4% and will remain so until Fed pushes short term rates up possibly a 100 more basis points. So this means it could possibly be competing with short term treasury or CDs with yields equivalent to it if Libor rises from increased Fed hikes. So this in turn could put pressure on it to drop more as generally most will not buy preferreds for same yield as risk free assets. Its Libor kicker is very low so it cant get above 4% until Libor is well above 3%. There is a chance that Libor never makes it there. A bad situation would be Libor rises 50 basis points and then sits there… Of course if rates reverse and head south then its yield will be more appealing. This issue will trade loosely off short term rates but the high floor keeps it from benefitting from any near term increases so the only way its yield can become more appealing if CDs and treasuries rise in yield is by the price dropping. Nothing to panic about just something to consider if its a long term hold.
Gridbird, thanks for the detailed thoughts about STI-A which exceed what I considered. I simply noted that despite the puny dividend, STI-A has traded above $24, with few exceptions, since Jan’17, so if I could get in below $24 while it was getting hammered due to be dropped from the index, then a profitable flip (but likely small) is a reasonable expectation. So I set a buy limit order at $23.85 which filled at $23.77 as part of a massive 600K block in the last 2 min of trading on Friday, and now I’ve set a GTC sell order for $24.30. Based on your comments and the fact that market expectations often diverge, I should set a stop loss as well. After all, I saw numerous sell limit orders (> 5000 shares each) sitting around $23.80 as the market closed on Friday. Don’t know if these were individuals dumping it or more from the index fund.
Tim, are these kind of discussions OK for your site or should we move it elsewhere, e.g. private email?
Thanks Tim.. I bought into BAC-B issue at $25.02, now up 5.16% in a short period of time. Although, it’s perpetual and non-cumulative I do like the IG rating (at least from S&P) and QDI aspect. I can deal with the 5.70% yield as I lean more toward conservative. have a nice weekend