Insurance and annuity company Brighthouse Financial Inc. (BHF) has announced a new issue of non cumulative preferred stock.
The terms are normal for a large insurer–non cumulative, but qualified for preferential tax treatment.
The company currently has 2 preferred issues and 1 baby bond issues outstanding that trade very strongly–you can see them here. Of course the coupons on these issues are high–6.25% to 6.75% so you would expect them to trade with high valuations in this low interest rate environment.
This new issue is rated low investment grade (BBB-) by Standard and Poor’s, but Ba2 by Moody’s – a couple notches below investment grade.
‘Yield Talk’ is in the 5.375% to 5.50% area.
The preliminary prospectus can be found here.
EarlyBird was the earlybird on this one.
The BBB- rating is likely based on the assumption that the $18B of equity on their balance sheet is accurate. The 3.3B market cap says otherwise. I think the Ba2 rating is a better reflection of reality unless there’s a massive move upward in the common stock. The 5.375% yield is basically in line with the Ba2 rating. A true BBB- financial preferred would likely IPO at more like 4.5%.
Temp ticker is BTHFL
https://otce.finra.org/otce/dailyList?viewType=Additions
QOL has it.
E*Trade not set up yet.
https://quotes.freerealtime.com/quotes/BTHFL/Quote
BTHFL)
After Hours: $ 25.03 05:21 PM EST
Volume: 2,314,760
So you now have 3 BHF issues to chose from. There are no institutional preferred.
Pick your poison. At today’s close:
BHFAP 6.60% coupon to yield 6.18% stripped and YTC 4.50%.
BHFAO 6.75% to yield 6.21% and YTC 4.67%.
New issue 5.375% to yield 5.37% and 5.34% YTC.
For me, it depends on future view of interest rates and your portfolio needs. If you’re a believer in lower for longer, you should be buying the new issue. Those higher coupon issues will get called and you’ll be stuck with YTC.
Thinking of higher rates? The higher the more you should favor the older, higher coupon issues as they will be less likely to be called and you will get those nominal yields past first call.
I would agree with those that don’t classify BFH as a world-beater. The very strongest insurers don’t issue many preferred and those that do trade at very low yields. Getting a decent yield from an insurer means taking some risk in the form a a less than A-rated balance sheet or it’s a re-insurer.
This is one I would buy if it crashes. I see better risk-reward opportunities out these than BHF. But I certainly wouldn’t fault those who take a chunk. It may be a 50 cent flip.
Wonder why BHF is rated so poorly by Schwab ratings.
Perhaps the prior issues are trading so much higher than the $25 due to their ratings when they were issued and which have not been re-rated?
Their financials are terrible. Certainly no swan.
Is it the BBB- rating on the preferred or the 18 billion in equity that troubles you more?
They have three 6’s with ytc under 3.75 that have done a good job clawing back above par! I’m not sure of BHF equity capitalization I thought I saw around 3.5 billion.
Their game is insuring living benefits, having spun off met life. When markets tank like in March their risks increase. Now a 5 3/8’s deal
I’ve owned the BHF preferreds in the past. But when an insurer with $18B in balance sheet equity trades with a $3.3B stock market cap, there’s something wrong with that balance sheet number. They will have a lot of preferreds in relation to that stock market cap.
mSquare – the latest rating were from 11/10/20
Thank you Tim.
My understanding was that the new issue was rated 11/10/2020, but does that automatically apply to the older (higher coupon) issues? I mean, is this new rating for this specific new issue and chance of its own default or of company to default as a whole on all debt?
The 3 BHF issues rank equally and will be of the same credit quality, even if the company did not pay to have the older issues re rated (which companies sometimes don’t). The only one I’d be looking at would be the most recent rating.
Thanks Bob-in-DE, I did not know new rating applied to all.
Means older ones got ‘downgraded’ from their higher ratings and some funds, etfs and big funds cannot hold anything but IG may have to sell it? If so, could pose an opportunity for us small investors?