I have noticed a lot of chatter on the message boards relative to the CHS ‘Reset’ preferreds.
I am referring to the CHSCN and CHSCM issues. Both of these issues are due to ‘reset’ for the first time in 2024. Note that contrary to most preferred issues with ‘reset’ in their name that only reset every 5 years–these reset quarterly. Both issues originally had a ‘cap’ on the reset of 8% maximum.
These are 3 month Libor resets (3 month Libor added to a fixed spread). Given that Libor is gone many times 3 month SOFR is being used–I DO NOT BELIEVE THAT IS THE CASE HERE.
Both of these issues have language in their prospectuses which outline an alternative to Libor. As I read it both will reset to a fixed rate–their original fixed rates.
For instance CHSCM has a 6.75% fixed coupon until 9/30/2024 and on 10/1/2024 the rate was supposed to change to 3 month Libor plus a spread of 4.155%. With Libor gone the back up language in the prospectus (as I read it) states it will be reset to 4.155% plus 2.595% which adds up to 6.75%.
Here is the lengthy snip from the prospectus. Let’s discuss this further.
Holders of the Class B Series 3 Preferred Stock shall be entitled to receive, if, when and as declared by our Board of Directors, out of funds legally available for the payment of dividends, cumulative cash dividends at the following applicable rate (the “Dividend Rate”): (i) 6.75% per annum of the liquidation preference of $25.00 per share (equivalent to $1.6875 per share per annum) from, and including, September 15, 2014 to, but excluding, September 30, 2024 (the “First Reset Date”); and (ii) thereafter, while the Class B Series 3 Preferred Stock is outstanding, at an annual rate equal to three-month LIBOR, as determined for the applicable Dividend Period, plus a spread of 4.155%, but in no event will the sum of such annual rate and spread be greater than 8% per annum. For purposes of the foregoing Dividend Rate:
“three-month LIBOR” means, for any Reset Rate Determination Date, as determined on the Reset Rate Determination Date for the applicable Dividend Period, the offered rate for deposits in U.S. dollars having a maturity of three months that appears on the Designated LIBOR Page as of 11:00 a.m., London time, on such Reset Rate Determination Date. If such rate does not appear on such page at such time, then the Calculation Agent will request the principal London office of each of four major reference banks in the London interbank market, selected by the Calculation Agent, to provide such bank’s offered quotation to prime banks in the London interbank market for deposits in U.S. dollars with a term of three months as of 11:00 a.m., London time, on such Reset Rate Determination Date and in a principal amount equal to an amount that, in the judgment of the
Calculation Agent, is representative for a single transaction in U.S. dollars in the relevant market at the relevant time (a “Representative Amount”). If at least two such quotations are so provided, three-month LIBOR for the Dividend Period related to such Reset Date Determination Date will be the arithmetic mean of such quotations. If fewer than two such quotations are provided, the Calculation Agent will request each of three major banks in The City of New York to provide such bank’s rate for loans in U.S. dollars to leading European banks with a term of three months as of approximately 11:00 a.m., New York City time, on such Reset Rate Determination Date and in a Representative Amount. If at least two such rates are so provided, three-month LIBOR will be the arithmetic mean of such quotations. If fewer than two such rates are so provided, then three-month LIBOR for the Dividend Period related to such Reset Rate Determination Date will be set to equal the three-month LIBOR for the then current Dividend Period or, in the case of the Dividend Period commencing on the First Reset Date, 2.595%. All percentages used in or resulting from any calculation of three-month LIBOR will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with 0.000005% rounded up to 0.00001%.