Farmer Mac Prices New Preferred

Federal Agricultural Mortgage Corp (AGM) has priced their previously announced new non-cumulative preferred.

The issue will carry a coupon of 5.25% and will be non-cumulative, but qualified.

The company also announced a call (although no official notice of call has yet been issued) of the 5.875% series a issues (AGM-A) which has been redeemable since 2018.

Holders of the AGM-A issue are sleeping a bit as shares closed at $25.80 today–with 30 days notice of redemption holders will likely take about a 50-55 cent loss. My guess is the lack of information has left most holders in the dark.

The company announcement of the pricing can be found here.

There will be a SEC filing soon on the issue, but in the meantime the issue will begin trading immediately.

EarlyBird had the details on this issue at 1:22pm this afternoon in Reader Alerts. We always wait for published details before posting our announcement–watching the Reader Alerts page is always most timely.

48 thoughts on “Farmer Mac Prices New Preferred”

  1. Quantum has the dividends of AGM-D as non-qualified. This must be a mistake. Since Fidelity uses their data for 1099 reporting, how does one confirm that this is an error?

    1. Ok, this is surprising. Farmer Mac has never issued an offering document confirming the correct tax treatment. (Under the statute, it should be considered eligible for qualified status)

    2. Think you mean AGM-F. QOL is showing non-quali, I agree.

      Send the QOL fellow an email. He will make corrections. As an observation, all the preferred of the same issuer will have the same tax status. (Assuming none are term dated, etc.).

  2. I already am at max exposure to AGM but I will trade up to one-half of present position for the new AGM-F. Losing a bit in current yield but picking up almost 100 bps in YTC. AGM has proven themselves willing to do calls.

    I had bailed out of AGM-A some time ago and very glad I did.

  3. When I realized Schwab was finally taking orders yesterday morning the last trade was at $25.15. Too high to my liking so I entered a limit at $25.04 expecting it to expire unfilled at the close, but dang, it did fill and now I’m down .02 already. Not to worry, ignorance is bliss. Isn’t it?

  4. Tim, Is there an implied government backing on AGM? I’m trying to figure out how much credit risk there is in the preferreds. They held up pretty well in March.

      1. I’d be careful in comparing the risk of Farmer Mac debt and their preferreds. The debt has GSE status which is an implicit government guarantee while their preferreds are a stand alone risk. These are very similar to the FNMA and FHLMC GSEs that went into conservatorship in 2008. Bond holders were fine whereas preferred stockholders got wiped out. I think Farmer Mac preferreds would rank less than investment grade or they would pay the rating agencies for a rating. With that being said, I’m currently in AGM with a 1/4 positin.

      1. Nice. I’ll probably flip it on a small cap gain. Yield is a little low for me long term. Good luck…

      2. On TDA, I got some at par right after market opened. AGM-E (5.75%) sure took off (now $27.00!). It will be interesting to see how much 1/2% difference makes.

        Is this really sock-drawer material? No ratings, for good reasons, and the E-series has “III Rating: B”. Does that count for sock drawer?

      3. What makes this a ‘sock drawer’ issue? Seems to be lacking a few of the key points for socks in my drawers…

        1. A4I – Which of course begs the question of what defines a sock drawer security….. I’m sure it’s different for each of us. To me, to be a sock drawer candidate, it has to be the equivalent of a Ron Popeil Ronco Rotisserie where you could just set it (aka buy it) and forget it, i.e. not have to monitor it closely from then on…. To me, only the credit aspect of AGM as a GSE makes it a candidate and that’s not good enough… I see no place for any kind of plain vanilla perpetual in my sock drawer because of interest rate risk… I know that’s au contraire thinking these day, but when rates do turn, one better be ready to empty out the drawer of perpetuals pretty quickly and that would require remembering they’re there. that’s not set and forget….

          1. I was speaking primarily to quality and duration to call.

            Interest rate always a risk but I expect this its going to be awhile on that front. Just my sense.

            1. Bill, This is always an interesting term, and means different things to different people. And these sock drawer issues can be prostituted out also. I bought 300 shares of DMRRP at $90 a few weeks ago thinking I overpaid but I got a noncallable sock drawer safe issue. Then someone wants them for $105 a week or two later, so I said bye bye to the sock drawer….But generally I am more in tune with you, but have adjusted quality a bit (sacrifice). For example, I few weeks back I loaded up on LXP-C as a sock drawer issue. Mostly being I bought a then plus 6% issue that can never be yanked from me most likely for a long long time.
              I dont see rates rising appreciably, and a 1.5% 10 year doesnt constitute a considerable movement to me. I can see higher inflation, but that may have no effect on yield ala 1940s… But I also have WCC-A as a sock drawer issue. Not in terms of safety, as its not, but I dont see many 10% issues I feel comfortable owning in risk bucket. So here I got a high risk bucket issue in my sock drawer. But I only own 500 shares which is considerably less than my LXP-C holding. So basically for me the the term sock drawer can be contorted to both ends of the spectrum, ha.

              1. Funny how just writing “sock drawer” gets such a good dialog. I love this site as I am always learning the perspective of others who have been at the game far longer than me.

                I also have some WCC-A in there. Ha.

                Looking forward with interest to the coming months.

              2. Now don’t go perverting the term, Grid. It’s not relative. I bought a sock drawer security today: ALPVN below call price.

                Sock drawer. It is what it is. 😉

                JMO

                1. Ok, Camroc, off with the spin…You know your common unit paying EPD shares are in the sock drawer too! 😄

                  1. No, Grid, those things are golden handcuffs. You’d know why if you ever tried to sell them. 😉

                    1. Ah, Camroc, you know I am not falling for the slight of hand trick. The gold has provided you more pleasure than the handcuffs, pain. After all, somebody has kept on buying them this year also. Since you wont confess, I will for you…They are in your sock drawer laying on a little fluffy pillow just as comfortable as your ALPVN is in there. 👍

                1. Jeff, good news. This doesn’t mean what you think. It doesn’t mean, they get them credit rated and/or they become investment grade and redeem them for cheaper issuances. It simply means if a rating event occurred where these preferreds were not allowed to be treated as capital, and were being treated as debt for the credit ratings, thus sinking their current bond ratings.
                  Kind of standard on a lot of issuances. Personally Im not losing any sleep over it.

                  1. Thank you for your input. I own them, but was told by Rida that they could rate it and call it. Good golfing.
                    Jeff

                    1. Jeff, Rida would think that because he is a lazy moron. He is supposed to have all the finance experience and doesnt know simple things like this. I am a financial pea brain, with zero finance background, but I am genius to that numbskull…He should pay people to take his advise, not the other way around!
                      2WR, gave you the legalese below, and he is smarter than me so he actually was able to find it in prospectus. I might hit my head on my ipad falling asleep trying to find that. But I do already know what a “rating agency event is”.
                      In laymans terms it means this…See the preferreds may or may not not be “rated” here but they have been “scored” anyways. This has to be done with assigning their debt ratings. Even though preferreds are not debt they usually have a percentage assigned to them as such in creating the debt rating…Lets take Fitch (they actually rate the preferred a “B” rating which was right about where 2WR and I guessed a few weeks ago, off the Moodys bond rating)..They assigned the preferred a 50% “equity credit”. This basically means half are being treated as debt because there is an obligation to pay….If Fitch say suddenly decides their matrix of evaluation should change and gives the preferred only 20% equity credit, that is really going to screw up their credit profile as about $150 million or more has been suddenly moved to the “debt side”. So…In that case WCC would want to redeem them and figure something else out (such as a true bond issuance or equity dilution) to mitigate the problem.
                      Just to show you I didnt make this up here is the Fitch blurb and link..
                      WCC upsized its ABL revolver and AR securitization to approximately $1.1 billion and $1.025 billion, respectively, in coordination with the close of the Anixter merger, and issued approximately $540 million of preferred stock to existing Anixter shareholders. Fitch assigns 50% equity credit to the preferred shares.
                      https://www.fitchratings.com/research/corporate-finance/fitch-downgrades-withdraws-anixter-at-bb-on-closure-of-acquisition-by-wesco-international-25-06-2020

                      Rating Agency Event means that any nationally recognized statistical rating organization within the meaning of Section 3(a)(62) under the Exchange Act that then publishes a rating for the Company (a “rating agency”) amends, clarifies or changes the criteria it uses to assign equity credit to securities such as the Debentures, which amendment, clarification or change results in (a) the shortening of the length of time the Debentures are assigned a particular level of equity credit by that rating agency as compared to the length of time the Debentures would have been assigned that level of equity credit by that rating agency or its predecessor on the initial issuance of the Debentures; or (b) the lowering of the equity credit (including up to a lesser amount) assigned to the Debentures by that rating agency compared to the equity credit assigned by that rating agency or its predecessor on the initial issuance of the Debentures.

                    2. And all this from a “financial pea brain.” I don’t think so.. I’ve never known a non-Wall St type professional with more self-taught knowledge and understanding of detail and prospectus nuance than you, Grid. Most pros I’ve known, worked with or competed against in my Wall St. days never knew what you’ve taught yourself. I’m bettin’ there’s a history student or two running around this world who got some good learnin’ from you as well over the years..

                  2. You do have to go around in circles a bit in order to show for yourself what Grid’s saying, but it comes down to finding the definitions in Sect. 2 of both “Ratings Event” and “Series A Preferred Current Criteria” in the WCC-A prospectus

                    (cc) “Ratings Event” shall mean a change by any Ratings Agency to the Series A Preferred Current Criteria, which change results in (i) any shortening of the length of time for which the Series A Preferred Current Criteria are scheduled to be in effect with respect to the Series A Preferred Stock or (ii) a lower equity credit being given to the Series A Preferred Stock than the equity credit that would have been assigned to the Series A Preferred Stock by such Ratings Agency pursuant to its Series A Preferred Current Criteria.

                    (ii) “Series A Preferred Current Criteria” shall mean the EQUITY CREDIT CRITERIA [emphasis added] of a Ratings Agency for securities such as the Series A Preferred Stock, as such criteria are in effect as of the Original Issue Date.

              3. Grid,
                On dmrrp: “ Then someone wants them for $105 a week or two later, so I said bye bye to the sock drawer…”

                …and then someone wanted them for $110 a few days later, today is @ $109….so at what price should one rebuy them? Unless something terrible happens, Will we ever see them again around $90?

                1. D, I dont know..The first time it ever hit $90 was me buying and I thought I overpaid then…$15 in 2 weeks was fine by me. Personally I dont look back. Im not interested unless its $90 or less.

          2. 2WR, I gotcha (different strokes for different folks) – but this one is not IG (as rated by either of the big 2 firms), it’s non-cumulative, lower yielding + perpetual (which you somewhat alluded to), and they aren’t regulated by the SEC/don’t report to the SEC.

            Neither one of these is a deal breaker for me personally, but the combo of just those 4 characteristics I refreshed – is…

            JMO

  5. I called Schwab and asked them to add it. Maybe others here can do the same to get some pressure on them to get it done.

    1. Picked up 200 shares AGMPF @24.93 on Fidelity at open today (friday).

      Now waiting for NEE-I to fall a bit more to add more.

  6. seems vanguard is having brokerage system problems. Shows quotes @24. 95.
    1 million + traded. I put in bid of 24.95. Their system says no orders for less than .01 Calls go thru their screening and marketing stuff then silence.

  7. I think all of their other issues are trading at a higher current yield.

    Yield to call is probably worse on them though I would guess, but I haven’t sat down to calculate them.

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