Hartford Financial Prices New Preferred

Hartford Financials Services Group (NYSE:HIG) has priced their new preferred offering with a coupon of 6%.  While we haven’t drilled down into the financials this would seem a bit stingy for an issue that is marginally investment grade–in a rising rate environment.

The expected rating of this issue is Baa3 for Moodys and BBB- for Standard and Poors.  Both of these ratings are just 1 notch above junk.  Of course the issue is non-cumulative, but qualified for preferential tax treatment.  It has the normal optional redemption starting in about 5 years.

The pricing term sheet can be read here.

Like all marginal coupon perpetual preferreds we have no interest, but also like all of them we will keep an eye on them, because we would have an interest with a current yield of 7% (we likely are delusional on this happening anytime soon).

For all who might be interested the shares should trade on the OTC Grey Market starting tomorrow under the temporary ticker HIGJL.

10 thoughts on “Hartford Financial Prices New Preferred”

  1. Thank you Retired.
    Re: ” I don’t put much faith in the BBB- rating. That’s just above junk …”

    FWIW: Moody’s downgraded Qwest to Ba2 on 31 Oct 2017 from Ba1 on 18 Apr 2017. S&P’s rating of BBB- goes back to Jan 2016 and perhaps it is stale.

  2. I will pass also.

    I recently purchased 7% CTAA BBB- rating from S&P just under $25. Special thanks to Girdbird posting that he brought it which lead me to find it’s price drop. Would rather wait for opportunities (at least I found it to be) like these.

    1. SteveA,

      I am curious what is the rationale not to buy CTDD instead. It has 6.75 coupon but current yield is higher by around 20 basic points. CTAA and CTDD are very similar in nature. Yield rather than coupon rate will matter in a rising interest rate environment.

      1. Trying to maximize capital preservation while generating highest yields.

        I prefer to hold the highest possible coupon’s for a particular company because the highest coupon seems to generate the highest day-day market price. Also, in any rate environment, when callable the highest coupon will be called first which also acts as a catalyst to help it maintain $25 per share.

        Not saying that I am right. Just explaining my logic.

        If you buy CTDD at $23.12 today’s price, you get a $1.88 capital gain when called. That’s an additional 8.14% on top of the extra yield.

        1. I am still amazed how many high quality illiquid perpetual utility preferreds sub 5% and even sub 4% remain within striking distance of par just because they are many years past call.

      2. I own the CTDD issue. Why I have no idea why but it keeps paying me which is what matters. My cost basis is just a fraction over $23. I don’t put much faith in the BBB- rating. That’s just above junk and the current parent company…Centurylink is not exactly AAA. Will continue holding because 7+% is hard to come by. I hope Tim’s wish for some quality 7% yields materializes but I’m not going to hold my breath for that. I have a gut feeling that the economy will slow and rate increases will stop before we get there but I have no crystal ballon the future. Just my 40 years in the market and having seen several economic cycles come and go.

        1. I also hold cty and ctbb both currently yielding over 7%. steveA is right though cty and ctaa do bounce around a bit. Not so much of an issue if you just collect income.
          I would still rather hold the preferreds than the ctl common.

  3. In looking @ IG non cum QDI preferreds in the financial services industry, this coupon seems to reflect current market conditions very well. I have no idea if interest rates will increase enough in the future to make a significant difference in the attractiveness of this particular security.
    In looking @ QOL I couldn’t find the 6% Sr Notes maturing in Jan 2019 and I
    couldn’t find them on Hartford’s website either. Consequently I don’t how much of this new issue will be required to fund the note call.

    I kinda sorta think there are new
    rules concerning interest expense deductibility in the tax reform bill enacted in late 2017 which may have affected the selection of this being a preferred security. Also there may be regulatory considerations that influenced this choice.


    1. Cusip on the 5% is 416515AV6. Trades as a bond.

      Some larger companies that can readily go to the institutional market like to keep a toe in retail debt; hence a $25 issue. HIG also has a BB out. Big coupon but at present price only 4.8% YTC, so a non-starter for me.

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