I Bought the New Residential Fixed Rate Reset Issue

While I try to not hold too many mREIT issues I did buy the new issue from New Residential (NRZ) issue. I paid $24.73

This issue is a 7% fixed rate for 5 years and then reset every 5 years at the 5 year treasury plus a fixed spread of 6.223%.

At the time I bought this issue it appeared to be superior to the other 3 issues of fixed-to-floating rate issues outstanding from New Residential (NRZ). NOW a few days later it looks to be a ‘coin toss’ as the outstanding issues have dropped 1-2%.

Just the same the ‘reset’ terms are preferred to the floating rate terms–a strong 6.223% spread is superior to the terms of the floating rate terms and the 5 year reset is preferable to the ongoing floater reset.

I plan to hold the shares.

26 thoughts on “I Bought the New Residential Fixed Rate Reset Issue”

    1. Bill ,
      This website is for REIT companies. Has the general outline, but doesn’t emphasize the risks just mentions them. The articles on SA mention one of the risks is outside management is worse than internal as internal is focused on the company and external is focused on generating management fees.
      https://www.reit.com/what-reit/frequently-asked-questions-about-reits
      Nothing is for sure. March of 2020 I bought into Hotel reits thinking it was good then Covid shut them down and I lost capitol on my investment. Yet 6 months later if you had bought at the lows a lot have recovered. It also exposed the ones that were over leveraged and in bad shape

      1. Charles – I own lots of REITS and some of their preferreds as well. Pretty comfortable with the business models and associated risks.
        But I’m new to the MREIT world and have generally stayed away because my understanding is they can use a fair amount of leverage and that to me says risk.
        So I’m curious about this issuance and how folks perceive the risk profile.
        That said I bought some yesterday at 24.91. 🙂

        1. Bill,
          I agree REIT’s should be part of your portfolio. I have owned several in the past, including CORR and others and currently own BRG-PD and would like to own WY at the correct price knowing its payout can vary widely. Getting the NRZ below par is good.
          I just think most of the talk here on III has been about flipping lately.
          On long term holds people are talking about the calls and what there is to find to replace them and if they should sell to lock in the unrealized capitol gains before one gets called and goes to par, wiping out the grains.
          Seems like the market is priced to perfection and with the upcoming debt limit battle I remember past ones and they were not market friendly.
          Know pundits say you can’t time the market, but I would feel better getting a good price on a stock rather than overpaying and watching it drop and the resulting loss of capitol.

        2. REITs are complex and opaque. Most investors are not able or willing to evaluate the risks properly. The best you can do is follow some competent analysts.

          1. Martin – Very true. I did notice Brad Thomas was endorsing the parent company (for what it’s worth) and they do seem relatively healthy at the moment.

            Will watch this one more closely than most.

  1. Strange- the company MDVA does not yet seem to be approved yet for trading, but the preferred IS ??

  2. There’s a price mismatch between NRZDP and other NRZ issues. I bought a large amount and will begin selling off when the prices line up better. Whether it’s because the new one goes up or because the others fall down to this level.

  3. For those in the nanny state of Fidelitylandia, you can buy this now. Usually you are blocked from these FTFs. I’m sure the computer will catch up at some point?

    1. When it starts trading under the permanent symbol it will be sell only at Fidelity unless you call the trading desk. Very annoying.

      1. C Malcolm–someone posted yesterday that Fido will allow FTF trading starting next month. I hope so because it is VERY annoying.

    2. Got in at 24.72 yesterday, but now the B series 7.125% is more attractive. $25.08 with 2 months accrued interest.

      1. Yes John–seems there is a movement from the FTF issues to the reset issue. I think it will slowly move higher as the issue is absorbed-it is a larger new issue.

      2. Last pay date for NRZ-B was one month ago. I bought it with the proceeds from selling NRZ-C. I don’t rate it quite as good as the new one yet. Though it is fun having 4 different issues to compare.

    3. They’re normally available on Fidelity shortly before other brokers but only until Fido algorithm realizes it’s a floater. And no $6.95 commission.
      But then MOIVP is blocked because of the grey market.

      1. be fair to Fidelity. They are trying to protect people who may not understand what they are buying. If you call to trade, there is no service charge. In the long run, it makes a better functioning market for those of us who like to use preferreds. The markets are so dysfunctional it is nice to see one major player trying to protect investors even when it is not their responsibility.

        1. C’mon. Fidelity’s policy is a pain in the neck. Can’t buy without a call. Can’t add to an existing position without a call. Can’t modify a pending buy order without a call. It chokes flexibility. And when the market is making a big move and you need to act fast, try calling and holding for 30 minutes. Yes, that has happened to me. It’s only for FF preferred’s. They could have a printed warning/disclaimer, show it before Preview Order, require a read/agree click, and take care of concern for the ignorant. I use accounts with other major brokers for FF preferreds. Nobody else does what Fidelity does. At Fidelity, is it really a matter of public concern, or internal power/politics? It helps keeps the bond staff busy…

          1. I assumed it was a legal thing to avoid claims from customers who don’t know what they’re doing. Seems to be their target audience at the expense of experienced investors. A simple warning on the trade screen would be adequate.
            I keep a Fidelity account because it has other advantages, possibly including slightly better executions. Do my FtF trades elsewhere.

          2. The Fidelity story needs a little more context IMO. We can stipulate that investors buying Fixed to Floating individual preferred securities are maybe 1 out of 1,000. Maybe it is one out of 100,000, but it is sure not 1 out of 10 or 100. Stated differently we, III’ers, are far from the mainstream.

            Fidelity lives in fear of any investor buying something they do not properly understand and coming back later saying “you should have told me about XYZ before I bought it.” In the case of FtoF preferreds, Fidelity has the correct approach at least 999/1000 times. So if Fidelity puts some “nanny state” restrictions in place, they are helping the majority of investors. Same for triple leveraged ETF’s which IIRC they will not let you buy. And there are many low/unrated corporate and muni bonds they will not let you buy.

            And one other aspect about Fidelity is less well known: sometimes they fire clients. If the client is engaged in 100% legal/moral/ethical behavior that Fidelity thinks might cause a PR/legal problem later on, they might just show you the door. And sometimes these are VERY significant sized accounts, 8 or 9 digits.

            Fidelity is like all other brokerages IMO that are not perfect. Kind of like a spouse. You get the good and the bad as a package deal. Each of us has to decide if we want to marry the brokerage or not. . .

            1. Tex – doesn’t the question really boil down to why does Fidelity feel its clientele need protection against buying issues while most other onliner brokers do not feel the same way about their clientele? Are they assuming their clients are dumber/less experienced than other houses’ clients? It’s a where do you draw the line question? That’s what makes the “nanny state” moniker stick to Fidelity. I’ve also never quite understood how logically by their “do not properly understand” standards they can allow trading of meme stocks, for example, yet they’ll block purchasing bonds or preferreds of those very same companies… BTW, I am a Fidelity client with no intentions of leaving, however I do find that money flows between my online accounts more frequently end up leaving Fido and going to the others instead of the other way around because of their F/F policy. Obviously I do see value in what they do and the way they do it, just not in this area.

              1. Long time Fidelity customer. Mainly because all my many past employers have them as the 401k management.

                On FF conversation I don’t understand Fidelity’s position. Just have customers sign a document like they do for trading options or adding margin capability.

              2. 2WR – To answer your question as to why does Fidelity feel its clientele need protection against buying issues while most other online brokers do not feel the same way about their clientele consider it this way:

                As Tex noted, the volume of Fixed to Floating shares traded are miniscule – so it really may only impact a very very small number of people / transactions. As to Fidelity’s motivations, all anyone here is doing is speculating. But it probably comes down to a couple logical explanations

                1. Fidelity wants no legal exposure on someone buying something they later claim not to have understood
                2. Fidelity is looking out for their customers moreso than other brokers and just want to be sure they are educated on this small niche area of the market

                I doubt it has anything to do with Fidelity believing its customer base is more or less sophisticated than other brokers. But it could be that other brokers DGAF about their customers as long as they make money on any trade they make whereas perhaps Fidelity actually cares

                Like you, I am a Fidelity client – quite happy with their services and no intention of switching. I don’t have accounts elsewhere preferring to keep it all under one roof. If I have to make a couple phone calls a year to buy a fixed to floating issue, I can deal with the 5-10 minutes or so it takes me to do so

                1. I think Fidelity has been sued successfully regarding F to F in the past and this makes them gun shy. Bond traders there have said this is likely the case.

                  I have heard they are working on a customer agreement for the last ten years. Not holding my breath.

                  I don’t like their stance on this issue…but I must say i like most everything else about their operation.

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