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Merchants Bank Selling New Preferred Issue

Indiana banker Merchants Bank (MBIN) has announced they will be selling a new issue of perpetual, non cumulative preferred stock with a fixed coupon.

The company intends to redeem the 6% fixed to floating rate issue (MBINO) which is currently floating—certainly no surprise here.

Yield talk is 7.50 to 7.625%.

The preliminary prospectus is here.

Thanks to J for being on top of this one.

22 thoughts on “Merchants Bank Selling New Preferred Issue”

  1. Merchants didn’t get a huge swing up like other regionals did recently. Therefore, they are still under the 200 day moving average and not nearly as well off to do an equity raise which would make me happier if new preferreds were issued.

    A strong yellow to orange alert here with a risk averse profile.

    Reply

    1. Besides what you just mentioned about the common not getting a nice bump I can only imagine quite a few of us are heavy into MBINM which was a pretty good deal approx two years ago. I am not sure I want to add a fixed perp from this bank when I have plenty of MBINM which at least can reset higher if interest rates go wild for whatever reason in 2027.

      I think I am good with what I have. I do not feel the need to add more. I will just wait for the next one I guess.

      Reply

    1. Abe,

      I believe we’ll known when only when they make an announcement that they will, if fact, redeem MBINO. In the new preferred’s prospectus, they announced only that they INTEND to redeem it:

      “We intend to use the net proceeds of this offering of depositary shares for the redemption of the Series B preferred stock …”

      Reply

    2. I do not know for sure. Assuming they go ahead with the plan to redeem MBINO, and I think they will, the most likely date would be January 1st, which is the next payment date. MBINO can only be redeemed on a payment date, and that floating rate is very high. I think the dividend for the 4th quarter will be around 59-61 cents.

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      1. isn’t the current coupon rate for the next payment approx 9.42%? Someone check the math………

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        1. i have the current coupon rate at 9.44% – that would be 59 cents for the fourth quarter. However, I believe that 61 cents was quoted in a Seeking Alpha article. I have never been able to pin down the exact SOFR rate that is used to calculate the exact rate. Is it the first day of the new payment period? Two business days before? Is there a single SOFR quote used, or a range of values? Very frustrating, although I suppose I may be overthinking it.

          We both appear to be in the ballpark, if not the exact rate.

          Reply

          1. from https://www.sec.gov/Archives/edgar/data/1629019/000104746919004729/a2239488z424b2.htm#cg12401_description_of_series_b_preferred_stock p S-24 – “The dividend rate for each Dividend Period in the Floating Rate Period will be determined by the calculation agent using three-month LIBOR as in effect on the second London banking day prior to the beginning of the Dividend Period, which date is the “dividend determination date” for the relevant Dividend Period.” Using https://www.barchart.com/stocks/quotes/SOFERMM3.RT/interactive-chart, I would guess 9/27 would be the relevant day and 4.593% approx starting point…. +.261 +4.569 = 9.423%. I’m not sure 9/27 is the right day for determining SOFR but that’s how I came up with 9.42% approx. But we’re both in the same ball park. That comes to .58875 quarterly.. I wouldn’t be surprised if SA author is looking at quantumonline and double counting the .261 add on because qol crosses out 4.569 and says 4.831 for SOFR

            Reply

            1. In their 10-Q, filed Nov 8. On page S-44:

              Note 15: Preferred Stock
              … On October 1, 2024, the dividends on the Series B Preferred stock started to accrue at a floating rate of 3-month SOFR plus 4.831% and will reset quarterly. The rate will be 9.42% for the fourth quarter 2024.”

              Reply

              1. There you go….. Thanks , mbg….. Looks like you’ve confirmed the right number at 9.42…. What I was getting at was that MBIN was not changing the original formula from +4.569 to +4.831. They were just adding the .261 that most people add by convention to the applicable SOFR rate to the + number as defined in the original prospectus… Potatoes/Pottatos

                Reply

                1. You bet, 2wr.

                  I’m with you. Double counting the tenor adjustment wouldn’t surprise me either. Easy to do without recognizing that in their 10-Q, they showed the sum of MBINOs spread + the .26161% tenor adjustment. Showing each component separately avoids this confusion.

                  I guess QOL crossed out the actual spread and replaced it with the summed up spread + .26161% adjustment because MBIN showed it that way in their 10-Q.

                  1. SOFR rate on div determination date.
                  2. MBINO 4.569% spread over the SOFR rate
                  3. 26.161 bps tenor adjustment

                  Reply

              2. Not to be super picky, but a rate of 9.42 looks a lot like 2whiteroses quarterly dividend of .58875

                Don’t they regularly round up to the nearest penny? That would equal my calculation of 59 cents for the 4th quarter.

                Reply

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