I took a nibble–no it was a double nibble on a new ‘hiding spot’ issue yesterday. I bought the Raymond James 6.375% fixed to floating preferred (RJF-B)–as usual I paid a bit more than I wanted to–$25.16–oh well as I see it is better than 4.3%.
The issue was originally issued by TriState Capital which Raymond James acquired 6/2022. This is one of two issues TriState had outstanding and the other which was a 6.75% fixed to floating issue with a more meager spread than the 6.375% issue was called on the 1st available date in 2023.
This issue is a fixed to floating issue that will go to floating on 7/1/2026 at 3 month SOFR (plus the tenor adjustment of .2616%) plus a spread of 4.088%. Not a giant spread, but for an investment grade issue this would be in the neighborhood of 8.4%. This is a more marginal issue relative to a likely call, but at the current yield of 6.3% it should work whether it gets called or not. Additionally this one has about 5 quarters to run before the floating period (clarification–issue became callable on 7/1/2024, but doesn’t start floating until 2026–thank you mbg). Thus there are a few cents of call risk in the issue right now.
While I have been fixated on hiding spot issues the last number of days I am going to shift gears a bit. Are interest rates going lower? I certainly don’t know, but I have some doubts of much lower rates, although when the next recession hits someday we could see rates tumble. When we start getting lower rates we want to be in some securities that are going to provide that 10% capital gain along with the coupon rate. Obviously this is a timing play and we know none of us can always (maybe never) get this call right. But what the heck–I need to look NOW for those potential securities–mostly perpetual preferreds.
So I will likely start to publish some of my best guesses of some choices for that time when we see rates starting to push lower.
Eveyrone,
According to the RJF-B prospectus (when it was a TriState Capital issue), it became callable on July 1, 2024.
The floating date for this issue is different than the call date. So far, this is the only one I recall seeing with different call and float/reset dates. At Tim’s 25.16 price, the formula in my spreadsheet calculates a YTC of +0.81%.
Callable: Beginning 7/1/2024.
Floats: Beginning 7/1/2026.
Below, I attached the prospectus.
The 7/1/26 float date is on page S-21:
Dividends
Holders of the Series B preferred stock will be entitled to receive, only when, as, and if declared by our board of directors (or a duly authorized committee of our board of directors), out of assets legally available under applicable law for payment, non-cumulative cash dividends based on the liquidation preference of $1,000 per share of Series B preferred stock, and no more, at a rate equal to 6.375% per annum (equivalent to $1.59375 per depositary share per annum), for each quarterly Dividend Period occurring from, and including, the original issue date of the Series B preferred stock to, but excluding, July 1, 2026 (the “Fixed Rate Period”), and thereafter, three-month LIBOR plus a spread of 408.8 basis points per annum
The 7/1/24 first redemption date is on page S-25:
Optional Redemption
We may redeem the Series B preferred stock, in whole or in part, at our option, on any Dividend Payment Date on or after July 1, 2024, with not less than 30 days’ and not more than 60 days’ notice (“Optional Redemption”), subject to the approval of the appropriate federal banking agency, at the redemption price provided below. Dividends will not accumulate on those shares of Series B preferred stock on and after the redemption date.
https://www.sec.gov/Archives/edgar/data/1380846/000155278119000252/e19299_tsc-424b2.htm#i19290a007
MBG-
Thanks, that explains it. I missed Tim mentioning the ’26 float date.
Thanks mbg–I hadn’t noticed the call date and floating date being different until you mentioned it. Still works for me, but does lend a little bit–pennies–to call risk.
“my spreadsheet calculates a YTC of +0.81%.” Misprint, mbg? Or are you figuring a yield to a 30 day call?
Yep, a yield to a 30 day call.
I use the “=YIELD” formula in google sheets:
YIELD(settlement, maturity, rate, price, redemption, frequency, [day_count_convention])
The 2nd argument is “maturity” and I set that to 30 days from today.
TIM-
Qonline has RJF-B $25.33= 6.35%, but shouldn’t it be showing a floating rate around 8.68 and paying about 8.57% ?
thx
I know of no site that attempts to maintain up to date rates on F/F issues, including QOL. I also don’t think there’s anything more than a handful of F/F issuers who actually announce their rates at the beginning of the floating quarter…. Usually they only seem to post when they announce declaration and x-div dates. Everyone has the ability to very accurately estimate what it is from the data in the individual prospectuses, but it’s the exceptional issuer that announces it when it’s determined…. I did notice that RITM did announce relatively early, having declared and announced May 15 its payments on its preferreds on March 21, but that was still over a month after the rate would have been calculated
Exactly 2wr–my spreadsheet lists everything as a ‘potential’ coupon–I know of no way to keep up with the exact basis point.
https://innovativeincomeinvestor.com/floating-rate-and-fixed-to-floating-rate-preferred-stocks/
FIDO does a pretty good job of updating F/F rates on their Research and Quotes analysis. Its on a deal by deal basis so I don’t know how to download but you can get the most current coupon rate within a day or 2 of payment. Rate setting is typically 2 days prior to payment, so there is a delay of getting most current info.
Unless I’m reading you wrong JDC, rate setting is not 2 days prior to payment…. Rate setting is usually 2 days prior to the LAST payment date, not the next one. So it’s actually set 3 months + 2 days prior to its payment date.
Gary – As noted above, “go to floating on 7/1/2026”. So based on this, not yet floating, not for another year plus. For now, paying a fixed rate of 6.375%.
Hi Gary–my fixed to floating spreadheet has a potential coupon today of 8.71% if it was floating today.
https://innovativeincomeinvestor.com/floating-rate-and-fixed-to-floating-rate-preferred-stocks/
I feel pretty good with my fixed rate and floating rate % as well as investment grade vs. speculative ratio. Today I added slightly to my holdings of FTAI-M (cumulative B rate issue yielding 9.2% and not callable until June 2028. I also added very slightly to my small position in C/PRN a 9.6% floater, BB+ rate, non-cumulative issue by A+ rated Citigroup. Apparently, this issue is very unlikely to be redeemed given its position in the bank’s capital structure. Who knows. I paid just under $30 so pretty speculative, but my initial position has been paying me nicely for several years. I imagine if this issue wasn’t called during the low-rate years following 2009 it might have a low risk of being called now. I am sure others here are more well versed in this issue.
Dan–yes that citigroup issue has been discussed–more so when gridbird used to post if I recall correctly. You are a bit more gutsy than me–always the chicken investor.
Dan,
I just posted a comment in the Sandbox page. It has a link to an SA article on C/PRN. In that article, someone was kind enough to post a reprint of a 2023 Barron’s article about C/PRN and why Citi hasn’t called it yet. See “filly1776″s comment from Nov 5, 2023.
Thank you MBG. Here are the cliff notes:
The company has said in the past that it would be uneconomic. Due to a quirk in accounting rules, the securities are carried on Citigroup’s balance sheet for about $1.5 billion, not their face value of about $2.2 billion. A redemption would cost $2.2 billion at the face value of $25. This would result in an accounting loss of more than $700 million…”
Did you come to a conclusion of under which conditions it would be worth their while to call?
YH, I have not.