REIT Ready Capital (RC) has announced a new issue of baby bonds (senior notes).
This new issue has been expected as the company has a 6.50% baby bond issue (RCP) maturing on 4/30/2021. The ‘use of proceeds’ for the new issue state they will call the baby bonds with the proceeds. The only question is what date will be used for the call–in 30 days or not until 4/30. Shares are trading around $25.17 now so no harm will come to holders as the interest payment is 41 cents/quarter and they paid a dividend in January.
The new issue will trade under permanent ticker RCC once it begins trading on the NYSE in a week or 10 days.
The preliminary prospectus can be seen here.
J was right on top of this one.
Given the size of the new issue, is RCA, callable 8/15/2021, now in the crosshairs too? At 25.40, YTC ~3.6%
nhc – This has been a bone of contention in the past so this may only be my wrong interpretation but RCA is only callable under certain conditions.. It’s not just generally callable on 8/15… Those conditions are presently nowhere near making a call possible. I’ll have to look up the language again because I don’t see it in my notes.
Here’s the language from the most recent 10q p. 41 – https://www.sec.gov/Archives/edgar/data/1527590/000155837020012971/rc-20200930x10q.htm
Interpret it as you think is correct: To me, callability is not even an option until RC is trading over $20/ share.
Convertible notes, net
On August 9, 2017, the Company closed an underwritten public sale of $115.0 million aggregate principal amount of its 7.00% convertible senior notes due 2023 (“Convertible Notes”). The Convertible Notes will mature on August 15, 2023, unless earlier repurchased, redeemed or converted. During certain periods and subject to certain conditions, the Convertible Notes will be convertible by holders into shares of the Company’s common stock at an initial conversion rate of 1.4997 shares of common stock per $25 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $16.67 per share of common stock. Upon conversion, holders will receive, at the Company’s discretion, cash, shares of the Company’s common stock or a combination thereof.
The Company may redeem all or any portion of the Convertible Notes, at its option, on or after August 15, 2021, at a redemption price payable in cash equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest. Additionally, upon the occurrence of certain corporate transactions, holders may require the Company to purchase the Convertible Notes for cash at a purchase price equal to 100% of the principal amount of the Convertible Notes to be purchased, plus accrued and unpaid interest.
The Convertible Notes will be convertible only upon satisfaction of one or more of the following conditions: (1) the closing market price of the Company’s common stock is greater than or equal to 120% of the conversion price of the respective Convertible Notes for at least 20 out of 30 days prior to the end of the preceding fiscal quarter, (2) the trading price of the Convertible Notes is less than 98% of the product of (i) the conversion rate and (ii) the closing price of the Company’s common stock during any five consecutive trading day period, (3) the Company issues certain equity instruments at less than the 10-day average closing market price of its common stock or the per-share value of certain distributions exceeds the market price of the Company’s common stock by more than 10%, or (4) certain other specified corporate events (significant consolidation, sale, merger share exchange, etc.) occur.
At issuance, we allocated $112.7 million and $2.3 million of the carrying value of the Convertible Notes to its debt and equity components, respectively, before the allocation of deferred financing costs. As of September 30, 2020, we were in compliance with all covenants with respect to the Convertible Notes.
2WR,
The second full paragraph states:
The Company may redeem all or any portion of the Convertible Notes, at its option, on or after August 15, 2021, at a redemption price payable in cash equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest.
This doesn’t appear to be subject to any qualifications or conditions.
However the original prospectus states that:
On or after August 15, 2021, we may redeem for cash all or any portion of the notes, at our option, if the last reported sale price of our common stock has been at least 120% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption.
This appears to support your interpretation. So the most recent 10-Q doesn’t contain the $20 per common share condition, but the original prospectus does. Has anything occurred that would change the conversion rate such that the “conversion price then in effect” makes RCA subject to call?
nhc – I’m not following you…. Did you read the second paragraph after the paragraph you quoted in part??? Doesn’t that say the same thing as in the original prospectus??? Are you interpreting this differently? As previously said, this has been a question for debate before so I could be wrong, but to me, the language is essentially identical… BTW neither the original or the 10q mentions the target price of $20, but that’s 120% of 16.67 that is mentioned…
Yes, I understand the $20 to be shorthand for 120%*$16.67.
I interpreted the cited second paragraph in the 10-Q to apply to convertibility by the holder, not callability by the issuer. No?
Similar language appears under the “Conversion Upon Satisfaction of Sale Price Condition” section of the prospectus.
nhc – Now I see your point…. the partial language only in the 10q does call for some clarification from IR…. I’ll give it a shot and see if I can get a response…. The language is not there in toto on the 10q as written in the original prospectus…. I would think the prospectus should prevail under normal circumstances but I’ll see if I can get anywhere with the company…
2WR
I hope that you’re making that effort for your own edification and not going to that trouble on my behalf. For me, it’s pretty much just academic at this time, as the price now is not at a point where I’m selling even if it is callable 8/15.
Hah! I probably am edifying myself at this stage and quite honestly I don’t expect to be able to contact anyone who’ll answer, especially now in the middle of their merger proxy statement just published and fending off questions about the new issue, but I’m going to give it a try… Took awhile to even find an actual number for IR but for the record, it’s 212-257-4666. I’ll harass them again tomorrow but if anyone wishes to double-team feel free to jump in and see what you can find out… I did manage to buy a slug or two yesterday at 24.70 and missed out on more at 25.61 when I set the bid but everyone but me got filled when shares traded at that price, so I, too, am tempted to Grid them all. However I’ll try to find out The Truth anyway for the academic exercise of it if nothing else! LOL…
I think it’ll be a tall order to try to explain this to someone on the phone and get a reliable answer. For example, just recently after TD corrected the NGHCO dividends, I got a response to my earlier e-mail saying that they had investigated and determined that the 3.9 cents per share was right. And this was after it had already been corrected. That matter was relatively simple, so if you do get through here, I don’t know how much you could trust any answer. But good luck anyway.
nhc – I agree, but I’m trying anyway… have left a message – just read them the language from the original prospectus AND from 10q and asked why the caveat was left off the Q language. I tried raising the level of importance by saying the Q language contradicts what’s in the prospectus. In general only the best of best IR would be able to respond to something like this and there’s no reason to believe RC has best in class IR as it’s actually hidden on their website as to how to contact them, so I’m not expecting much help but you never know.
nhc – and anyone interested in RCA’s accurate call feature, I just got a returned phone call from Ready’s IR and they have confirmed that the language in the original prospectus is correct, NOT the abbreviated language in every 10q and/or 10k that’s come out ever since RCA was issued…
“We may not redeem the notes prior to August 15, 2021. We may redeem FOR CASH [emphasis added] all or any portion of the notes, at our option, on or after August 15, 2021 IF [emphasis added] the last reported sale price of our common stock has been at least 120% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.” p S-8 of original prospectus
In addition, they were thankful for having pointed out the differences between the language in the 10q’s and k’s and what the prospectus reads and will clarify in future quarterlies. Yay! That essentially makes this a non-callable bond at this stage unless there’s a large move up to above $20 on RC’s share price.
Thanks for that confirmation, 2WR.
2WR
Thanks much for your efforts in clarifying this. I’m glad we (mainly you) could be of service to RC. Maybe we should send them a bill for our time. I’m sure they they would find my hourly rate to be very reasonable.
Not me, nhc – I’m expensive – I charge by the dogecoin………
Keep in mind that RC may go after the ANH preferred, too. All 3 ANH issues are callable and have rates up to 8.625%. They are fat targets.
Bob, it looks like you were right about Ready Capital’s next move…when asked by an analyst on their earnings call Friday about the merged Answorth preferred shares, the Ready Capital CEO said this:
“Yeah. So the Series B and Series D they’re both redeemable now. I think when I look at was the dividend there that seems expensive compared to the rest of the capital stack and certainly compared to what – where we’ve seen other deals execute the market recently. So, I just expect us to look into refinancing those out sometime in the upcoming weeks and months.”
I wonder where a new Ready perpetual preferred would come today were Ready to choose to refinance using a similar vehicle? I suppose the only direct comparable for them right now is RC-C now that the tender is over… With only 57% having been tendered, if you use a bad assumption that all shareholders gave a rat about the tender but just under half chose not to, could that mean a Ready preferred could come somewhere in the 6.25%-6.50% range? If so, given the small size of both these issues, that would confirm CEO’s hints. Don’t forget though, for those looking to own either B or D in anticipation of a call, once one is announced, each one will end up paying 15 more days of accrued than would normally be calculated, just like RC-C did.
2WR…I took a look at the last 10-K Answorth filed in Feb. for year end 2020 (Note 12, page F-36), and it looked to me like there were roughly 2M shares of 8.65% preferred and 2M shares of the 7.625% preferred outstanding. If that estimate is accurate, it would take over $100M to redeem them both, and I have no idea how a perpetual preferred for that amount would price.
I might pick up some RC-B shares here for a quick trade, but that’s about it.
CW – I think that’s about right…. IMHO at Friday’s closing prices, D’s the better buy….If RC doesn’t refi or call them both at the same time, odds are they’ll do B first. Price either one of them to a 30 day call and you get a better deal with D…. Bet against them doing both at once, you still get a better deal with D. B’s better if you don’t believe the CEO…..ha
The common stock of this company is paying a tad under 11%, and has raised its dividend 5 cents in each of the last 3 Quarters.
Raising the dividend 3 times brings it back to where it was in 2019.
11% dividend is tempting.
Who was smart or lucky enough to buy RC back in March 2020 when it was selling for $4.12? They would have had 300% capital appreciation plus a 30% dividend.
Any whispers on pricing? RCA should trade to a YTM that’s no higher than the new issue on this news.
The indication to me was 4,000,000 shares plus over-allotment @ 6% and limited allocation.
priced at 5.75%
Maybe we should be following Bitcoin or Dogecoin instead of the T-bill rates.