Regions Financial Prices Preferred Issue

Regional banker Regions Financial (NYSE:RF) has priced their new issue of fixed-to-floating rate preferred stock with an initial coupon of 5.70%.

Of course this low coupon is disappointing to me, but was kind of expected as a number of readers had some early indications of this low coupon.

Honestly I just wish that 1 time the marketplace would reject low coupons that are junk rated–just once. Of course I “talk my book” as I would like to find something decent to buy. For now I will continue to reject low coupons and patiently wait for a higher coupon new issue–or a tumble in markets to provide the current yield I want to buy (6.25% to 7% depending on the issue).

This issue is rated BB+ by S&P, Ba1 by Moody’s and BB- by Fitch–solidly non investment grade.

The new RF issue will begin to float on August 15, 2029 at a rate of 3 month Libor plus a spread of 3.148%.

Shares will be non-cumulative, but will be qualified for lower tax treatment.

The company will sell 20 million shares–no over allotment shares are going to be available.

Shares will trade tomorrow under the OTC Temporary ticker RXFCL which will change to permanent ticker of RF-C once the issue moves to the big board.

The pricing term sheet can be read here.

14 thoughts on “Regions Financial Prices Preferred Issue”

  1. Not interested in a BB regional bank perp at 5.7%. Parking cash at 3% and will wait for the next fire sale.

    1. Well, just broke my patience “rule”, buying a strongly IG perp at stripped yield of 6.02% with a 1-couon call risk and unlikley to be called. Much prefer to the new RF issue.

      Back to hibernation ……

  2. I understand how you folks think, but for someone who is satisfied with a 5% or more annual return, with a 10 year window, these preferreds are satisfactory. I don’t purchase so that I can get a 50 cent return within a short time period; In fact, I have held onto products in which I had gains equaling multi-year’s worth of dividends, one being 5 year’s worth recently. I want the income, not the gain, and if I sell a good holding, I have to replace it. Just a different mindset and it is unlike that displayed by the various comments here. My goal is 5%+ annually for as long as a holding lasts. Thanks

    1. I buy preferred’s for both capital gains potential and for income potential. That is why they are a hybrid instrument and not a stock or a bond. Sounds like you buy preferreds just for income potential. Most people buy bonds for income only but preferred’s stocks work well also.

      This appears to be opening like a rocket given its credit rating, coupon, and 10-year window before it floats. $25.25 at 2.4M shares traded. Not for me. but clearly for some.e

      Good luck, 5% return is very practical.

    2. I’m in the same carriage as you, Howard. And I regret every time I’ve strayed from the path when seduced by a dividend or two of gain. Hard to get back in when you sell the likes of AILLI, AILNP, PPWLO, or WELPM, especially now.

  3. Regions dominates in Alabama and other southern states. With the mergers in the sector, I would expect eventuallly it will be merged with larger banks if only to compete technology services wise. This may very well be a good buy if can obtain under par and then flip. My son interned with them and they certain are not providing 100% financing on any real estate portfolio.

  4. While I’m not really familiar with this bank, I’ll post a comment that may or may not be helpful to investors. At least for now, I’m avoiding all banking preferreds. However, there are some like M&T Bank that have great underwriting standards and are top notch.

    During my brief tax season, I found out this year that 100% financing (or even more!) is back. Had a client sell a property for $165,000 and then looked at the loan amount – it was $165,000 too, so 100% financing. However, looking at the settlement sheet, the seller also provided $6,000 in Buyers Assistance. This basically means that the seller sold the house for $159,000 and the buyer now has a loan for $6 grand more. Considering if the house is ever sold, they will need to pay a commission to the Realtor and 1% transfer tax here in PA, the loan is already “underwater” but I’m not sure what bank is holding that loan.

    As an alternative, today I picked up a few shares of RPT-D a little below $50. Their debt to original cost of assets is only about 50%, which provides me a little margin of safety, as compared to some of the banks that have their Tier 1 capital at closer to 10%. While I’m not a big fan of retail REITs, I’d rather have those shares than a 5.7% yield from a regional bank.

  5. Tim, you think there is a decent “flip” in this new issue, or the low coupon will hinder, say, a 2% flip once it goes to the big board.

  6. I actually have my business account with them and think it is a pretty good little bank service wise. But I will hang onto my RF.A until they call it I guess. This just seems too low a rate, and there are better options for a similar return even in an overpriced market.

    1. Yes Scott ‘A’ is the best option now, but with a .67% spread between the 2 issues I would think they would redeem it soon.

      1. Tim, a “real” rating agency deep junk Ba1/BB+ Regions (RF) IPO Preferred (this is maybe an AA or A rated by Egan Jones) pricing at 5.7% perpetual is ridiculous and should be avoided IMHO. I’d rather invest in a bond from one of the largest utilities in this country Nextera; NextEra Energy Capital Holdings, 5.65% Series N Jr Sub Debentures due 3/1/2079 currently yielding 5.51%; though I am not a buyer right now and bought much lower. All should be careful in here as when we get another December 2018 to hit the income markets many of these low yielding preferreds (especially the perpetuals) will get their prices driven down much lower than today’s euphoric pricing…
        It is impossible to produce superior performance unless you do something different from the majority, Nomad

        1. Yes Nomad–this is high quality for Egan. Yes I would rather hold any number of issues than this one. The NextEra N issue is in the sock drawer already as are similar issues. Yes correct – issues like this one will hit the skids if we get a little surprise pop in rates (it will happen but whether it is this year or next who knows).

          1. It is clear, as Tim started with view, the banks are taking advantage of us income investors. The coupon is way too low for a bank below even SP rating. Key bank, KEYLL, has been trading way too high. I first tried to grab just 200 shares at $24.81 and then realize that it is unlikely to be filled. Before I left for my eye doctor after a seventh surgery, I placed a bid for 200 shares of the old KEY-J and picked up at $25.06. With some “accrued” dividend before the next ex date, it is simple math that KEYLL is overpriced at the price it has been trading IMHO. Then this could be sucker’s game. RXFCL is trading @ #25.25 for bid. Ridiculous IMHO. LOL.

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