Stifel Financial Corp Prices New Preferred Issue

Stifel Financial (SF) has priced the previously announced new preferred stock issue.

The 8 million share issue has been priced at 6.125% and will be non-cumulative and become optionally redeemable (at the company’s option) on 6/15/2025. The company plans to use the proceeds for general corporate purposes.

Standard and Poors and Fitch both rate this issue BB- which is 3 notches under investment grade.

This new issue will trade immediately on the OTC grey market under the temporary ticker of STFLL.

The company already has 2 preferred issues outstanding as well as a baby bond–all which can be seen here.

The final pricing term sheet can be read here.

13 thoughts on “Stifel Financial Corp Prices New Preferred Issue”

  1. On risk v reward…

    BB- carries a historical 16%+ default risk over ten years. So at ~1% yield premium to BBB (meaning a cummulative 10% yield premium over 10 years) – a 1/6 probablility of 100% loss of principal.

    BBB is around 3% default rate for same period or a 1/33 probability of 100% loss of principal.

    BBB+ 2% (1/50), A+ 1% (1/100)

    1. alpha8: I have never seen the ratings equated to possible loss of principal percentages. That certainly helps for future purchases, thank you so much for posting it !

      1. Bill, I cant say with precision from Alpha’s post but I have followed these things also. I like Alpha value credit profiles. But to clarify these ratings (based on what I am familiar with) are on a bond level not preferred level. So if you have a BBB preferred most likely you have a company with A- senior unsecured which is what the default rating would come from. Also I have found it interesting when they break out certain categories. For example in the past when they segregated energy out of ratings the default rates improved.

      2. Bill S., Here’s a copy of the 2018 ratings you can screen shot for future reference: https://ibb.co/8MxXkqG

        The address to the full report: https://ibb.co/tpySQbc

        The risk side of the equation is equally as important as the reward. For most scenarios, my reviews have indicated declining LT returns when reaching for yield. There may be exceptions on individual issues, the over large numbers, the ratings are highly predictive.

    2. Alpha – As far as 100% loss of principal on these ratings percentages, wouldn’t the 100% loss of principal expected be a number for common holders, not necessarily bond holders?

      1. I was thinking the same thing. Bonds sometimes have a portion paid back even during bankruptcy. I have no idea what the average percentage is though.

        So I guess the 100% would be worse case.

        Also, the ten year horizon might be misleading because bankruptcy is probably more of a function of when you have a recession than just the passage of time. In other words, there will be times when weak companies are a lot riskier to invest in than others.

        1. Scott, You make an important observation regarding the time element. The default risk is absolutely a function of time.

          The exact timing is not precise nor is the rating itself. This is very much a law of large numbers outcome based on historical evidence. For example, one would expect the defaults to increase markedly during a recession and skew the near-term data to reflect more risk – though spread over 30 plus years, the data smooths. With a large sample over time, the ratings become highly predictive.

          Doing even back-of-envelope calcs on actual S&P data of risk v return makes it glaringly clear there’s little gained chasing yield. This is not necessarily true for any one particular issue at one place in time, but for any portfolio times time, yield-chasing down a rating ladder is a losing proposition.

          The primary reason for this is there are enough bidders who don’t understand risk or who are working with other people’s money and will bid assets prices up (yields down) and remove or diluting the appropriate yield spreads. A current example is Moron and Pendy who exploit these folks on a retail level. Focused on yield and not understanding risk, many are being crushed and leave the field dazed and confused.

          1. A8, I would even go a little farther. It’s well established that when economic circumstances deteriorate, the “spread” increases, meaning that the lower rated issues will get beaten down more than the higher rated issues (as we have all been reminded of late). So even in the absence of default, there’s that. This doesn’t contradict anything you said; it reinforces it.

              1. Alpha, if you dont believe nhcoast, just ask Pendynut or Moron. They got first hand experience on spread widening on beaten down issues.

      2. 2whiteroses, Absolutely. We could say the same for notes v preferreds. But we need to reflect on how the ratings are applied to the stack of notes, secured, unsecured, common. Risk of loss lower at the top of the stack, higher at the bottom of the stack for any given corporation – which is why they have different ratings.

        And as a practical matter – preferreds rank higher than common for distributions, though much less so I would think if dividing up the assets in a typical corporate default. In fact, I’m sure the bondholders would love to see more common and preferred issued at the first hint of a potential default.

        1. A8 – The only reason I brought this up was because I thought newbies could potentially misread the implications of the stats you quoted without some clarification…and you provided the needed clarification…. yay

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