United Community Banks Announces New Preferred

As noted by Chuck P yesterday new issues continue to be dominated by banking companies and today is the same.

South eastern community bank United Community Banks (UCBI) has announced an offering of new non-cumulative preferred shares.

This bank is smaller bank of $13 billion in assets and has banking branches throughout Georgia.

The permanent NASDAQ ticker will be UCBIO after it trades on the OTC grey market for a short while (OTC ticker to be announced later today).

The preliminary prospectus can be found here.

29 thoughts on “United Community Banks Announces New Preferred”

  1. Great Point Kapil. No argument from me. Thats why a guy has to monitor his holdings on a very regular basis. In my case “daily”. LOL But I really do. Most likely as we get within 6 months or so I may want to trade out of it. The other thing I would add is “if” a decent BOND were to come up during this interim period of time I would jump all over it and trade in some of these preferreds. As you know preferreds are way more volatile than a good old fashioned bond. I own a ton of bonds—probably around 30 or so and its amazing what they trade at. We’re talking like from 120 to 155. My Walmart bonds that I bought a long long time ago (6.5% coupon) is now over 155. CRAZY TIMES. I own Walmart, Verizon, Conagra, Anheuser Busch, Target, Kraft-Heinz, Champion Intl., Georgia-Pacific, etc etc. All of them are trading waaaaay over Par. Plus I own alot of Nebraska Double Tax Exempt Muni’s since I live in Omaha. I’ve been at this now for over 45 years.

  2. Good morning my friend Tim; Lately I’ve been putting on my “Thinking Cap”. Obviously we live now in a seriously low interest rate environment. I could be wrong but I don’t see it getting much better for atleast the next 2 to 3 years. So looking thru my holdings I keep a list of all their call dates, coupons, etc etc. Having said that I noticed I have a large amount of SCHW+D which is a 5.95% coupon and its callable on 6/1/21 which is only 4 payments away. The price has hovered between $26.10 and $26.35 pretty consistently. So I’m thinking OK they are going to pay me $1.35 up front or I can just keep it and they will pay me $1.48 over the next year until they call it which Iam positive they will DO. I found a very large relatively safe Utility with call protection until 3/15/2024 with a coupon of 6.5% and it was trading at $26.45 to $25.55. So you know how this ends. I took the plunge and bit the bullet and bought 9,000 shares of the Utility and sold 9,000 shares of my Schwab preferred. Yes, Iam fully aware that I did give up a little bit of money but I also GAINED call protection out to 3/15/2024. Now I need to give a Big Thank You and shout out to Affinity 4 Investing as he gave me about 6 or 7 names to research over the last couple of weeks. Moral of the story is simple: Watch those call dates!!!!! Because in this environment they will be taken away from you and you just might find it very difficult to find something “decent” to replace it with. This market is so strong sometimes I can’t believe how all these preferreds have gone back to January before the Virus got started. Hope everyone is well and THANK YOU TIM for the shout out. I appreciate it.

      1. NI+B. They have over 4 million customers and its cumulative. Plus their common pays a .84 cent dividend so lots of layers there of protection in my opinion.

        1. Hi Chuck, My concern with NI-B is that it will float in 2024 at the 5year + 3.63%. If rates stay low, this security may trade like the ENB preferreds in Toronto…very poorly. They are trading in the teens.

          1. NI-B is a total time bomb. The 250 bp haircut the issue will see is not priced in yet. But it will be, in time. The 6.5% initial rate was a total head fake. There was a built in rate drop from day one.

            Regarding the ENB issues (or any other Canadian reset), the Canadians all have one very big difference from the U.S. resets. They come with the option to flip out into a 3-month floater. None of the U.S. resets have that option, to my knowledge. The option would do nothing for you in a lower forever scenario but it gives one an escape hatch in the event of a short term drop in rates.

            I try to avoid situations where all the option value is with the company. It’s too much of a heads I win, tails you lose thing.

            1. Bob in De; WHY is it a total time bomb?? Your comment makes no sense to me. Iam NOT married to the issue. BUT it has call protection until 3/15/24 which is a long ways off in this environment. I can easily sell out of it before we hit the reset. The company itself looks pretty solid. With over 4 million customers and a .84 cent commom dividend and the fact that its a cumulative I feel pretty comfortable with it. So if its a TIMEBOMB then Show me the PROOF that you have to back up your outlandish claim.

              1. It’s called Math, Chuck. If reset today, the coupon would drop from 6.5% to a tad under 4%. That’s the COUPON, not the yield. At the present price of 26.60, the yield would be well under 4%. This becomes a low yielding perp with very little chance of call.

                My point is simple: the market is pricing the issue as if it really were a 6.5% issue when it’s not going to be a 6.5% issue. Not unless the world changes a great deal.

                NI-B is not the only issue in this situation, but it is perhaps the clearest example.

                1. To: Bob in De; Well I see we have a Math Major in the group. I know everything you said . So you don’t think as it gets down to say 2 payments left to pay that a person couldn’t sell out and move onto something else???? Like I said if you could only read I check all my call dates and manage my portfolio daily. I didn’t realize there were so many Smart A—-s on this site. Its getting just about ridiculous with their lack of manners for a financial site. About as bad as S.A. where there are none.

                  1. Chuck, I dont think there is anything resembling an imminent threat to NI-B, now, but your thinking on how these will trade is just wrong. The price of any adjustment from a low 5 yr tbill will become reflected well before the couple months out….That is one bet I would gladly go all in and take. It just doesnt work that way. That being said holding as a long term hedge to yield rates is fine too if that is ones plan.
                    But you never have really expressed that purpose I have read, or ever expressed the understanding the down the road trading risk of this type of issue and how it will trade (which is not sitting on a tee to sell until near reset)
                    BTW, it is of my opinion your previous two responses reflect a total lack of manners not his… That is all I am saying. Behave as you wish….

                    1. Gridbird;I was the one that you guys attacked a couple of months ago when I said be careful buying that 4.75% JPM new issue. Yes I do understand that all these “resets” have to be watched carefully. Along with every single thing a person owns. I just get tired of the Smart A—-s on this site. It would be nice if You and a few others could just learn a little decency . Maybe in this country that no longer exists. I’ve ran into this now with a few of you and it gets old. I try to contribute and help others but we all know that all of these things come with RISK. Think of all the people who owned tons of Hotel preferreds or just Reits in general. I just don’t need your Harpooning at this point in my life .

                  2. Hi Chuck,
                    I own NI-B and have held it since the IPO – so my cost basis is low. Personally, as long as the price holds steady and doesn’t start to what I call “rot”, then I will look to hold it until ~1yr before first call. So, sometime around 3/2023, I’ll be looking to see if there is something else that I can swap into and liquidate NI-B. If the price is still holding > $26.xx, I’ll liquidate it before it is sure to begin rotting in price over the course of that last year heading into first call. That way, I can capture my divvies and go play in another sandbox before I absorb the capital loss from the price rotting. I do this a lot with the better quality bank preferreds. You’re almost assured of them being called @ first call, so about 1yr out, I usually sell before that rotting just eats away all of my profit I have left in it. Sometimes the price is just stubborn as you know and stays at an elevated level heading into a call. Roll the dice… But I’m usually a bit more conservative and will sell out to be safe.

                    That’s just what I do – but respect the ‘to each his own’ manner of operation. I totally get your points and there is no assurance that it will be called on first call. There is also no way of knowing what interest rates will do. At this point, it’s a total crap shoot. This thing could certainly live on for years without being called as you know.

                    I can tell you that some got their pants set on fire by playing the Canadian preferred resets. Some of those jokers reset and dropped substantially so the risk is there. I hold BECEF and got trapped in that situation. It’s a great yielder, but isn’t likely to recover in price anytime soon. For me, that’s OK. It was an income play, not a cap appreciation play. But still, it stings none the less.

                    All the best to you guys… Just remember we’re on the same team, please… We’re all trying to get to a better place and leave some additional coins for our future followers.

                    1. Perfect conclusion Affy, just perfect.
                      Let’s not quarrel guys, everything will be fine. Peace to all )

              2. Chuck, NI-B sports a current yield of 6.13%. Quite attractive in today’s rate environment, but there are a number of reasons for this. Aside from the 3/15/2024 reset, it is also a lower-rated issue at a split junk/low IG of Ba1/BBB-. As you know, when recognizing the law of large numbers, ratings matter.

                The reset is problematic. NI-B’s current yield is 6.13% with a coupon of 6.50%. If we assume rates go completely side-ways until the reset, the new coupon would be 4.015%. To replicate the current yield of 6.13%, the price would need to drop from today’s $26.60 to $16.37. All theoretical of course, but there’s good reason to expect this type of price action. A review of historical CN 5yr resets evidences such price movement.

                Still theoretical, but if it played out in this way, the net yield to reset would be -4.12%, including dividend distributions. Timing an exit along this glide path to reset could be tricky.

                Alternatively, if the UST-5yr moves from today’s 0.383% to 2.868% at reset, it’ll be a push. But that of course is a wager the UST-5yr moves to a level at reset breached only briefly since 2008 – and important to keep in mind the risk distribution between you and NI is asymmetrical as if the UST-5yr rises too much, NI can simply call the issue.

                One low-probability hold-out hope for the issue is as a hedge against the possiblity of higher rates, however unlikely that may appear today.

              3. The flaw in the logic is simple, and seen with consistency: you think you are nimble enough to get out before the world realizes that NI-B is going to turn into a low yielding perp and the share price dives.

                Problem is, you don’t know when that’s going to occur. You really don’t. It could happen next week, next year, or some other time, but it will happen. And odds are you will still own the issue. Empirically, that’s what happens. I’ve been watching people make this same mistake for 50 years.

                But for the benefit of those with an open mind, I will repeat the facts on NI-B. In March, 2024, NI-B goes from 6.5% coupon to the 5-year Treasury plus 3.632%, or 4% at the present 5-year rate. That give you a yield on present price of 3.75%. On a perp. That’s your YTW.

                If you think that’s a good investment, then gobble it up.

            2. Bob, they also have another positive variable in that many are so far under “par” any increase in treasury will represent a positive future outcome on yield. NI-B is over par and thus a future drag on reset. I wore NI-B out when it first came out and after. But now things change and I am not in it and wont be. It may be a few years before market figures it out, but I am fine staying away. I made my bounty on it.

              1. Grid – NI-B has provided good opportunities to nimble traders such as yourself.

                But if you’re buy and hold and check the portfolio once a quarter, you should not be holding NI-B in my judgement. Someone is going to get stuck with it when it sags. $500 million outstanding.

                Same, too, with the 2 exchange traded STT issues.

                1. Bob, it will be interesting to see how it plays out. Guessing rates is always a problematic issue to begin with. The US investors havent shown to be as skeptical of resets yet as the more experienced and burned Canadians have. So being its 2024 runway and relative newness in US I suspect there is probability of a bit more runway time to play out. But we already know what has happened in issues up North with better quality and same circumstances. I dont see the issue as a viable trade option for me anymore.

                  1. Grid, It is interesting how expectations can change. Two years ago I thought F-to-F’s were the safe choice to protect against higher rates. Now I am leaning to straight fixed to protect against low rates. I own both but am much less willing to pay a premium for the F-to-F’s. It has been an interesting discussion of ideas.

                    1. Kapil, its a guessing game on rates, and at times they dont even have to change….Just market sentiment either way without much “proof” can move issues also. Fixed issues for me have been extremely profitable this year and every previous year…Anytime I play the “reset game”, its like someone tossing me an anchor to use as a life preserver, ha.

    1. Chuck, thank you for your always insightful comments. I would be very interested in your opinion on those issues that do not have imminent call dates but rather passed their call dates two or more years ago? Is there some reason why, in a low to zero interest world, these issues are not called? Of course I am particularly thinking of my own portfolio which is still holding PRH and NEE-J, both of which have been callable for two years. Given my self-imposed credit criteria (BBB or better), these would be hard to replace.

    2. Thank you Chuck for bringing both SCHW+D and NI+B to my mind. I own both and while I do check call dates regularly I agree SCHW+D is getting a bit close to its date. NI+B was as high as $28.67 in February so there is some reason to hope it will go up a dollar or two before the reset scares me off. But the discussion here has opened my eyes for sure.

      1. RE: SCHW-D. At present price, the YTC is well under 1%. Chances of not being called are, in my judgement, close to zero.

        If you like SCHW consider the new preferred, CUSIP 808513BD6.

        It’s a 5.375% reset, but off a very low base and with a spread of 497 bps. It came out of the shoot very hot and when it cools down I would be a buyer.

    3. I can see both sides of Ni-B. So the yield would be under 4% if reset today…but for almost four years the yield is over six…..at current pricing.

      Take a look at issues such as GJP…a bond issue of Dominion Resources. It is a floater now trading at its lowest possible yield, which amounts to 3.3% at the current price. Add in 1% or so for the appreciation to maturity in 2035 and the yield is over 4%.

      A better comparison may be AQNB. Current yield under 6% but if it reset today the coupon would be around 4.6 for a yield of 4.25 at the current price of 27.

      Given that NI-B has the favorable treatment of QDI and high current yield, I think the issue is fairly priced. But if interest rates remain the same over the next four years, I would expect it to be priced under par in 2024 to yield somewhere around 4.8-5.0%. That would be similar to the many old utility issues out there, with a slight bump up for the float feature in case rates rise. Therefore the price I expect will slowly degrade over the next four years unless rates rise.

      I own this issue. I would currently sell above 27.25 and buy under 25.70.

      1. Great constructive comments “RetiredBroker”, we need more of this and less of the other. I own probably around 35 preferreds, as I have had to search for yield where I can. Among those 35 or so I have 11 with “resets” so Iam fully aware of what can happen. Hopefully I will be nimble enough to get out in time to preserve the capital I invested in it in the first place. Thats part of the reason I traded out of the SCHW+D. Like I said earlier if somebody is willing to pay me $26.30 to get out of a 5.95% coupon that Iam 100% not 99% positive will be called why not do it. All I did is trade for a much better coupon of 6.5% (cumulative) with a much better call date of 3/15/24. I think what should be remembered is this is a “regulated utility” so the chances of them going belly up is pretty remote. Around the fall of 2023 I will try to get out and hopefully will be able to get out around $25. There will “always” be those that say oh there’s 2 more payments left, and then the crowd that completely forgets even what a reset is and lastly the group that procrastinates the whole thing. Hopefully I can get out before it goes way below par. But what we all fail to mention is none of us know what interest rates are going to look like in March of 2024. If you don’t believe anything believe this: Things can change very fast in this world anymore. Look at what happened from early March to early April for proof. Look at the Minnesota Nightmare and what the results from that Nightmare have led to. Iam not going to lose sleep over NI+B at this early point. More important things to worry about. Like I said earlier just wish a few of these folks could be more decent with their comments.

        1. Chuck, If you were to sell at $25 in the mid-late 2023, your cummulative effective return including dividends would be 4.12%. Keep in mind Retired Broker’s yield projection at reset implies a price significantly lower than $25 of $20.09. As investors could certainly see the writing on the wall by 2023, there’s reason to believe the price will track more closely with Retired’s projection at that time.

          Considering the Ba1/BBB rating, a cummulative yield to reset of 4.12%. which is our most optimistic projection, implies an imbalanced risk/reward exposure.

      2. Retired, Your projected yield of 5% if interest rates remain the same implies a price at 2024 reset of $20.08. That also implies a -0.4% cummulative return, including dividend distributions, between now and reset. A further reduction to that return would result if including taxes paid on distributions in the interim.

        One could argue they may never sell NI-B and will instead just collect the distributions, but then the split junk/low IG moniker sullies this issue as a buy/hold candidate.

Leave a Reply

Your email address will not be published. Required fields are marked *