WESCO International to Issue Preferred Stock–UPDATE

AS NOTED BELOW IN THE COMMENTS FROM GRIDBIRD THIS ISSUE IS NOW TRADING UNDER TICKER WCC-A AND LAST PRICED AT $27.10 NOW ON ALMOST 200,000 SHARES.

WE FIND NO RATING ON THE NEW ISSUE, BUT WESCO WAS RATED BB- BY STANDARD AND POORS AND ANIXTER WAS RATED BB. MOODYS RATES WESCO B1

Supply house WESCO International (WCC) will be issuing a new issue of $25 preferred stock in connection with the company’s acquisition of Anixter International (AXE). These shares were issued directly to Anixter shareholders as partial consideration in the merger.

These cumulative shares will be fixed-rate reset with a giant initial coupon of 10.625%.

The coupon will reset every 5 years at the 5 year treasury plus a spread of 10.325%

Dividends will be paid on the last day of March, June, September and December being 9/30/2020.

The registration statement is here.

Additional information is shown here in the Depository Agreement.

NOTE–while we see the shares are registered to trade on the NYSE we don’t know all of the details as of this moment.

I will post more detail as I dig through the merger agreement documents.

MCG WAS ON THIS ONE EARLY TODAY

58 thoughts on “WESCO International to Issue Preferred Stock–UPDATE”

    1. Thanks for the read 2WW, as I said, their customer base right now has weakened although the market is picking up. No one knows what it will be like in 6 to 9 months. But Fitch’s observation that they can sell down inventory and minimize replacement and quicker turns of the inventory to keep cash flow and working capitol to use for reducing debt. But now leveraged 7x with the expectation of lowering that over the next few years to 3x is a tall order. All depends on your expectations of the economy. One important factor missing is the competition. Plus they still have to pay their suppliers.

  1. QOL posted the preferred description, “The Company may redeem the shares before 6/22/25 at $25.50 plus dividends if a rating agency event occurs, see prospectus for further information.” Does anyone understand how the prospectus defines a rating agency event?

    1. Sharon, it basically means this… When a companies bonds are rated they factor in a preferred and assign it typically a certain part debt and a certain part capital, being that preferreds are a quasi bond/quasi stock (though firmly entrenched in this specific case as capital on the accounting balance sheet).
      Anyhow if a rating agency decided later to assign the preferred more “debt value” this could trigger an adverse reaction to the credit rating of the bonds. This may cause covenant breaches of the bonds. So if this rare situation would occur, it would give the company an out option to redeem them earlier to rectify the problem. This is just one example, but it gives you a general idea. This is fairly standard wording based on my experiences and I wouldnt lose much sleep over it.
      Banks often put “regulatory clauses” in their issues. Meaning if laws ever changed where that preferred couldnt be used for its intended purpose for regulatory capital, they would have the right to redeem early.

  2. Alright folks, Just dealt with Vanguard to place a limit order for some shares. It was interesting as you find it as WCC_PA on the Vanguard website, but when you try to place an order you must use WCC PRA (note the space!). Never had this situation before on Vanguard, but the securities desk was most helpful when I called. Placed the order at $25.50 and hope the Anixter shareholders dump a bunch more and drive the price down more like yesterday. So far I see it up a little this morning with something like a half million shares moving so far. Hate to pay so much over par, but it sure is a juicy one!

    1. DRJ That was useful, I was trying WCC_PA and I wasn’t going through. But with WCC PRA I was able to place the trade. Vanguard has to do a better job with the user friendliness of their website. Even their quotes are current only when you are on their buy page, everywhere else they are stale

      1. Jay R, glad to help out. Yes, Vanguard could do a lot better with their on line web page. The biggest beef I have is the in ability to really track the dividend payments I receive. I have built a spreadsheet in Google Docs that sums up my retirement investment’s so I know exactly how much I have by quarter from the stocks I own. I am working to do it by month as time permits. Part of the info is obtained from Google Finance, but I manually enter the number of shares owned,etc. With the number of different equities I own it was a chore to manually do it before I built the spreadsheet. Well it’s off for a bike ride in the country side before maybe storms show up.

  3. Closed at 26.06. I opened starter positions in two accounts in 26.3 – 26.4 range, will add if/when it drifts lower, thinking to hold longer term. We’ll see.

    1. Retired, I waited gambling it would drop as more people shed their acquired shares. I have seen this happen before with other issues administered like this. Market downdraft probably didnt help today. Was on golf course so I didnt get a chance, but I would have bought a few at your price. I will be home tomm so I may take a play if its around your price.

      1. Grid ,
        Just when I thought it was safe to do little flipping the market goes crazy.
        I think a lot of the stock holders who got part of this 21 million preferred are watching it sink and seeing their profit evaporate of 2.00 or more right off the bat are bailing and not waiting around for the 10% + dividend .
        I think you can wait for a even lower price over the next few days but that is just a guess.
        Saw your comment on the PPX I think you flipped and bought back. Thinking of doing the same on the SCE-PH I own, something tells me I can buy back cheaper later.

        1. Charles, today was like the good old days for me. Market goes to hell, and I actually was still up a little bit today. Yes, buying early into a direct buyout payment preferred such as WCC-A can be iffy. Many people dont share the same value of preferreds as others and they can be viewed as a nuisance to own. But dang that yield is high…But then again 10% plus issues abound in hospitality, mlps, and other sectors from recent stress. Hard to know for sure on this issue. If I decide to go in, I wont be risking more than a finger nail on it that is for sure.

      2. Totally agree. Like you Gridbird, I’ve seen this behavior before. Some people don’t want preferreds, some don’t want odd lots, some just think it is a bonus. And as you say, the downdraft probably shook some new owners.

        I like these Fortune 500 industrial preferreds; there are too few out there.

        1. Retired, It is a unique diversifier out of the usual ilk. Fellow poster and resident internet tough guy George bullied me via email into buying a couple hundred shares this morning.

  4. Analyst Actions: KeyBanc Upgrades WESCO International to Overweight From Sector Weight on Anixter Deal Close, Sets $55 Price Target

  5. Once again Vanguard is bringing up the rear on a new issue. WCC-A was tradable first thing at IBKR and TDA but not at Vanguard without the 45-minute phone call. Still isn’t at 200 PM.

    Need to start listening to your customers more!

    1. I got an order through Vanguard yesterday about an hour before the close. Did you try online first?

      1. Yes, I first looked yesterday afternoon. No trade without the call. Bought through IBKR. No call, no non-sense.

        But my managed accounts are all at Vanguard, so it’s not the same.

  6. –Analyst Actions: JPMorgan Chase Lifts Price Target on WESCO International to $35 From $30, Maintains Neutral
    BY MT Newswires — 12:00 PM ET 06/23/2020

  7. Nice also that it is Cumulative. Both stand alone companies looked pretty decent to me prior to merger and both had strong cash flows. While the new debt taken out for merger negatively affects the credit, if the merger is successful and the debt gets paid down aggressively which it should, then this Pfd would be a home run with this 10% plus rate for next 5 years if credit quality gets upgraded due to successful merger and paying down debt levels . If this gets upgraded to BBB levels in next couple/few years Pfd stock would be much higher assuming todays interest rate levels.

    This actually looks more appealing to me than some of the regional banks selling Pfds at 7% lately, and with 10.6 coupon, mmm, mmm, mmm

  8. May 29, 2020 PR release announces pricing for 5 and 8 year notes at 7.125% and 7.25% for an aggregate of $2.825 billion for cash payments to finance the merger. Spread is 3+ points over these notes for the preferred. Maybe preferred is worth a look.

  9. The merger closed today. Takes two to four days to hit most accounts. So we see selling starting Wednesday from shareholders who do not want WCC-A?

    1. Interestingly, the original price of WCC-A @ 10.625% was determined NOT by expectation of what the market could bear but by formula: https://www.sec.gov/Archives/edgar/data/929008/000114036120012384/ex99_2.htm [from original 425 dated 5/26 – https://www.sec.gov/Archives/edgar/data/929008/000114036120012384/0001140361-20-012384-index.htm%5D
      p12 says, “(r) The initial annual dividend rate for the WESCO Series A preferred stock has not yet been set. The initial annual dividend rate for the WESCO Series A preferred stock, based on the $25,000 liquidation preference per whole share of WESCO Series A preferred stock will be set to equal (i) if no bridge loans have been incurred under WESTCO’s bridge facility, the yield to maturity using the issue price for the longest duration notes to be issued to effect the Merger or (ii) if any bridge loans have been incurred under WESCO’s bridge facility, the highest yield to maturity using the issue price of such debt plus a spread of 325 basis points.”

      The 7.25% notes due 2028, i.e., the longest duration note issued to effect the merger, was priced @ 99.244 to yield 7.375% so there must have been bridge loans incurred to effect the merger, thus requiring pricing on WCC-A to be set at 7.375 + 3.25 = 10.625%. That’s how it ended up being priced so theoretically attractively..

      1. Yes, I saw that and also read from January on announced merger, they expected the preferred to be issued in the 9.25% range. They also stated they had the right to insert as much cash as they wanted to replace any preferreds prior to issuance. All things considered this may be one of the “safer” 10% issues around…Oops I mean about 8% preferred, because clearly if things go as planned this is being redeemed first chance they get.
        FWIW those two 144a bridge loans shot up instantly in price also.

        1. Another FWIW, Wesco Distrib Inc has a B2/BB- 5 3/8% note due 6/15/24 (Cusip 950810AM6) that’s been trading plus or minus par for a long time. Granted with such a relatively short maturity it can only be used as a starting point for comparison but as such it doesn’t seem to imply WESCO is considered the doggiest of dogs in the B neighborhood as 10 5/8% would imply. The first comparison I could think of in the B type rated perpetual preferred space was IStar. They have STAR-D 8% B2/B preferred trading just below “par.” Apples to oranges comparison by industry, but still, maybe another indication of WCC-A being way too cheap?

        2. Grid – out of curiosity, where did you see the two 144a bridge loans to know they shot up in price????

            1. Ahah! I didn’t know those two were considered the bridge loans.. Since they appeared to have been planned all along, I thought the language in the pro forma implied there may or may not also be “bridge loans” above and beyond these two notes.

  10. At $26.92 its still paying almost 10% and the reset is over 10%. Morningstar rates the stock a buy at 5 stars with a $94 price target. What am I missing here?

    Thanks

    1. Good question Jeff—I haven’t had a chance to due the DD yet so not sure what to make of it.

  11. Golly, 10.625%. Already trading around $27.
    The AXE common share holders got some WCC common, some cash, and some of new WCC-A preferred. A bit complex. It could be interesting as there will be some new preferred owners that have never owned preferred before. I’ll watch but not participate.

    1. Dave-I’m tempted to buy now and do the due diligence later–ready-fire-aim for maybe a flip, but maybe will just watch–we’ll see.

      1. I see where the reset rate will be “will be equal to the Five-year U.S. Treasury Rate as of the most recent Reset Dividend Determination Date plus a spread of 10.325%” and first call date = 6/22/2025. It looks to be callable in general only on reset dates, i.e., every 5 years? At best this looks like about B quality if it’s to be rated, but still, on the surface, seems like generous terms.

          1. Yes, Grid – that’s where I got the info – using Tim’s link… This is a reach to say, but this reminds me of Gabelli’s issuance of packaging shares and preferreds using the preferreds as an incentive to accept the package as a whole.

            1. Steel Partners did this (SPLP) when acquiring companies. They gave some cash and some SPLP-A or SPLP-T shares as part of the buy out package. They were shoved down their throats. No underwriting either and the preferreds were very volatile for a while. In fact A and T were the same thing an no one seemed to know. I made a killing for a week switching back and forth between as they traded totally independent of each other until consolidated after next distribution payment. Without the baseline underwriting its hard to know if the price will stick or will be volatile.

                1. To 2whiteroses; Iam still laughing my a– off. You have a great sense of humor. By the way I have read many many of his articles so I get the point completely.

                  1. Rida may be your friend on this one. Let’s say a bunch of merger holders find WCC-A in their account and dump it – for example, a mutual fund, ETF or institution that can’t hold this by mandate or law or a high tax bracket investor who doesn’t want to pay 40% income tax on this baby – see you, going down, despite the 10% yield. Stock goes down. The Seeking Alpha Yield Chasers (including most of Rida’s band of merry men) then start pumping this up, giving us here a chance for some quick flips while doing due diligence regarding a longer term hold. Not a bad scenario, worth watching for the next few days as this plays out. Sharp eyes caught this one – it’s good to be a reader here.

                    1. Yes–thanks to the sharp eyes of mcg since the info was buried in documents–not a prospectus.

              1. Shoved down their throat is an interesting way of putting it. SPLP sure, since they were cashing out minority shareholders (but they got sued and paid out a hefty settlement so I’m not complaining) but the AXE merger consideration had a bidding war by multiple parties followed by a buyers vote pretty different circumstances

                1. No the reference was totally about Steel, and no implications were directed towards Wesco. Glad I just briefly trading Steel preferreds as it and the parent are now flea covered. They had to pay the distributions in shares last payment and not on favorable terms. One of many the fine print details that are not owner friendly for that preferred.

      1. Tim, Im not sure this was underwritten for release. Im only going by news link, but it looks like a direct to video movie release.

        1. Yes mcg you did post it. A lot of multi tasking taking place on my desk–web site and ‘real work’.

          1. What? Tim, you have other things to do besides reading everyones posts and take notes? Time to quit your real job and get your priorities straight, ha.

            1. Grid–well my wife reneged on retiring and she doesn’t want to draw her social security–which is a key piece of the puzzle–so someone has to make some $$. But she is going just 1/2 time starting in September–so if I can get her to snag some social security we are good to stop this working stuff.

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