PRS - New Preferred Stock IPOs August 2022

Summary

• As August 2022 comes to a close, we look back at the new preferred stocks and ETDs introduced during the past two months, offering annual yields from 5.95% to 8%.
• Here is a comparison against the highest quality preferred stocks in our coverage universe, as ranked by our internal “CDx3 Compliance Score” metric.
• CDx3 preferreds ranked 10 out of 10 are meanwhile selling for an average discount to par of 3.1% and offer an average current yield of 5.78%.
• Past preferred stock IPOs now trading below par: a look at recent par crosses.

State of the preferred stock market

August brought the highest number of new issuances in months, with eight new offerings since our last article at the end of July. Most notably, no sooner had we hit the "submit" button to Seeking Alpha for that last article, than we recorded an OTC symbol assignment for a massive new preferred stock offering from Morgan Stanley ( MS ) with a 6.5% dividend rate on offer - this was the largest offering we've recorded in quite some time, at $1 Billion in size. Notably for the state of the preferred stock market, as we type this sentence on 8/31, MS-P now trades at a 4.6% premium to par.

Meanwhile, past offerings of high quality preferreds issued at lower dividend rates remain below their offering prices in many cases, with the number of preferred stocks and exchange traded debt securities (ETDs) listed in our CDx3 "bargain table" continuing to track near record-high levels - with a current 139 entries (up from 128 last month). Here is a YTD chart of our bargain table count:

The average "CDx3-compliant" preferred stock (10 out of 10 CDx3 Compliance Score) saw its market price rebound during July only to fall again in August, with the average price now around 3% below par value:

About the new issues

No sooner was the ink dry on our article last month than an OTC trading symbol (MSSXL) was assigned for a new series of preferred stock from Morgan Stanley ( MS ). So technically this is a July issuance: the new non-cumulative series P preferred shares were priced to yield 6.5%, and Morgan Stanley sold a billion dollars worth: 40 million shares at $25 each. The new shares were rated by four different ratings agencies: Moody's (Baa3), S&P (BBB-), Fitch (BBB-), and DBRS (BBB). Once the temporary OTC trading period ended, MSSXL became MS-P on the New York Stock Exchange where shares currently change hands above $26 as of this writing.

Last month we mentioned that internally managed Business Development Company ((BDC)) Trinity Capital ( TRIN ) "re-opened" its 7% notes due 2025, offering an additional $50 million of notes. The notes may be redeemed beginning in January of 2023, and received a rating of BBB by Egan-Jones Ratings Company. On August 1st the notes began trading on the Nasdaq under the symbol TRINL and as of this writing command a premium to par of nearly 3.5%.

A day after Trinity priced their notes offering, competing growth-stage lender Runway Capital ( RWAY ) priced an offering of $70 million worth of new 7.5% exchange traded notes due 2027. The new notes were rated BBB+ by Egan-Jones, and now trade on the Nasdaq under symbol RWAYL at a small premium to par value.

Midland States Bancorp ( MSBI ) priced an offering of $115 million worth of new series A "fixed rate reset" non-cumulative perpetual preferred stock, offering an initial dividend rate of 7.75% until 2027, after which the rate resets annually to the then-current five-year treasury rate plus 4.713%. The new shares were rated BBB- by Egan-Jones and traded temporarily on the OTC under symbol MSBSL before moving to permanent symbol MSBIP on the Nasdaq where the shares now command a small premium to par value.

KeyCorp ( KEY ) priced an offering of $600 million worth of new series H "fixed rate reset" non-cumulative perpetual preferred stock, offering an initial dividend rate of 6.2% until 2027, after which the rate resets annually to the then-current five-year treasury rate plus 3.132%. The new shares were rated Baa3 by Moody's, and BB+ by both S&P and Fitch, and traded temporarily on the OTC under symbol KEYHL before moving to permanent symbol KEY-L on the New York Stock Exchange where they now trade at a slight premium to par value.

Prudential Financial ( PRU ) priced an offering of $300 million of new 5.95% exchange traded junior subordinated notes due 2062. The new notes were rated Baa1 by Moody's, BBB+ by S&P, and BBB by Fitch. Trading began on the New York Stock Exchange under symbol PRH where the new notes now trade at a slight premium to par value.

Sachem Capital Corp. priced an offering of $35 million of new 8% exchange traded notes due 2027. The new notes received a rating of BBB+ from Egan-Jones, and now trade on the NYSE American exchange under symbol SCCG whereas of this writing they trade at a slight discount to par value.

Ford Motor Company ( F ) priced an offering of $600 million of new 6.5% exchange traded notes due 2062, which now trade on the New York Stock Exchange under symbol F-D whereas of this writing they trade at a slight discount to par value. Ford's unsecured debt obligations are currently rated Ba2 by Moody's and BB+ by S&P.

SEC filings: MS-P , TRINL , RWAYL , MSBIP , KEY-L , PRH , SCCG , F-D

Buying new shares for wholesale

In the IPO review above, you may have noticed we referenced temporary OTC trading symbols. Preferred stock IPOs often involve a temporary period during which these OTC trading symbols are assigned until these securities move to their retail exchange, at which time they will receive their permanent symbols.

But there is no need to wait. Individual investors, armed with a web browser and an online trading account, can often purchase newly introduced preferred stock shares at wholesale prices just like the big guys (see " Preferred Stock Buyers Change Tactics For Double-Digit Returns " for an explanation of how the OTC can be used to purchase shares for discounted prices).

Those who have been following this strategy of using the wholesale OTC exchange to buy newly introduced shares for less than $25 are more able to avoid a capital loss if prices drop (if they choose to sell).

Your broker will automatically update the trading symbols of any shares you purchase on the OTC, once they move to their permanent symbols. A special note regarding preferred stock trading symbols: Annoyingly, unlike common stock trading symbols, the format used by exchanges, brokers and other online quoting services for preferred stock symbols is not standardized.

For example, a given Series A preferred stock might have a symbol ending in "-A" at TDAmeritrade, Google Finance and several others but this same security may end in "PR.A" at E*Trade and ".PA" at Seeking Alpha. For a cross-reference table of how preferred stock symbols are denoted by sixteen popular brokers and other online quoting services, see " Preferred Stock Trading Symbol Cross-Reference Table ."

Past preferred stock IPOs below par

In addition to covering new preferred stock and ETD offerings, here at CDx3 Notification Service we also track past offerings, with alerts when securities fall below their par values. Here are some of the recent dips/crosses below par we observed:

Note: Any yellow highlighted entries indicate eligibility for the "CDx3 Bargain Table."

Until Next Time…

Here at CDx3, our typical articles will provide month-end preferred stock (and ETD) IPO summaries, plus a look at selected past preferred stock IPOs that are now trading below par. Often the reward on offer for "imperfect" preferred stocks is very high relative to the fully CDx3-compliant professionally credit-rated securities.

Whether you are the kind of investor who sticks with preferred stocks with a CDx3 Compliance Score rated 10 out of 10, or whether your portfolio has room for 9-score-and-lower securities, stay tuned for future articles recapping new IPOs and interesting preferred stock activity that we notice here at the CDx3 Notification Service . Thanks for reading!

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