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Debt, CFA, Portfolio Manager, preferred stocks
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As many of my readers know, I am a fan of preferred stocks and believe in diversifying portfolios - preferred stock portfolios included. As a result, a non-financial issuer of preferreds piques my interest pretty quickly.

Southern California Edison, a subsidiary of Edison International (NYSE:EIX), came to market with a new preferred stock today. Naturally, I took a look.

A summary of the new SoCal Ed preferred is:

A couple of points stand out versus many preferreds - financial and non-financial:

  • The dividend is cumulative.
  • Dividends are qualified dividends and therefore have a favorable tax treatment (check with your financial advisor/accountant for your situation).
  • Deal size at $275 million means this should trade frequently.
  • The deal is redeemable after ten years (many are five).
  • If it is not redeemed, it becomes a floater at the LIBOR equivalent of the fixed rate.

Full details can be found in the prospectus.

Guarantor Description

Southern California Edison is an investor-owned electric utility company primarily engaged in the business of supplying electricity to a 50,000 square mile area of coastal, central, and southern California, excluding the City of Los Angeles and certain other cities. We own and operate transmission and distribution facilities and generation assets for the purpose of serving our customers' electricity needs. In addition to power provided from our own generating resources, we procure power from a variety of sources including other utilities, merchant generators, and other non-utility generators. Based in Rosemead, California, Southern California Edison was incorporated in California in 1909, and had assets of $46 billion as of December 31, 2013.

Ranking

  • The Series H Preference Shares will rank junior to the cumulative preferred stock with respect to payment of dividends and junior to secured and unsecured debt and cumulative preferred stock with respect to distribution of assets upon liquidation, dissolution or winding up. There are currently 4,800,198 shares ($120 million aggregate par value) of cumulative preferred stock outstanding.
  • The Series H Preference Shares will rank senior to common stock, and to any other equity securities that may be issued in the future that by their terms rank junior to the Series H Preference Shares, with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up.

The distinction between preference shares and preferred shares is interesting, but the amount of preferred shares that are senior to the Series H is somewhat small ($120mm).

Pricing

Ultimately, an investment must be attractive for inclusion into a portfolio, so is this SoCal Ed offering attractive? Let's take a look at its outstanding issues:

(click to enlarge)

The first thing that jumps off this table is that it is priced below the SCEPrF - in all respects. Same priority, same structure but a lower yield.

Bottom line: While Southern California Edison can provide a preferred portfolio sector diversification, this issue just doesn't spark my interest. I pass on this new issue and would look to the SCEPrF (5.625%) for exposure to the issuer.

Source: Edison International - 5.75% Does Not Spark My Interest