Capital One (COF) issued its 7.5% TRUPS preferred stock in 2006. The preferred has a nice yield on a company that is extremely stable and generates plenty of cash flow. I recently sold the TRUPS securities and I encourage many investors to do the same.
The TRUPS securities are trading well above par value and considering that the call date was on 06/15/2011, there is a certain amount of call risk that exists.
However, I see Capital One calling its TRUPS preferreds back very soon. A couple weeks ago, Capital One issued a new preferred. The preferred has a yield of 6%, which is less than 7.5% that the company is currently paying on the TRUPS. In addition to this, the proceeds from this issue are more than twice that of the TRUPS security. So the company will have more than enough capital to redeem its TRUPS shares.
If you look at the prospectus for the new issue, it even mentions that the company has intentions to use the proceeds and purchase the TRUPS securities. You can find it on page 15 of the prospectus.
The reason I wrote this article is that I wanted investors to know two things:
1. Prospective investors should not look into purchasing this security at all. There is a very high probability that the company will call its TRUPS and new investors will experience a loss since they will be buying above par value.
2. Current investors should immediately liquidate their positions in the TRUPS security because they will be able to lock in a decent premium above par value as a profit.
If you take a look at the chart for the TRUPS, you can see the market has began to recognize that the security could eventually be called. However, the TRUPS is still trading at a nearly 4% premium to par. This is a decent gain and investors should sell and lock in those profits.
For your reference, the TRUPS are under the symbol of COF-B and the new preferreds are under COF-P.