On Thursday, Annaly Capital Management (NLY) raised $400 million of perpetual capital in the preferred stock market. Details of the issue are below, and here is a link to the prospectus.
| Issuer | Annaly Capital Management, Inc. |
| Issue | Series D Cumulative Redeemable Preferred Stock |
| Coupon | 7.50% |
| Ticker | NLYPrD (expected) |
| Size | $400,000,000 (4MM shares) |
| Optional Redemption | September 2017 |
| Use of Proceeds | To purchase mortgage-backed securities |
| Special Redemption | Upon change of control (at $25) |
| Conversion | Upon change of control |
Relative Value:
The table below compares the new Annaly issue with peers American Capital Agency (AGNC), Dynex Capital (DX), MFA Financial (MFA) and Armour Residential (ARR).
(click to enlarge)
As the table shows, this new preferred is not being issued at a discount to market, it is being issued right at the market. The only reason to buy this instead of the existing Annaly Series C is to take out the premium (or buy it at a discount, which should be the way to buy this).
I wrote an article back in March about the preferred and the potential value to investors versus the equity, and on September 4th, Seeking Alpha contributor Kraken wrote a similar article on mREIT preferred stocks that can be found here.
Bottom Line: I see nothing compelling about this Annaly preferred stock relative to peers or the existing series C. The discount to existing should be more than 3bps as new issues typically trade 10bps or so cheap to existing. Transaction costs will eat any advantage of swapping from the Series C, so the only reason to buy it is if you were considering buying the series C at current market prices. AGNC's preferred, trading nearly 100bps cheaper, might be a better way to get exposure to mREIT preferred stock - but there is the premium to consider as well.
Disclosure: I am long AGNC.
Additional disclosure: This article is for informational purposes only, it is not a recommendation to buy or sell any security and is strictly the opinion of Rubicon Associates LLC. Every investor is strongly encouraged to do their own research prior to investing.
