Stifel Financial Corp: This 5.20% 'Baby Bond' Started Trading On The NYSE

| About: Stifel Financial (SF)

Summary

Overview of Stifel Financial Corp's new baby bond - SFB.

Quick review of the company's outstanding issues.

Comparison with the sector.

Introduction

In this article, we want to shed light on a new Baby Bond issued by Stifel Financial Corp (NYSE: SF).

Our goal is purely to inform you about the product while refraining ourselves from an investment recommendation. Even though the product may not be of interest to us and our financial objectives, it definitely is worth taking a look at.

The New Issue

Before we submerge into our brief analysis, here is a link to the 424B2 Filing by Stifel Financial Corp - the prospectus.
Source: SEC.gov

For a total of 8M notes issued, the total gross proceeds to the company are $200M. You can find some relevant information about the new baby bond in the table below:

Source: Author's spreadsheet

Stifel Financial Corp 5.20% Senior Notes due 2047 (NYSE:SFB) pay a fixed interest at a rate of 5.20%. The new issue bears a BBB- investment grade rating, assigned by Standard&Poors and is callable as of 10/15/2022, maturing on 10/15/2047. SFB is currently trading at a price of $25.20 and has a 5.02% Yield-to-Call and a 5.15% Yield-to-Maturity. The interest paid by this baby bond is not eligible for the preferential 15% to 20% tax rate. This results in the "qualified equivalent" YTC and YTM sitting around 4.18% and 4.29%, respectively.

Here is the product's Yield-to-Call curve:

Source: Author's spreadsheet

The Company

As per the company's website:

Stifel Financial Corp. is a diversified financial services holding company that conducts its business through several wholly owned subsidiaries. Its primary broker-dealer subsidiary, Stifel, Nicolaus & Company, Incorporated, is a full-service brokerage and investment banking firm established in 1890.

Stifel Financial Corp. was formed as a holding company in July 1983 and is publicly traded on the New York Stock Exchange under the symbol "SF."

Source: The company's website - Investor Relations

Source: Barchart.com - SF Weekly Chart (5 years)

With a market capitalization of over $3.6B, SF is one of the biggest regional investment brokerages.

Capital Structure

Below you can see a snapshot of Stifel Financial Corp's capital structure as of its last Quarterly Report in June. You can also see how the capital structure evolved historically.

Source: Morningstar.com - Bonds

The Stifel Financial Family

Except the newly listed senior notes, Stifel Financial Corp has one outstanding preferred stock - Stifel Financial Corp 6.25% Non-Cumulative Preferred Stock Series A (NYSE: SF-A). In the table below, there is some information about SF-A:

Source: Author's spreadsheet

Currently, SF-A is trading on a Yield-to-Worst, equal to its Yield-to-Call, of 4.46%. Although SFB and SF-A are different types of securities, we may claim that SFB is the better one of the two, as it has a higher rating than SF-A (SF-A carries a BB- S&P rating), a result of being higher in the capital structure of the company, and has a higher Yield-to-Worst.

Furthermore, SF has three corporate bonds:

Source: FINRA

As there is no price information about the Corporate Bond due 2022, we can compare SFB with the other 2 corporate bonds - Corporate Bond due 2024 and Corporate Bond due 2020. Like SFB, these two corporate bonds are also Senior Unsecured Notes and have a BBB- rating from S&P. What immediately makes an impression are their yields. They trade at a Yield of 3.417% and 2.541% respectively, which gives an advantage to SFB from this point of view as well. However, we must note the fact that the corporate bonds have significantly closer maturities.

Sector Comparison

Issuing a baby bond is not something that happens very often from an investment brokerage company. There are currently 4 outstanding baby bonds (JMPC, JMPB, BGCA, and COWNL) issued by an in investment brokerage company, each of which has a negative Yield-to-Worst (they are all callable). That is why in the chart below, I compare SFB with all preferred stocks and baby bonds issued by an investment brokerage company which pay a fixed distribution:

Source: Author's spreadsheet

Fixed-Rated Baby Bonds

The next chart contains all baby bonds that pay a fixed interest, have a maturity date in 20 to 40 years and have a positive Yield-to-Call. For a clearer view I have excluded JSM, which has a 73% Yield-to-Call and is still finding its place after the negative market sentiment towards Navient Corp (NASDAQ: NAVI) which had a spillover effect on it.

Source: Author's spreadsheet

'BBB' Rated Baby Bonds

This chart contains all baby bonds, that pay a fixed interest, have a positive Yield-to-Call and carry at least a BBB S&P rating.

Source: Author's spreadsheet

Special Considerations

Nothing out of the ordinary.

Conclusion

While our goal is to merely keep the investment crowd informed, in case anyone has missed this preferred stock, and SFB is unlikely to find a spot in our own portfolio, we do not dismiss it by any means.

This is a purely informational article.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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