New Preferred Stock IPOs, June And July 2022

Summary

  • As July 2022 comes to a close, we look back at the new preferred stocks and ETDs introduced during the past two months, offering annual yields ranging from 6.25%-13%.
  • 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 1.5% and offer an average current yield of 5.65%.
  • Past preferred stock IPOs now trading below par:a look at recent par crosses.

Stock market blackboard concept

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CDX3 Table

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State of the preferred stock market

New issuances continue to remain extremely light, with only five offerings to review within these past two months, plus we'll talk about one new ETD "on deck." Meanwhile, past offerings of high quality preferreds 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 128 entries - but slightly off of the mid-June peak. Here is a YTD chart of our bargain table count:

CDX3 Chart

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The average "CDx3-compliant" preferred stock (10 out of 10 CDx3 Compliance Score) saw its market price rebound during July, but with the average price still slightly below par value:

CDX3 Chart

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About the new issues

Turning to new issues during the past two months, PacWest Bancorp (PACW) completed a noteworthy offering of 20 million shares of new non-cumulative perpetual preferred stock, offering a fixed dividend rate of 7.75%. The new shares were rated BB- by Fitch, BBB- by Kroll, and BBB by Egan-Jones. The shares traded temporarily on the OTC under symbol PACWL before moving to permanent symbol PACWP on the Nasdaq, where they now command a premium to par, with recent trades nicely above the $25 offering price. Several PacWest insiders participated in the offering:

CDX3 Table

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Source: PacWest Bancorp form 4 filings with the SEC

There were also a number of after-market/open-market insider buys among several other preferred stock issuers within the past two months, ranging from small to large insider buys, including among the preferred shares of Eagle Point Income (EIC), NexPoint Real Estate Finance (NREF), Harbor Custom Development (HCDI), New York Community Bancorp (NYCB), Sotherly Hotels (SOHO), and FAT Brands (FAT). (Links in this paragraph point to relevant example SEC filings on form 4.)

Bitcoin mining company BitNile Holdings (NILE) completed an offering of 144,000 shares of new series D cumulative perpetual preferred stock, offering a fixed dividend rate of 13% paid monthly. The company indicated that proceeds would be used to acquire bitcoin miners. Following the offering, the company filed for an "at-the-market" offering program to sell an additional up-to $46.4 million worth of the new preferred series. The new shares are unrated and trade on the NYSE American Exchange under symbol NILE-D, where they currently change hands at around the $18/share level.

Oxford Lane Capital (OXLC) priced an offering of new 7.125% term preferred stock due in 2029, raising $60 million in gross proceeds. The company indicated that the proceeds will be used to acquire new investments. Dividends are paid monthly, and the new shares traded temporarily on the OTC under symbol OXFCP before moving to permanent symbol OXLCN on the Nasdaq.

Great Elm Group (GEG) priced an offering of $25 million of new exchange traded notes due 2027, offering a fixed coupon of 7.25%. The company indicated that proceeds from the offering will be used to make investments in its private real estate investment trust Monomoy Properties REIT, whose investment management agreement was recently acquired by Great Elm. The new notes were rated BBB- by Egan-Jones Ratings Company and trade on the Nasdaq under symbol GEGGL.

Horizon Technology Finance Corporation (HRZN) priced an offering of $50 million of new 6.25% exchange traded notes due 2027. The company indicated that proceeds would be used to pay down its revolving credit facility. The new notes received a credit rating of BBB from Egan-Jones, and trade on the New York Stock Exchange under symbol HTFC.

And 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 Rating Company and are expected to trade on the Nasdaq under the symbol TRINL within 30 days.

SEC filings: PACWP, NILE-D, OXLCN, GEGGL, HTFC, TRINL

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:

CDX3 Table

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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!

This article was written by

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.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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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