Data Center Owner Dupont Fabros Technology Sells a New Preferred Issue

Dupont Fabros Technology (NYSE:DFT), a REIT and data center owner, has issued a new preferred stock with a coupon of 6.625%. The issue has the standard preferred stock terms–it is cumulative and redeemable at the companies option in about 5 years.

This issuance is what we call a refinancing issue as the company is going to use the proceeds to purchase other outstanding preferred issues that have a higher coupon.  The shares to be redeemed are the balance of the DFT-A shares,  a preferred issue with a coupon of 7.875%, which is to be partially redeemed on 5/27/2016.  Additionally the company will purchase shares in the DFT-B issue, which is a 7.625% coupon issue.  It is likely they will purchase just a portion of the DFT-B issue as they will not have adequate funds from the new issue to complete a total refinancing.

With this transaction the company will save as much as $2-$3 million per year in dividend payments.  Companies will refinance their preferred shares when they are able to save more than a ½% per year (except for very small issues where the transaction costs far outweigh the savings garnered).

 The issue is junk rated with a B- from S&P and a Ba2 from Moody’s.

 The new DFT issue will have a permanent ticker symbol of DFT-C, but has just started trading on the OTC Grey market under the temporary ticker symbol of DFTPP.

Our primer on purchasing shares on the Grey market can be found here.

 Details on the new issue can be found here.