Longtime readers know that we are not big investors in mREITs (mortgage REITs), in particular the common shares. Additionally we have seldom owned the preferred shares of the mREITs, but that has more to do with our aversion to perpetual preferreds than anything else.
Chimera Investment Corp, (NYSE-CIM) has sold a fixed-to-floating rate preferred, that is a decent issue to own if you understand the interest rate risk (perpetuals preferreds tend to fall in value as interest rates rise since they have no maturity date) of holding any perpetual preferred issue. The new issue has a fixed coupon of 8% until March 29, 2024 after which it converts to a floating rate which has a base rate of 5.791% plus 3 month Libor. Generally, floating rate issue with a fairly lucrative base rate trade “firmer” than fixed coupon issues when interest rates increase.
As is usual the new issue is cumulative and while fixed coupon preferreds normally have optional redemption dates approximately 5 years after issuance fixed-to-floating rate issues have longer periods until redemption and this new issue isn’t redeemable until 2024.
It should be noted that CIM has a more typical 8% fixed coupon perpetual preferred already outstanding trading under the ticker symbol CIM-A. These shares are redeemable starting in 2021 and have been trading recently in the $25.25-$25.50/share area. We would expect the new issue to trade a bit higher than the older issue because of the floating rate provision.
The new issue is now trading on the OTC Grey Market under the ticker symbol of CIMEP and is trading just under $25. For more information on the OTC Grey Market you can peruse our primer on the topic here.
To get more information on preferred stocks and exchange traded debt (baby bonds), screen them, set up your own portfolio and receive email alerts, go to www.preferred-stock.com now.