mREIT PennyMac Mortgage Investment Corp (NYSE:PMT) has sold a fixed-to-floating rate preferred stock with a fairly tasty initial coupon of 8.125%.
The terms of the issue are the normal terms for preferreds as shares are perpetual and cumulative in respect to dividends. The optional redemption period, in which the company can redeem the shares at $25/share doesn’t begin until 2024. While the optional period is normally 5 years after issuance for a fixed rate issue, the “call protected” period is generally longer for a fixed to floating rate issue.
We have made mention in articles in previous newly issued fixed-to-floating rate issues that it should be important to investors what the fixed portion of the coupon is once the issue begins to float. In this case the fixed rate is 5.831% which will be added to the 3 month Libor rate being on 3/16/2024. Given the difficulty of forecasting interest rates even 3 months out it is impossible to have even a remote clue as to what they might be in 2024, but just the same as an investor we want the fixed rate portion of the coupon to be as high as possible. With the 5.831% rate of this issue it will have a tendency to trade firmer than a fixed coupon perpetual preferred in the months ahead as we face increasing interest rates.
A recent new fixed-to-floating rate issue from mREIT Chimera Investment (NYSE:CIM) had an initial fixed rate of 8%, with a floating rate base coupon of 5.791%. While both the Chimera issue and he PennyMac issue are unrated it is our opinion that Chimera has superior financials compared to PennyMac and a slightly lower coupon was warranted.
Shares of the new PennyMac issue have begun to trade on the OTC Grey Market under the temporary ticker of PNNYP and shares closed at $24.70/share on Friday. For more information on the OTC Grey Market you can peruse our primer on the topic here.
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