Preferreds Weekly Review: PartnerRe Preferred Is Going Dark

JMWScout/E+ via Getty Images Welcome to another installment of our Preferreds Market Weekly Review, where we discuss preferred stock and baby bond market activity from both the bottom-up, highlighting individual news and events, as well as top-down, providing an overview of the broader market. We also try to add some historical context as well as relevant themes that look to be driving markets or that investors ought to be mindful of. This update covers the period through the second week of July. Be sure to check out our other weekly updates covering the business development company (“BDC”) as well as the closed-end fund (“CEF”) markets for perspectives across the broader income space. Market Action Preferreds enjoyed another good week, benefitting from the drop in Treasury yields on the back of an encouraging CPI print. Yields are trading slightly under 7% – where they have been for most of the year. Systematic Income Preferreds Tool Credit spreads continue to trade at very tight levels. ICE The percentage of preferreds trading at negative yield-to-call has risen steadily from 2023 levels and now stands around 10%. This means investors need to keep a closer eye on the price of any stock above $25 as a redemption could be a hit to returns. Systematic Income Preferreds Tool Market Themes PartnerRe is delisting and deregistering its preferred Series J (PRE.PR.J). The stock fell from $19.50 to $15 before rallying to $16. PartnerRe is a private company, and it appears that its new owner does not want to bother with the financial reporting requirements. This has happened quite a few times with stocks like SJIJ, Hoegh preferreds, Ladenburg Thalman, Blackstone issues etc. That said, the company said it will continue to provide some financial information, including audited GAAP financial statements on its website. The move, the company added, will not impact any of the terms of the preferreds. “Going dark” is a synonym for the combination of delisting shares from national exchanges and also deregistering them under the Exchange Act. This terminates the company’s public reporting obligations. Typically, a company that delists its shares will also want to deregister them, given the lack of trading on an exchange diminishes the appeal of being a public company. A company can delist / deregister if it has less than 300 holders of record of a given security. Although a security like PRE.PR.J likely has thousands of beneficial owners, they are all considered one because of the DTC listing, which is the principal depositary for US issuers. The price of the stock typically falls sharply on the news and, possibly more, once the passive ETFs start selling after the stock leaves the underlying index. Google The main fear investors have is that the preferred suspends dividends after the delisting. We are not aware of a stock that this has happened to (outside of obvious credit issues) so this fear is likely misplaced. After going “dark”, the relevant security may continue trading the Pink Sheets. Market makers that previously quoted the security can keep quoting it. Outside of pink sheets, a subset of delisted securities may move to the Expert market, where trading is more limited. Stocks going into delisting can be good buys just before the delisting, when most of the selling pressure is out of the way. The yield of many investment-grade issues can go up to high single-digit yields – fairly attractive for investors who are happy to put up with the lack of liquidity. An example we have highlighted in the past are the South Jersey Industries 5.625% 2079 Notes (SJIJ). The BB+ rated bonds traded up to a 9% yield prior to their 2023 delisting. The company was acquired by a JPMorgan infrastructure fund and offered a good opportunity to park some capital for the next generation at a great yield. The fund itself was unlikely to play games with the bond’s dividends, and so offered a relatively safe pair of hands. Robinhood PartnerRe was acquired by Covéa in 2022 – a large French insurance company. The new owner has a long history and a global presence (including a large business in the UK) and, while there are no guarantees, should keep the dividends ticking along.

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