have bbt prefereed in my ira for income. some posters mentioned it would be called early. is the call price 25.oo. i do not need to lose a lot of money because i will retire soon and need everything i have. any helpful info would be appreciated.
Ted, if you own this paper, retrieve the prospectus you receveid from you broker or go SEC filings on the BB&T website and look for yourself. Given it was a "new issue" there should be a prospectus supplement filed(I think this is a rule 424B5 filing)around the date the offering was completed. I managed to buy some of these shares at the "IPO" price and while I have enjoyed the 8.95% coupon, it is a no-brainer for the company to call them at the first opportunity.
As I am sure you know, the quarterly "dividends" on these securities are taxed as ordinary income while any gains or losses are treated as "capital" in nature. In other words, they are taxed just like a bond.
Again, look it up for youself. I think all of this information can be found in the prospectus summary.
Friday, April 22, 2011
BB&T Trust Preferred Stock Shareholders - Start Paying Attention
Posted by Doug K. Le Du, Author of Preferred Stock Investing at 3:14 PM
BBT, the nation’s ninth largest bank, announced today that it will be issuing new debt (bonds) or stock (common and/or traditional preferred) in order to generate the cash it needs to retire (call and buy back from shareholders) their existing Trust Preferred Stocks (TRUPS).
The announcement stated that BBT will do so since the 2010 Wall Street Reform Act prohibits Big Banks from counting their TRUPS toward their Tier 1 Capital reserves after January 1, 2013. Being able to count TRUPS toward this key metric is the primary reason that Big Banks issue TRUPS to begin with. Without being able to count TRUPS toward Tier 1 Capital, Big Banks have little reason not to retire these preferred stocks as their call dates arrive.
BBT's decision provides important validation of the “Big Bank Trust Preferred Stock” opportunity described in every monthly issue of the CDx3 Newsletter since July 2010.
If You Paid Less Than $25 Per Share
When (no longer IF) BBT's TRUPS are called, shareholders will receive $25.00 per share.
The Big Bank TRUPS opportunity has now come to fruition for BBT TRUPS shareholders who, as the newsletter has urged, were able to purchase shares for less than $25 each. Congratulations!
If you have taken advantage of the opportunity described in the CDx3 Newsletter each month, you are going to be adding a nice capital gain on top of the great dividend income that you have been receiving in the meantime.
If You Paid More Than $25 Per Share
The likelihood that BBT's TRUPS will be called is now 100% so expect their market prices to trend toward $25 as their call dates approach per the Rule of Call Date Gravity (Preferred Stock Investing, page 59).
If you paid more than $25 for your shares, you should start paying close attention to the market price trends of BBT's TRUPS. You may want to set a trigger in your online brokerage account to alert you when the market price falls close to your purchase price.
BBT's TRUPS are all currently trading well above $25 per share and their call dates are still over two years away. BBT cannot call their TRUPS shares prior to their call dates.
But as these market prices trend toward $25 between now and then (and they will), be sure that you do not get caught with a capital loss situation that wipes out your dividend earnings. If you paid more than $25 per share, you are unlikely to be able to sell for a price above your purchase price once these shares fall below that point; do not count on them coming back up with a call pending.
Preferred Stock Investing stipulates that buyers should never pay more than $25 per share and this is a good example of why that's the case.
New Traditional Preferred Stocks From Big Banks?
There has been a question since I first reported the Big Bank TRUPS opportunity to you last July regarding how these Big Banks would raise the cash needed to call their TRUPS shares when the time comes.
In the July 2010 issue of the CDx3 Newsletter, I speculated in the article titled "Two Waves Of New Preferred Stocks Appear To Be Heading Our Way" that Big Banks were more likely to issue new traditional preferred stock than common stock in order to avoid diluting their common.
Another argument in favor of issuing new preferred, rather than new common, stock is that these Big Banks would not necessarily want to effectively convert non-voting TRUPS shareholders into a massive class of new voting common shareholders.
Now, it appears that we may in fact be in for a wave of new traditional preferred stocks as Big Bank TRUPS reach their call dates.
In today's Bloomberg article about BBT's plans an analyst states that BBT "...will likely issue debt or preferred stock" rather than common stock.
"BBT's TRUPS are all currently trading well above $25 per share and their call dates are still over two years away. BBT cannot call their TRUPS shares prior to their call dates."
Above statement made in article I posted imo is not accurate. Bbt - a, b and c shares are likely to be called in early 2013 when the shares will not longer be able to be counted as tier 1 capital. Page S-10 of bbt-a prospectus states:
"We may redeem any or all of the junior subordinated debentures at any time on or after September 15, 2013 and we may elect to redeem all, but not less than all, of the junior subordinated debentures before September 15, 2013 if certain changes occur relating to the capital treatment or tax treatment of the capital securities, the investment company laws or the rating agency equity credit accorded to the capital securities. The redemption price will equal 100% of the principal amount of the junior subordinated debentures plus accrued and unpaid interest to the date of redemption in the case of a redemption after the occurrence of a capital treatment event, investment company event or tax event and a make-whole redemption price in the case of a redemption after the occurrence of a rating agency event. An IRS pronouncement or threatened challenge affecting the tax treatment of the junior subordinated debentures could occur at any time. Similarly, changes in rating agency methodology for assigning equity credit to the junior subordinated debentures, changes or proposed changes in the treatment of the junior subordinated debentures for Federal Reserve capital adequacy purposes and changes resulting in the treatment of the trust as an “investment company” could result in the junior subordinated debentures being redeemed earlier than would otherwise be the case. See “Summary of Terms of the Junior Subordinated Debentures—Redemption” for a further description of these events and the method of determining the make-whole redemption price that applies in the case of a redemption after the occurrence of a rating agency event."
Imo, the $1 to $1.50 premium for a, b and c shares will be wiped out in 19 months so you can deduct this off any interest to be earned through 2012 when calculating yield which I think is around 6% annually.
The BBTpB will not be called for $25 cash. It will be swapped for a new preferred with a yet unknown dividend rate. The BBTpB will gradually go down to $25 before this conversion takes place.
yes call price is $25. A share can be called 9/15/13, B shares can be called 8/1/14, C shares can be called 11/1/14.
As we get closer to call date, share price will decline towards the $25 share level.
At share price of $26 plus right now no need to panic as shares pay $2.02 to $2.40 annual dividend.
If shares pop up, I would consider selling.
That's not what he's asking.
What you're explaining is normal course.
It seems there is a clause in the prospectus of these perferred that if tax rules change, they can be called AT ANY TIME at par. That's right, and there was a tax law change. Thus the reasone the B and C units have dropped dramatically in the past two trading days.
Sorry about the income loss, we little guys have no chance do we?