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Corporate Actions Review -Preferred Stocks Traded Up – Active Management

InfraCap Insights:  Corporate Actions Review -Preferred Stocks Traded Up – Active Management

New York - November 12, 2023 ~ Over the past 24 months, select credit-sensitive preferred stocks have outperformed due to favorable corporate action events. Acquiring companies have engaged in M&A activity to purchase companies with strong fundamentals and undervalued asset bases.

In the preferred stock space, it is important for managers to navigate corporate action events by: (1) considering the likelihood that the company issuing the preferred stock may be acquired or merge with a company (which would impact the preferred stock rights), (2) opportunistically buying or selling preferred stocks that may be subject to corporate actions, (3) arbitraging price inefficiencies that may emerge after a corporate action event has been announced (see below for examples of price movements), (4) managing credit considerations, and (5) managing the exchange listing events that may result.

Unlike passively-managed index funds, which may not allow the fund to trade these securities outside of index rebalances, active managers can look to add value for shareholders by managing corporate actions. Thus, we believe active preferred stock managers have an advantage over their the passively-managed preferred stock counterparts and can select undervalued companies.

Based on our review, here are a few notable examples of corporate action events:

Public-Public M&A

  • On average, the public-public M&A preferreds traded up over 13%

  • KIM acquires RPT (announced 08/28/2023)

    • RPT's preferreds traded up 10% with enhanced credit profile

  • ET acquires CEQP (announced 08/16/2023)

    • CEQP's preferreds traded up 5% with enhanced credit profile. Further, ET increased cash offer to buy out preferreds at a premium of 10% to pre-announcement price.

  • REG acquires UBA (announced 5/18/2023)

    • UBA's preferreds traded up approximately 15% with enhanced credit profile.

  • USM/TDS announce strategic review (announced 08/03/2023)

    • USM/TDS announced a strategic review which led to the preferreds trading up 16% over the next month while potential sale possibilities were explored.

Take Private Transactions

  • On average, the take private preferreds traded up over 26%

  • Infrastructure Investments Fund takes SJI private (announced 08/16/2023)

    • SJI's convertible preferreds traded up 33%, alongside the common stock.

  • Poseidon takes ATCO private (announced 08/16/2023)

    • ATCO's preferreds were redeemed at par - representing a 17% premium to pre-announcement price.

  • KSL Capital Partners takes HT private (announced 8/28/2023)

    • HT's preferreds were redeemed at par - representing a 25% premium to pre-announcement price

  • Stonepeak takes TGH private (announced 10/22/2023)

    • HT's preferreds were redeemed at par - representing a 25% premium to pre-announcement price.

Redeemed at Par

  • PSX acquires DCP (announced 1/6/2023)

    • DCP's preferreds were redeemed at par and traded up approximately 5% during the week after the news.

  • SAFE acquires STAR (announced 8/11/2022)

    • STAR's preferreds were redeemed at par and traded up modestly, approximately 2%, after the news.

*Information and underlying data are sourced from Bloomberg as of 9/30/2023. Investment professional use only. The S&P U.S. Preferred Stock Index (SPPREF) is a benchmark representing the U.S. Preferred stock market. Preferred stocks are a class of capital stock that pays dividends at a specified rate and has a preference over common stock in the payment of dividends and the liquidation of assets. The opinions represented above are subject to change and should not be considered investment advice. This data was prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed.


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