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Preferred Securities J a n n e y C o r p o r at e C r e d i t M ay 2 8 , 2 0 1 3 The rise in primary market activity and the higher yields versus bonds has caused increased investor demand for preferreds. Contents Characteristics Baby Bonds Hybrid Preferreds Contingent Capital Preferred Stock Preferred Market Information & Disclaimers •• After a few years of a lull in the primary market for preferreds, the attractiveness of low interest rates for companies and the increase in yield-grabbing mentality on the investor side resulted in the highest amount of new issued preferreds since before the recession. •• While recent regulatory changes have resulted in the discontinuance of certain securities and the rise in securities with new structures, preferred securities still embody a mix of equity and debt characteristics. •• The preferred market offers potential returns unavailable in the traditional bond market; we revisit the key features of this class of securities to assist in investors’ decision-making process. The preferred market has come back full swing from the depths of the recession. The year 2012 closed out with $42B in new issuance from 182 offerings, and 2013 year-to-date new issuance is indicating that this year’s volume will surpass last year’s. As the main issuers of preferreds, financial institutions are refinancing more expensive issuance and taking advantage of the low-rate environment. At the same time, nonfinancial firms are also entering the preferred market: year-to-date, nonfinancial companies accounted for 18% of the total number of deals compared to only 12% in 2012. Not only has activity risen for preferred new issuance, but also financial firms are starting to issue new types of hybrid securities to adapt to stricter capital requirements. In light of recent changes to the preferred market, we present an updated Guide to Investing in Preferreds. Characteristics Guy LeBas Chief Fixed Income Strategist 215 665 6034 [email protected] Jody Lurie Corporate Credit Analyst 215 665 6191 [email protected] See page 7 for important information regarding certifications, our ratings system as well as other disclaimers. JANNEY MONTGOMERY SCOTT www.janney.com © 2013 Janney Montgomery Scott LLC Member: NYSE, FINRA, SIPC Preferred Securities • Page 1 In broad terms, preferred securities are interest-paying securities issued with a specified par value. Many banks, mutual funds, and other institutions own preferreds with $1,000 or higher par values, but most preferreds sold to retail investors trade in increments of $25. Like bondholders, preferred security owners make an up-front principal investment and receive periodic interest payments. These periodic payments are most commonly based on a fixed percentage rate that remains constant over the life of the preferred, similar to the coupon payment on a fixed-rate bond. This fixed coupon means that, should interest rates rise, the price of a preferred will usually decline. With most preferreds, however, the issuer retains the right to suspend interest payments under certain circumPreferred Issuance Is Up Since 2009, But Net Issuance Is Down Due to Refinancings $70 Total Issuance ($ bln) 200 $60 Total Issuance (#; right axis) 180 160 $50 140 $40 120 100 $30 80 $20 60 40 $10 20 $0 0 2002 2003 Source: Janney FISR 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD j a n n e y c o r p o r at e c r e d i t MAY 2 8 , 2 0 13 Contents Characteristics Baby Bonds Hybrid Preferreds Contingent Capital The Positions of Various Preferreds on the Debt-Equity Spectrum Less Risk Debt Baby bonds Information & Disclaimers Cumulative Preferreds Trust Preferreds Preferred Stock Preferred Market More Risk Preferred CoCos Stock Noncumulative Convertible Preferreds Preferreds Equity Source: Janney FISR stances (primarily financial inability to pay). Depending on the specific issue, a suspension of these payments will not necessarily result in a default, but rather a lapse in investors collecting coupon payments. While these five major characteristics—$25 par, a set coupon, maturity/redemption features, credit/suspension risk, and a subordinated place in the capital structure—apply to preferreds, there are several major subsets of preferreds which occupy various places on what we describe as the “debt-equity spectrum.” •• Par: Refers to the principal amount of a preferred (usually $25 per unit or share) that an issuer receives when first selling the securities. It is also the amount that a preferred holder will receive in the event an issuer redeems a preferred. As the main issuers of preferreds, financial institutions are refinancing more expensive issuance and taking advantage of the low-rate environment. •• Coupon: Refers to the periodic (usually quarterly) payment of dividend or interest that issuers make to preferred holders. Most preferreds have fixed coupons that remain constant, but a small portion have floating coupons which vary at a spread over some index, usually LIBOR. Some preferreds will begin their lives with a fixed coupon and convert into a floating coupon at some specified date. Over time, market interest rates may increase or decrease, harming or benefiting an issue’s market value. •• Maturity/Calls: Refers to the ways in which an issuer can redeem their preferred securities from holders at par value. While not all preferreds have a required maturity date (that is, they are perpetual), the overwhelming majority of preferreds have early redemption features whereby issuers may call a preferred at par any time subsequent to five years from their issue date. A smaller number of preferreds have calls which begin ten years after the issue date. •• Credit/Suspension Risk: Refers to the risk that an issuer may voluntarily halt the periodic payment of preferred dividends or interest in the event of financial distress, thereby impairing the cash flow and market value of an instrument. In the 2008-2009 recession, regulatory restrictions forced some recipients of government assistance to suspend preferred dividends. Even without an outright suspension, as perceptions of an issuer’s credit quality change over time, credit/suspension risk may increase or decrease, harming or benefiting an issue’s market value. An issuer that suspends period payments may or may not be required to make up those back payments, depending on the details of an individual preferred issue. •• Interest Rate Risk: Refers to the fact that fixed coupon/dividend preferreds generally carry a higher degree of interest rate risk. As a result of their very long or perpetual maturity dates, a modest rise in interest rates can cause a substantial decline in preferreds’ market values. Recent issuance of lower coupon preferreds (sub-5% in some cases) exacerbates this risk. For investors interested in limiting interest rate risk, there are a smaller number of preferred securities that carry flowing coupon/dividend payments which are less sensitive to changes in interest rates. For more on protecting yourself against interest rate risk, visit www.janney.com/interestrates. New Regulation Has Forced Certain Hybrids Out of the Market JANNEY MONTGOMERY SCOTT www.janney.com © 2013 Janney Montgomery Scott LLC Member: NYSE, FINRA, SIPC Preferred Securities • Page 2 Basel III Tier 1 Capital Securities Non-Basel III Tier 1 Capital Common stock Perpetual non-cumulative preferreds Contingent capital preferreds Exchangeable non-cumulative preferreds (REIT preferreds) Bank trust preferreds Cumulative preferreds Source: Janney FISR j a n n e y c o r p o r at e c r e d i t MAY 2 8 , 2 0 13 Contents Characteristics Baby Bonds Hybrid Preferreds Contingent Capital Preferred Stock Preferred Market Information & Disclaimers •• Subordination: Refers to preferreds’ priority in the capital structure. The concept of priority describes the order in which a firm’s investors receive their share of the firm’s profits and, in the event a firm fails, the order in which creditors and investors receive proceeds from restructuring or liquidations. Bonds are at the top of the capital structure, preferreds generally in the middle, and common stock at the bottom. Depending on the details of an individual issue, however, a preferred may be closer to the bond end or closer to the equity end of the spectrum. Preferreds have a place on the spectrum between debt and equity, with more debt-like investments being safer than more equity-like investments from the same issuer. Baby Bonds Baby bonds represent the most debt-like form of preferred securities, but they are typically included in the preferred category because of their $25 par amount, long maturity date, and their exchange-traded nature. Priority of Payment Debt • • • • Senior Loans Senior Bonds/Baby Bonds Subordinated Bonds Junior Subordinated Bonds Preferreds • • • • Trust Preferreds Hybrid/cumulative Preferreds Noncumulative Preferreds Convertible Preferreds/CoCos • Common Stock Equity Source: Janney FISR; note that some preferreds may classify as a specific level of subordination dependent on the security’s prospectus •• Par: Generally $25 (hence “baby bond”). Unlike other forms of preferreds, issuers cannot voluntarily suspend periodic interest payments on baby bonds. •• Coupon: Pays interest typically at a fixed rate and, all else being equal, lower than other forms of preferreds. The interest is taxable as ordinary income. •• Maturity/Calls: Will always have a maturity date and will most commonly have a call date (typically thirty years and five years after issuance, respectively). •• Credit/Suspension Risk: Unlike other forms of preferreds, tarily suspend periodic interest payments on baby bonds. A resents a default of the issuer, just as with any other bond. bonds are theoretically less risky than other forms of preferreds issuers cannot volunmissed payment repFor that reason, baby from the same issuer. •• Subordination: Baby bonds fall at the most debt-like end of the debt/equity spectrum and rank equal in priority to unsecured bonds of the issuer. •• Other: Baby bonds typically trade on a stock exchange (usually the NYSE) which is one of the major reasons they are lumped in with the preferred category. Recently, issuers have been using baby bonds to reach investors with smaller size investments that are looking for additional yield over that which other securities are offering in the market. Hybrid Preferreds Hybrid preferreds represent the largest category within preferreds; the term is somewhat of a catchall for securities that do not classify as either baby bonds or preferred stock. •• Par: Generally $25; institutional issues trade with $1,000 or even $100,000 par. •• Coupon: Pays interest typically at a fixed rate, though some issues may be either floating rate or initially fixed rate and then converting to floating rate (“fixed-to-floaters”). Coupon rates are generally higher than on bonds but lower than on preferred stock from the same issuer. The interest is taxable as ordinary income. •• Maturity/Calls: Will always have a maturity date, though that maturity date may be extendable (e.g., thirty year maturity extendible to sixty years). It most commonly has a call date either five or ten years after issuance. JANNEY MONTGOMERY SCOTT www.janney.com © 2013 Janney Montgomery Scott LLC Member: NYSE, FINRA, SIPC Preferred Securities • Page 3 •• Credit/Suspension Risk: Issuers can suspend the payment on hybrid preferreds for a prescribed period—generally 20 to 40 quarters—without triggering a default. For that reason, the payments are less secure on hybrid preferreds than on pure debt instruments; hybrids are more risky than bonds. In many cases, hybrid preferreds are “cumulative” and an issuer must make up any j a n n e y c o r p o r at e c r e d i t MAY 2 8 , 2 0 13 Contents Characteristics Baby Bonds Hybrid Preferreds Contingent Capital Preferred Stock Preferred Market Information & Disclaimers skipped payments before the preferred is considered “current.” For “non-cumulative” preferreds, the issuer has no responsibility to make up skipped payments. In the event an issuer suspends periodic payments, it is generally subject to restrictions, such as limits on paying common stock dividends or engaging in certain activities. While suspension is generally used only in cases of financial distress, some issuers that accepted government aid during the 2008-2009 recession agreed to suspend dividends on non-cumulative hybrid preferreds as a condition of that aid. •• Subordination: Hybrid preferreds sit junior to unsecured bonds, but senior to preferred stock and common stock in terms of priority. Within the hybrid category, cumulative preferreds have higher priority than non-cumulative preferreds. •• Other: Hybrid preferreds most commonly trade on exchanges (usually the NYSE). There are a number of sub-types of hybrid preferreds, including junior subordinated debt and trust preferreds, with their own specific risk and return levels. Contingent Capital Contingent capital securities (“CoCos”) are largely a response to banking reform, such as the DoddFrank Act’s Collins Amendment, which restricts trust preferred securities from being included in banks’ Tier 1 capital calculations. Unlike other hybrid securities, contingent capital securities are issued as debt, but will transfer into equity “contingent” upon a trigger event (i.e. a fall in capital cushion or common equity value below a certain threshold). CoCos address the issue of financial institutions’ inability to raise capital during periods of economic crisis through an automatic conversion into equity. CoCos Issued in USD To-Date Unlike other hybrid securities, contingent capital securities are issued as debt, but will transfer into equity “contingent” upon a trigger event. JANNEY MONTGOMERY SCOTT www.janney.com © 2013 Janney Montgomery Scott LLC Member: NYSE, FINRA, SIPC Preferred Securities • Page 4 Issuer Cpn Mty Barclays Bank Plc Banco Bilbao Vizcaya Arg Barclays Bank Plc Rabobank Nederland Banco Do Brasil (Cayman) UBS Ag Stamford Ct UBS Ag Jersey Branch KBC Bank Nv VTB Bank (VTB Eurasia) Aquarius + Inv For Swiss Rabobank Nederland CSG Guernsey I Ltd Banco Do Brasil (Cayman) LBG Capital No.1 Plc Aquarius + Inv (Swiss Re) LBG Capital No.1 Plc Macquarie Bank London LBG Capital No.1 Plc LBG Capital No.1 Plc LBG Capital No.2 Plc Banco Do Brasil (Cayman) LBG Capital No.1 Plc Banco Do Brasil (Cayman) VTB Bank (VTB Eurasia) Cred Suisse Gp Fin (Grn) Credit Europe Bank Nv LBG Capital No.1 Plc Bank of Cyprus Ltd 7.625 9.000 7.750 8.400 6.250 7.625 7.250 8.000 9.500 6.375 8.375 7.875 9.250 7.875 8.250 8.000 10.250 8.000 7.875 7.875 6.250 8.500 9.250 9.500 9.500 10.000 8.500 6.000 Nov-2022 N/A Apr-2023 N/A N/A Aug-2022 Feb-2022 Jan-2023 N/A Sep-2024 N/A Feb-2041 N/A Nov-2020 N/A N/A Jun-2057 N/A Nov-2020 Mar-2020 N/A N/A N/A N/A N/A Feb-2022 N/A N/A Source: Janney FISR; Company Reports Amt Outs ($MM) 3,000 1,500 1,000 2,000 2,000 2,000 2,000 1,000 2,250 750 2,000 2,000 1,750 986 750 1,259 250 1,259 986 408 2,000 277 1,750 2,250 1,725 50 277 40 Moody's/ S&P NR/BBBNR/NR NR/BBBNR/NR NR/BB NR/BBBNR/BBBNR/BB+ NR/NR NR/NR NR/NR NR/NR NR/BB B1/BB NR/NR NR/BBNR/NR NR/BBB1/BB NR/BB+ NR/BB NR/BBNR/BB NR/NR NR/NR NR/NR NR/BBNR/NR Issue Date Nov-2012 May-2013 Apr-2013 Nov-2011 Jan-2013 Aug-2012 Feb-2012 Jan-2013 Aug-2012 Mar-2013 Jan-2011 Feb-2011 Jan-2012 Dec-2009 Mar-2012 Dec-2009 Mar-2012 Dec-2009 Dec-2009 Mar-2010 Jan-2013 Dec-2009 Jan-2012 Aug-2012 Jul-2012 Feb-2012 Dec-2009 May-2011 Mty Type AT MATURITY PERP/CALL CALLABLE PERP/CALL PERP/CALL AT MATURITY CALLABLE CALLABLE PERP/CALL CALLABLE PERP/CALL CALLABLE PERP/CALL AT MATURITY PERP/CALL PERP/CALL CALLABLE PERP/CALL AT MATURITY AT MATURITY PERP/CALL PERP/CALL PERP/CALL PERP/CALL PERP/CALL CALLABLE PERP/CALL CONV/CALL/PERP j a n n e y c o r p o r at e c r e d i t MAY 2 8 , 2 0 13 Contents •• Par: Generally $1,000, though some $100,000 or $200,000 par. Characteristics •• Coupon: Pays interest typically at a fixed rate. Coupon rates are generally higher than those on both bonds and some preferreds due to the additional uncertainty surrounding the conversion feature. Tax treatment on the interest of these securities varies. Baby Bonds Hybrid Preferreds Contingent Capital Preferred Stock Preferred Market Information & Disclaimers Because of the risk involved in these securities along with their relative newness to the markets, CoCos may be less attractive than other hybrid securities as an investment avenue for smaller investors. •• Maturity/Calls: Varies with each issue. Some CoCos have similar structures to notes, in that they mature in 10 years from issue date, while others are structured more like perpetual preferred securities. Similarly, callability varies by issue. •• Credit/Suspension Risk: In the event that an issuer needs additional capital cushion to meet regulatory requirements, CoCos automatically convert into equity, thereby causing the creditor to lose all principal in the original security and to receive equity in the company instead. Interest and principal payments will be replaced by a straight equity investment in a company that is likely under stress due to the conditions that trigger Most Preferreds Hold Mid-Level Ratings said conversion. •• Subordination: Most CoCos are subordinate to senior unsecured debt, equal to other preferred securities, and senior to common equity. Because of their risk of transferring into equity during a credit event, one could argue that these securities rank equally to equity for liquidation or restructuring purposes. •• Other: To date, the CoCos that have been issued have offered coupons higher than similarly-maturing senior unsecured bonds and hybrids due to the uncertainty around the conversion feature. Because of the risk involved in these securities along with their relative newness to the markets, CoCos may be less attractive than other hybrid securities as an investment avenue for smaller investors. NR 9% A 4% AAA/AA 1% BBB 52% High Yield 34% Source: Janney FISR; S&P as of March 2013 based on par value Most Preferreds Come from Financial Institutions Transport 0% Industrial 9% Bank 27% Gov't Agency 6% Utility (Gas, Elect, Tel) 4% Other Financial 54% Preferred Stock Preferred stock is the “classic” category of preferred and enjoyed a resurgence because of favorable tax laws instituted starting in 2003, which changed only somewhat in at the start of 2013. Source: Janney FISR; only offerings classified as public and USD included, “other financial” includes special purpose entities and trusts •• Par: Generally $25. JANNEY MONTGOMERY SCOTT www.janney.com © 2013 Janney Montgomery Scott LLC Member: NYSE, FINRA, SIPC Preferred Securities • Page 5 •• Coupon: Pays dividends typically at a fixed rate, though floating rate preferred stock does exist. In many cases, this dividend is “qualified dividend income” (QDI) and may be eligible for taxation at a 15% rate rather than as ordinary income. The recent changes in the tax laws raised the rate to 20% for individual filers with over $400,000 in taxable income and joint filers with over $450,000 in taxable income. Not all dividends are QDI. •• Maturity/Calls: Does not have a maturity date. This lack of maturity is a hallmark feature of preferred stock, as opposed to hybrid preferreds, and is the major reason preferred stock is j a n n e y c o r p o r at e c r e d i t MAY 2 8 , 2 0 13 Contents Characteristics Baby Bonds Hybrid Preferreds Contingent Capital Preferred Stock Preferred Market Information & Disclaimers further towards the equity end of the debt/equity spectrum than other types of preferreds. Most preferred stock carries a call feature starting five years after the original issue date. •• Credit/Suspension Risk: Issuers can suspend the payment on preferred stock generally for 40 quarters without triggering a default. Also, preferred stock is non-cumulative, meaning that issuers are under no obligation to make up skipped payments. In the event an issuer suspends periodic payments, it is generally subject to restrictions, such as limits on paying common stock dividends or engaging in certain activities. While suspension is generally used only in cases of financial distress, some issuers that have accepted government aid have agreed to suspend dividends on preferred stock as a condition of that aid. •• Subordination: Preferred stock is the most deeply subordinated form of preferred and sits senior only to common stock in priority. As a result, preferred stock holds more credit risk than most other types of preferreds. •• Other: Preferred stock usually trades on exchanges, such as the NYSE. The category of preferred stock also includes convertible preferred stock, which, as the name suggests, can be or must be converted into common stock under certain circumstances. Preferred Market We caution that investors should not get too consumed with yield-seeking mentalities; rather, employing a more diversified strategy can provide adequate return with decreased risk. At $217 billion, the preferred market makes up only a fraction of the overall fixed income market, with the majority of issuers being financial institutions due to their robust capital structures and an inherent need to increase certain levels of capital. With recent regulatory changes in the sector, firms have begun replacing their trust preferred securities, which once had the benefit of being counted as Tier 1 capital in addition to providing the issuer with tax advantages, with alternative structures. Companies have also been using the current low interest rate environment to bring down their cost of capital. In turn, while activity in the primary market for preferred securities has built up since 2011, the majority of issuance served to refinance existing debt. For example, since 2012 year-end, the total amount of preferreds outstanding shrunk by $9 billion despite the $12.7 billion in issuance during the first quarter of 2013. Preferreds’ Values Have Improved Since the Depths of the Recession $60.00 1,200 $50.00 1,000 $40.00 800 $30.00 iShares S&P US Preferred Stock Index Fund 600 $20.00 S&P Preferred Stock Index (right axis) 400 $10.00 $0.00 May-2007 200 May-2008 May-2009 May-2010 May-2011 May-2012 May-2013 Source: Janney FISR; NYSE Arca; S&P JANNEY MONTGOMERY SCOTT www.janney.com © 2013 Janney Montgomery Scott LLC Member: NYSE, FINRA, SIPC Preferred Securities • Page 6 The recent trends within preferreds points to investors making a grab for yield as firms’ balances sheets have strengthened over the past few years. The subordination on the capital structure combined with longer maturities versus corporate bonds offers investors a pick-up in yield. Consequently, both direct and indirect (via ETFs and other funds) investments in preferreds have grown since 2009. Note, however, that because of preferreds’ placement in the capital structure (i.e. priority of payment), the ratings agencies notch down the ratings on preferred securities versus bonds; currently 86% of preferreds fall in the triple and double B territory. Preferreds have some benefits in the current environment, though we caution that investors should not get too consumed with yield-seeking mentalities, as CoCos and record low coupons may not necessarily be the best option for bolstering return; rather, employing a more diversified strategy can provide adequate return with decreased risk. j a n n e y c o r p o r at e c r e d i t MAY 2 8 , 2 0 13 Contents Analyst Certification Characteristics We, Guy LeBas and Jody Lurie, the Primarily Responsible Analysts for this report, hereby certify that all of the views expressed in this report accurately reflect our personal views about any and all of the subject sectors, industries, securities, and issuers. No part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. Baby Bonds Hybrid Preferreds Contingent Capital Preferred Stock Preferred Market Information & Disclaimers Janney Montgomery Scott LLC (“Janney”) Debt Research Disclosure Legend Janney may seek compensation for investment banking services for any company listed in the report in the next 3 months. The research analyst is compensated based on, in part, Janney’s profitability, which includes its investment banking revenues. Additional information available upon request. Definition of Issuer/Company Outlooks Janney FIS employs a rating system which considers the company, but not any specific debt or equity securities of the company and is not making a recommendation with regard to any specific debt securities of the company. Outlooks reflect our opinion about how credit factors of the company may affect its credit rating(s). Positive: Janney FIS believes there are factors which point towards improving issuer or sector credit quality which may result in potential credit ratings upgrades Stable: Janney FIS believes there are factors which point towards stable issuer or sector credit quality which are unlikely to result in either potential credit ratings upgrades or downgrades. Cautious: Janney FIS believes there are factors which introduce the potential for declines in issuer or sector credit quality that may result in potential credit ratings downgrades. Negative: Janney FIS believes there are factors which point towards weakening in issuer credit quality that will likely result in credit ratings downgrades. Definition of Sector/Industry Ratings Overweight: Janney FIS expects the target asset class or sector to outperform the comparable benchmark (below) in its asset class in terms of total return. Marketweight: Janney FIS expects the target asset class or sector to perform in line with the comparable benchmark (below) in its asset class in terms of total return. Underweight: Janney FIS expects the target asset class or sector to underperform the comparable benchmark (below) in its asset class in terms of total return. Janney FIS Outlooks Distribution as of 05/28/2013 Outlook Positive Stable Cautious Negative Count 9 28 8 1 Percent 19.6 60.9 17.4 2.2 IB Serv./Past 12 Mos. Count Percent 0 0 0 0 0 0 0 0 Benchmarks Asset Classes: Janney FIS ratings for domestic fixed income asset classes including Treasuries, Agencies, Mortgages, Investment Grade Credit, High Yield Credit, and Municipals employ the “Barclay’s U.S. Aggregate Bond Market Index” as a benchmark. Treasuries: Janney FIS ratings employ the “Barclay’s U.S. Treasury Index” as a benchmark. Agencies: Janney FIS ratings employ the “Barclay’s U.S. Agency Index” as a benchmark. Mortgages: Janney FIS ratings employ the “Barclay’s U.S. MBS Index” as a benchmark. Investment Grade Credit: Janney FIS ratings employ the “Barclay’s U.S. Credit Index” as a benchmark. High Yield Credit: Janney FIS ratings for employ “Barclay’s U.S. Corporate High Yield Index” as a benchmark. Municipals: Janney FIS ratings employ the “Barclay’s Municipal Bond Index” as a benchmark. Disclaimer Janney or its affiliates may from time to time have a proprietary position in the various debt obligations of the issuers mentioned in this publication. Unless otherwise noted, market data is from Bloomberg, Barclays, and Janney Fixed Income Strategy & Research (Janney FIS). This report is the intellectual property of Janney Montgomery Scott LLC (Janney) and may not be reproduced, distributed, or published by any person for any purpose without Janney’s express prior written consent. JANNEY MONTGOMERY SCOTT www.janney.com © 2013 Janney Montgomery Scott LLC Member: NYSE, FINRA, SIPC Preferred Securities • Page 7 This report has been prepared by Janney and is to be used for informational purposes only. In no event should it be construed as a solicitation or offer to purchase or sell a security. The information presented herein is taken from sources believed to be reliable, but is not guaranteed by Janney as to accuracy or completeness. Any issue named or rates mentioned are used for illustrative purposes only, and may not represent the specific features or securities available at a given time. Preliminary Official Statements, Final Official Statements, or Prospectuses for any new issues mentioned herein are available upon request. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, securities prices, market indexes, as well as operational or financial conditions of issuers or other factors. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. We have no obligation to tell you when opinions or information contained in Janney FIS publications change. Janney Fixed Income Strategy does not provide individually tailored investment advice and this document has been prepared without regard to the circumstances and objectives of those who receive it. The appropriateness of an investment or strategy will depend on an investor’s circumstances and objectives. For investment advice specific to your individual situation, or for additional information on this or other topics, please contact your Janney Financial Consultant and/or your tax or legal advisor.