Download preferred securities - Janney Montgomery Scott LLC

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.