A Floating Rate Preferred With Value
David Landes submits:
Investors need to be satisfied with the present yields on floating rate preferreds (FRPs), because the coupon is not likely to adjust higher for a long time.
Although the call decision for the issuer is not as straightforward with a floating rate as with a fixed rate instrument,
investors ought to be aware of the prospect that the security could be called.
is trading below its call price, so the yield-to-call is higher than the yield-to-maturity shown in the table below.
The typical floating rate preferred pays the higher of a floor rate, usually 3% or 4%, and a rate determined by a formula, typically a markup of 50-75 basis points over three month LIBOR. Most floating rate preferreds are now paying their minimum coupon rate. The last column of the table below shows how much the three-month LIBOR rate would have to rise in order forComplete Story »