Chase Manhattan Corp. on Tuesday began marketing a $150 million issue of adjustable-rate preferred stock.
A Chase spokesman said proceeds of the issue would be used for general corporate purposes, including possible refinancing of outstanding debt or preferred stock.
Fixed-rate preferred stocks have been shaken by rising interest rates since the Federal Reserve began tightening monetary policy in February. As a result, prospective issuers must pay a higher premium over the 30-year U.S. Treasury bond yield than in the past, say preferred stock specialists.
Savings of 200 Basis Points
The Chase issue is being marketed to carry a dividend of around 84% to 85% of the highest yield among the three-month U.S. Treasury bill, 10-year U.S. Treasury note, and 30-year U.S. Treasury bond.
This would initially put the dividend at roughly 6.05%, a savings of at least 200 basis points, compared with the rate Chase would pay for a fixed-rate issue, the sources said.
In addition, the dividend of the new issue will be no lower than 4.5% and no higher than 10.5%. The issue, which will be callable after five years, is expected to be priced sometime this week.
Interest rates would have to average 8.9% for the next five years for the adjustable-rate issue to be more expensive than a fixed-rate deal in that time period, said one specialist.
Capital markets sources speculated that proceeds from the sale may be used to refinance Chase's series F preferred stock, which has about $225 million outstanding. The series F dividend is higher, at 94.875% of the highest yield between the three-month, 10-year, and 30-year Treasury securities.
In addition, the series F issue has a 6% minimum and 15% maximum dividend, higher than the terms proposed for the new Chase issue. Goldman Sachs & Co. is lead manager of the prospective issue.