Wells Fargo & Company WFC outlined plans for a perpetual preferred stock offering, in a filing with the SEC on Wednesday. Per the filing, the company will issue a total of 36 million depositary shares with a liquidation preference of $25 per share.
Each depositary share represents 1/1,000th interest in a share of Non-Cumulative Perpetual Class A Preferred Stock, Series V and is entitled to a dividend of 6% per annum. The dividend will be paid quarterly commencing from Dec 15, 2015, after which it will be paid regularly on the 15th of March, June, September and December of each year.
Notably, the company has an option to redeem the shares on any dividend payment date on or after Dec 15, 2020. The redemption can be made in part or full at the redemption price of $25 per share, plus the amount equal to any declared and unpaid dividend up to the date of such redemption. However, this excludes any undeclared dividends.
Based on the assumption that the underwriters will exercise their over-allotment option of 4 million depositary shares in full and the depositary shares are sold to retail investors, the offering is expected to generate net proceeds of $872.1 million. The settlement date for the issue is Sep 15, 2015.
More importantly, the company plans to apply for the listing of these depositary shares on the NYSE under the symbol “WFCPrV”. Such listing will help resolve investors’ concerns over general illiquidity in preference shares.
What’s In Store for Wells Fargo?
As preferred stock is nothing but equity, capital raised from this offering will help the company further improve its leverage ratio, which currently stands at 1.06. A lower leverage ratio will increase its financial flexibility that is currently restricted by various debt covenants. This, in turn, will help Wells Fargo take on additional debt to finance expansionary projects and acquisitions, which will boost its long-term prospects.
Wells Fargo currently has a Zacks Rank #3 (Hold). Bank of America Corporation BAC The Bank of New York Mellon Corporation BK and Citigroup Inc. C are better-ranked stocks in the banking space; carrying a Zacks Rank #2 (Buy).
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