SiriusPoint Preferred ‘B’: Best BB+ Rated Preferred With Great Interest Rate Protection

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Introduction

SiriusPoint (NYSE:SPNT) is an insurance company that came about as a result of a merger of insurance company Sirius with famed hedge fund manager Dan Loeb’s Third Point Reinsurance company. The SPNT.PB (NYSE:SPNT.PB) preferred stock was created as a result of this merger and not as a public offering. Then, underwriters sold a large sum of these shares for the SPNT.PB shareholders who didn’t wish to continue to hold a preferred stock but found themselves owners of SPNT.PB as a result of this merger. Often preferred stocks that were created for shareholders rather than the public have very generous terms, and SPNT.PB has a very generous reset-rate and had a very attractive current yield when it was issued. WCC.PA would be an example of this very generous type of preferred stock.

Here is what Yahoo Finance says about SPNT:

SiriusPoint Ltd. provides multi-line insurance and reinsurance products and services worldwide. The company operates through two segments, Reinsurance, and Insurance & Services. The Reinsurance segment provides coverage to various product lines, which includes aviation and space, casualty, contingency, credit and bond, marine and energy, mortgage, and property to insurance and reinsurance companies, government entities, and other risk bearing vehicles. The Insurance & Services segment offers coverage to various product lines comprising accident and health, environmental, workers’ compensation, and other lines of business, including a cross section of property and casualty lines.

SiriusPoint LTD Preferred “B” Stock

  • Current Price $23.50
  • $2.00 per year annual dividend paid quarterly
  • Dividend is qualified for a 15% tax rate for most Americans with a taxable account
  • Dividends are cumulative
  • The current yield is 8.54%
  • The yield-to-call (YTC) is 10.4%
  • Call date is 2/26/2026
  • If not called, the dividend will reset on its call date to 7.298% plus the yield on the 5 year treasury note, a 11.77% qualified yield at the current price of $23.50

SPNT.PB currently sells well below par at $23.50. At this price, the current yield is 8.54% while the YTC is 10.4%. These are extraordinary yields given that SPNT is an investment grade insurance company with SPNT.PB carrying a BB+ credit rating. And because these dividends are “qualified” for a lower tax rate, the after tax current yield of SPNT.PB is equivalent to a 9.40% bond for those in the 24% tax bracket and a 10.25% bond for those in the 33% tax rate. And the YTC after tax equivalent is 10.4% for those in the 24% tax bracket and 11.4% for those in the 33% tax bracket.

If SPNT.PB is not called on 2/26/2026, the dividend will adjust to 7.3% plus the yield on the 5-year note in February of 2026. If the 5 year note yield is where it is today, the dividend on SPNT.PB will rise from $2.00 per year to $2.74 per year. At the current price of $23.5, that would put the yield at 11.77%. So you either get a large 10.4% qualified return from now to the call date if called, or you end up with a preferred stock with a very big qualified yield. Even if rates come down, with the generous reset-rate formula, the yield on SPNT.PB will always be extremely attractive in any interest rate environment. Of course that assumes SPNT does not find itself in distress in the future.

And one additional very nice feature is, if SPNT.PB is not called in February 2026, they can’t call it again for 5 years until its next reset date. So if they don’t call it, and rates then drop a lot, they can’t take SPNT.PB away from you until 2031. Many reset-rate preferred stocks allow the preferred stock to be called anytime after 5 years, so this is a very nice feature.

SPNT.PB Extremely Undervalued Versus Other BB+ Preferred Stocks

At our Conservative Income Portfolio service, we do a lot of work on mispricings in the preferred stock and bond space. Below is one of the tools we use to find mispricings, and here we have a chart of all BB+ rated preferred stocks that pay a qualified dividend. As you will see, SPNT.PB has a yield that is significantly better than its peers. And it is actually much better than this because SPNT.PB has a reset-rate that most others don’t which provides it with very strong protection against higher interest rates and a stronger likelihood that it will trade back to $25 between now and its call date.

“BB+” Rated “Qualified” Dividend Paying Preferred Stocks

Price comparison of BB+ rated preferred stocks

Author

First off, you can see that SPNT.PB’s current yield of 8.54% is far better than even the next best preferred stock at 7.37% while many of its peers yield closer to 6%. And you can see that the only other BB+ preferred stock with a 5 year treasury reset-rate is KEY.PL (KEY.PL), which at 3.13% plus the 5 year note is so inferior to SPNT.PB’s 7.3% + the 5 year note as to be a joke. And the LIBOR fixed-to-floater with the highest current yield resets at 2.99% plus LIBOR versus SPNT.PB’s 7.3% plus the 5 year treasury note. So SPNT.PB just blows away all of its BB+ competitors in every yield metric.

SPNT

SPNT common stock had been hard hit 1) due to the depressing effect that higher interest rates have on PE ratios, and 2) because insurance companies have large investment portfolios which are hurt when the stock and bond markets are in a bear market. SPNT has had write downs due to the bear market but its insurance operations have been fine.

3 Month Price Chart of SPNT and SPNT.PB

Chart of SPNT versu SPNT.PB

Yahoo Finance

As you can see from the above chart, SPNT common stock has been on fire lately. I had purchased some when it was near $4.40 per share as its book value was $11.75. The common stock is now up 50% from where I bought it and up 42% in just the last 3 months. But as you can see from the chart below, SPNT.PB has failed to rally along with the common stock. Thus, I have sold most of my SPNT common shares, although it has room to go much higher given its book value, and I have added to my SPNT.PB position. I believe SPNT.PB is one of the best values in the preferred stock market currently.

Risks

In my opinion, inflation and interest rate risks are minimal with SPNT.PB. The very high reset-rate provides great protection against higher rates, although that doesn’t kick in until early 2026. But perpetual preferred stock yields need to be viewed in terms of what they will yield over a long time frame and not the next year and the fact that SPNT.PB will eventually adjust to a relatively very generous yield should help a lot to cushion its price. And SPNT.PB’s yield is so far above equivalent securities already, that should help as well.

The risk with SPNT.PB is primarily if the stock and bond markets continue to decline sharply. SPNT’s insurance operations themselves have been performing fine, but it is the losses on their investment portfolio that could hurt them.

But SPNT has improved their safety. After the merger with Third Point, a lot of their investments were in Dan Loeb’s Third Point Fund. They took some hits as a result of the current bear market due to being heavily in stocks. But SPNT has sold off most of their stock holdings and are now much more bond heavy.

Another possible risk is a credit rating downgrade. Although S&P recently reaffirmed SPNT’s credit rating in June of this year, and the common stock has rallied a lot since then, their outlook makes a downgrade possible. But in my view, SPNT.PB is very cheaply priced even against preferred stocks that are 1 notch lower at a “BB” rating. So SPNT.PB will still be an excellent value even if it is downgraded to a “BB” rating.

Summary

SPNT.PB is one of the most undervalued preferred stocks in the market. Its “qualified” current yield of 8.54%, its YTC of 10.4%, and its reset-rate of 11.77% (assuming the 5 year note yield is as today) makes SPNT.PB very attractive to high yield investors. And the fact that SPNT is an investment grade company also makes SPNT.PB very attractive to conservative investors.

When SPNT.PB is compared to other preferred stocks with the same investment rating, it is in a class by itself. The current yield of SPNT.PB is 8.54% while other preferred stocks with the same credit rating have a median yield of only 6.3%. And SPNT.PB’s reset rate is so much better than the other BB+ rated preferred stocks that it is laughable.

The huge reset-rate gives SPNT.PB a strong possibility of being called with investors receiving an annual qualified yield of 10.4% between now and February 2026.

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