Will this dividend declaration affect any existing dividend‑swap or synthetic‑exchange agreements that market participants have structured around BPOP’s securities? | BPOP (Aug 06, 2025) | Candlesense
BPOP

Will this dividend declaration affect any existing dividend‑swap or synthetic‑exchange agreements that market participants have structured around BPOP’s securities?

Short answer:

The dividend declaration itself does not change the legal or structural terms of BPOP’s preferred‑stock or trust‑preferred securities, so it does not alter the existence or the contractual language of any dividend‑swap or synthetic‑exchange (e.g., total‑return‑swap) agreements that market participants have already put in place.

What does change is the cash‑flow profile that those contracts will have to process once the dividend is paid. Any swap or synthetic‑exchange that references the dividend on the 6.375 % Non‑Cumulative Monthly‑Income Preferred Stock (2003 Series A) or the distribution on the Trust Preferred Securities will now generate the cash‑payment component that was anticipated in the original contract.

Below is a step‑by‑step breakdown of the practical implications for each type of structured product.

1. What the news actually changes

Item What was announced Effective date Payment date Record‑date
Preferred‑stock dividend Monthly cash dividend of $0.132813 per share on the 6.375 % Non‑Cumulative Monthly‑Income Preferred Stock (2003 Series A) Declared 4 Aug 2025 2 Sep 2025 15 Aug 2025
Trust‑Preferred distribution A monthly distribution (details not fully disclosed in the excerpt) on the outstanding Trust Preferred Securities Declared 4 Aug 2025 (presumably the same September 2025 date) (presumably the same August 2025 record‑date)

The dividend is *non‑cumulative** – if a payment is missed, it does not accrue. The declaration therefore signals that the September 2025 payment will be made, and the cash amount is now known to the market.*

2. How dividend‑swap and synthetic‑exchange contracts work

Contract type Typical “reference” definition What triggers a payment
Dividend‑Swap The “Dividend” is defined as the cash dividend declared and paid on a specific class of shares (e.g., “Preferred‑Stock Series A”) The actual cash‑dividend payment on the record‑date (or payment‑date) – the swap receives the dividend amount, the counter‑party pays a fixed rate.
Synthetic‑Exchange (e.g., Total‑Return‑Swap, Equity‑Swap) Total return = price appreciation + cash‑dividends (including preferred‑stock dividends) on the referenced security Any cash‑dividend paid, plus any price change, is exchanged for the pre‑agreed cash‑flow.

Both contract families normally contain a “Corporate‑Action” or “Dividend‑Event” clause that automatically incorporates any dividend that is *declared and paid** on the referenced security. The contracts do not need to be renegotiated each time a dividend is announced.*

3. Direct impact of the BPOP announcement on existing contracts

Impact Reasoning
No change to contract terms The contracts already specify that a dividend on the 2003 Series A preferred stock (or the Trust Preferred securities) will be exchanged. The declaration simply confirms that the cash‑dividend will occur as expected.
Cash‑flow realization The swap’s “dividend‑receiver” will now receive $0.132813 × # of shares held on the record‑date (15 Aug 2025). The synthetic‑exchange’s total‑return calculation will also include this amount as part of the dividend component.
Valuation & margin Market participants will need to adjust daily mark‑to‑market (MTM) and margin calculations to reflect the expected cash‑dividend. The dividend is known in advance, so the MTM impact can be forecasted and incorporated into the next valuation (usually the same day the dividend is declared).
Potential reset or amortisation clauses Some swaps have “reset” dates that align with dividend payment cycles (e.g., quarterly resets). If the BPOP dividend falls on a reset date, the reset will incorporate the newly‑declared dividend amount. If the contract’s reset is after the dividend payment, the dividend will be settled in the current period and the next reset will start from the new price level.
Corporate‑action handling Most swaps contain a “Corporate‑Action” provision that treats a dividend as a cash‑event and automatically passes the cash‑flow to the appropriate party. No manual amendment is required.
Non‑cumulative nature Because the preferred dividend is non‑cumulative, there is no risk of retroactive accruals that could surprise a swap counter‑party. The contract will only ever be exposed to the actual cash‑payment that is made on 2 Sep 2025.

4. Practical steps for market participants

  1. Verify the reference definition in each contract:

    • Ensure the contract explicitly names “6.375 % Non‑Cumulative Monthly‑Income Preferred Stock, 2003 Series A” (or a broader “Preferred‑Stock” class) as the dividend‑reference.
    • If the contract references a generic “Preferred‑Stock dividend” without a series identifier, confirm that the series matches the announced dividend.

  2. Update cash‑flow forecasts:

    • Add the expected dividend of $0.132813 × share count to the cash‑flow schedule for the September 2025 payment date.
    • Adjust any forward‑looking valuation models (e.g., Monte‑Carlo, Black‑76) that price the swap or synthetic‑exchange.

  3. Re‑run margin calculations:

    • Most clearinghouses recalculate margin daily. The newly‑declared dividend will increase the “dividend‑exposure” for the dividend‑receiver and may affect the required variation margin on the opposite side.

  4. Check reset dates:

    • If the swap resets on 2 Sep 2025 (the payment date) or after 15 Aug 2025 (record‑date), the reset will incorporate the dividend. If the reset is before the payment, the dividend will be settled as a separate cash‑flow in the current period.

  5. Confirm corporate‑action processing:

    • Ensure the clearinghouse or the bilateral counterpart’s systems have the dividend flagged as a “cash‑event” and that the appropriate cash‑payment is routed to the dividend‑receiver on the payment date.

  6. Monitor for any “amortisation” or “make‑whole” provisions:

    • Some swaps include a clause that, if a dividend is missed, the counter‑party may be entitled to a make‑whole payment. Because the dividend is non‑cumulative, there is no missed‑dividend risk, but it is still worth confirming that the clause does not unintentionally trigger.

5. Potential edge cases (unlikely but worth noting)

Edge case Why it could matter Typical contract response
Incorrect series identification If a swap references “Preferred‑Stock, Series A” but the market later re‑labels the series (e.g., a corporate re‑classification), the contract may need a amendment. Most contracts include a “successor‑instrument” clause that automatically maps the new series to the original reference.
Dividend‑deferral or suspension If BPOP were to suspend the September 2025 dividend (e.g., due to a liquidity event), the non‑cumulative nature means no accrual, but the swap would still be exposed to a “no‑dividend” scenario. The contract would simply treat the dividend as zero for that period; no amendment needed, but counterparties may need to renegotiate if the suspension is prolonged.
Hybrid synthetic‑exchange that treats the dividend as “reinvested” Some equity‑total‑return swaps assume dividends are automatically reinvested in the same security. If the dividend is paid in cash and not reinvested, the economic exposure differs. The contract will specify whether the dividend is cash‑settled or reinvested; participants must verify the settlement method. In most market‑standard TRS agreements, cash‑settlement is default.

6. Bottom‑line conclusion

  • The declaration itself does not modify the terms of any existing dividend‑swap or synthetic‑exchange agreements.
  • It does, however, create a concrete cash‑dividend that will be processed through those agreements on the scheduled payment date.
  • All participants should simply ensure that their contracts correctly reference the 2003 Series A preferred stock (or the Trust Preferred securities) and that their valuation, margin, and corporate‑action systems are ready to handle the September 2025 cash‑payment.

In short, the impact is operational and cash‑flow related, not contractual. Existing agreements remain intact; they will now settle the dividend that BPOP has just announced.

Other Questions About This News

What impact will the announced monthly distribution on the Trust Preferred Securities have on the value of those securities and potential liquidity concerns? Are there any tax implications or withholding considerations for foreign or institutional holders of the preferred and trust preferred securities that could affect net returns? Is the cash dividend sustainable given Popular, Inc.’s current earnings, cash flow, and capital adequacy ratios? Could the dividend announcement influence the supply‑demand dynamics for BPOP’s preferred shares and affect spreads or yields in the secondary market? What is the market’s expected reaction to the September 2, 2025 dividend payment date and the August 15, 2025 record‑date? Will the monthly cash dividend trigger any price adjustments in the preferred shares or the common stock due to dividend‑capture strategies? How will the declared cash dividend on the 6.375% Non‑Cumulative Monthly Income Preferred Stock affect BPOP’s overall dividend yield and attractiveness to income investors? How does the 6.375% dividend rate compare to those of other banks’ preferred securities and the broader market? How might the dividend and distribution announcements impact BPOP’s credit ratings or outlook revisions from rating agencies?