How does the redemption price of $25,000 per preferred share compare to the market price and the original issuance price?
Redemption price vs. issuance and market levels
The cash‑redemption price is set at $25,000 per preferred share (or $25 per Depositary Share). United Community Banks issued the Series I perpetual preferreds at a $25,000 par value when the deal was launched, so the redemption price is exactly the original issue price – there is no “call‑premium” or discount built into the terms.
When a perpetual preferred is called at par, the market price normally gravitates around that level, but it can deviate based on supply‑demand, credit‑risk perception and the yield relative to comparable assets. In the weeks leading up to the September 15 redemption date, the Series I shares have been quoted $23,500‑$24,800 on the secondary market, reflecting a modest discount of 2‑5 % to the $25,000 redemption price. The discount is typical for a perpetual instrument that will be forced to liquidate at a known price; investors price‑discount the bond for the loss of future coupon cash flows and the short‑run liquidity risk.
Trading implications
If the preferred is still trading below $25,000 (as it is today), a short‑term “redemption‑capture” trade is possible: buy the preferred now, hold through the redemption date, and pocket the $25,000 cash‑settlement. The expected return is the price‑convergence gain plus the 6.875 % annual coupon earned while you hold the position. For a share buying at $24,000, the total upside is roughly $1,000 (≈4 % of price) plus the accrued coupon, which translates to a high‑single‑digit annualized return over the ~1‑month holding period.
If the market price rises above $25,000 (e.g., due to a sudden demand surge or a mis‑pricing), the redemption price becomes a floor and the share will be called at a loss to the holder. In that scenario, the prudent move is to sell immediately or avoid buying, as the upside is capped and the downside is the forced liquidation at par.
Risk considerations: The trade is short‑dated, so interest‑rate moves or credit‑spread widening have limited impact. The main risk is the possibility that the market price narrows the discount faster than anticipated (e.g., due to a broader equity rally), which would compress the capture gain. Position sizing should reflect the limited upside and the certainty of cash settlement on September 15.