Will the redemption trigger any tax consequences for existing preferred shareholders that could affect market demand?

Tax‑impact of the redemption

When United Community Banks redeems its 6.875 % Series I perpetual preferreds at a fixed cash price of $25,000 per share, the transaction is treated as a sale of the security for the shareholder, not a dividend. For most investors the redemption will generate a capital‑gain or loss based on the difference between the $25,000 redemption price and the shareholder’s original cost basis. Because the preferreds are non‑cumulative and have been trading at a premium to the $25 k redemption price (the market has quoted the Depositary Shares around $25–$27), many holders will realize a short‑term capital gain if they bought within the last 12 months, which is taxed at ordinary income rates. A smaller group whose cost basis is higher than $25,000 will instead book a capital loss. There is no ordinary‑income dividend component, so the tax consequence is limited to the capital‑gain/loss calculation.

Effect on market demand

The tax profile can modestly shape demand in the weeks leading up to September 15:

• Current holders – Those with a low cost basis may be reluctant to sell before the redemption because a realized gain would be taxed immediately; they may simply hold to the redemption date, dampening pre‑redemption sell‑off pressure.
  
• New investors – Prospective buyers who are evaluating the preferreds as a “buy‑and‑hold‑to‑redemption” play will factor the expected capital‑gain tax into the net return. If the after‑tax yield looks attractive relative to comparable high‑yield assets, demand could stay steady; otherwise, a modest sell‑side tilt may appear as investors unwind positions to avoid the short‑term gain tax.

Trading implications

1. Short‑term positioning – Anticipate limited upward pressure on the preferred price as the redemption date approaches; the market will largely price in the known $25,000 cash value. Expect a flat‑to‑slightly‑down bias in the days before September 15, especially if a sizable portion of the float is held by tax‑sensitive investors.
   
2. Liquidity play – If you hold the preferreds and your cost basis is well below $25,000, the redemption offers a tax‑aware exit at a known cash amount—consider staying in the position to capture the cash, then re‑allocate the proceeds into higher‑yielding, lower‑tax‑drag securities.
   
3. Risk management – For traders shorting the preferreds, the redemption creates a hard ceiling at $25,000; any short‑position will be automatically closed at the redemption price, capping potential losses. Use the event to take profits on any upside that materialises before the redemption, rather than holding through the date.

In summary, the redemption will generate capital‑gain tax consequences for most existing shareholders, but because the cash price is fixed and known, the impact on overall market demand is expected to be modest. The primary trading focus should be on managing short‑term price drift and positioning around the September 15 redemption ceiling.