MFA Financial Issues 30 Year Debt

MFA Financial (MFA) is marketing new 30 year debt via Morgan Stanley (MS), UBS (UBS) and Wells Fargo (WFC). The terms of the debt are as follows:

Issuer: MFA Financial
Maturity: April 15, 2042
Par: $25
Amount: $75,000,000
Ranking: Senior Unsecured
Optional Redemption: April 15, 2017
Use of Proceeds: MFA Intends to use the net proceeds to acquire additional MBS and for working capital, which may include, among other things, the repayment of repurchase agreements.

Covenants:

Change of Control: If a Change of Control Repurchase Event (someone acquiring greater than 50% of the voting power, the occupation of the majority of board seats who were not nominated by the directors) occurs, unless they have exercised their option to redeem the Notes as described above, they will make an offer to each holder of Notes to repurchase all or any part (in a principal amount of $25 and integral multiples of $25 in excess thereof) of that holder's Notes at a repurchase price in cash equal to 101%.

Consolidation, Merger and Sale of Assets: Typical language stating either the company will be the surviving entity or the successor company will assume the obligations. Of course the "all or substantially all" clause has yet to be determined legally as to how (on what basis) "all or substantially all" is defined.

I would think that these bonds will price around 8% given where recent specialized financial firms have priced (think KKR's (KKR) 30NC5 at 7.50%). The MFA-A preferreds currently yield 8.28%, making this issue attractive relative to the preferreds as it is more senior in the capital structure. The additional 5% offered on the equity is steep, but as we enter a new yield curve environment, the risk premium relative to the bonds is appropriate.

Bottom line: From a pricing standpoint, if the bonds come at 8% or North, they are attractive. Keep in mind, this is not a credit recommendation, but a pricing analysis.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.