Summary
- WESCO International's new preferred stock, WCC-A, is priced at the rate of 10.625%.
- WCC-A is trading 4% above its par value at a Yield-to-Worst of 9.55%.
- When compared to the other exchange-traded high yielders, the new IPO gives one of the lowest Current Yield and YTW.
- WCC-A is one of a few issues with a nominal yield of above 10%, half of which have their distribution suspended.
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Introduction
On June 22, WESCO International (NYSE:WCC) has completed its merger with Anixter International (NYSE:AXE), upon completion of which AXE has become a wholly-owned subsidiary of WCC. Under the terms of the merger, each share of Anixter common stock has been converted into the right to receive $72.82 in cash, 0.2397 shares of WESCO common stock, and 0.6356 preferred shares of this newly created preferred stock.
The New Issue
Before we submerge into our brief analysis, here's a link to the Certificate of Designations of WESCO Series A Preferred Stock (Source: SEC.gov).
As a result, from 34M shares of AXE common stock multiplied by 0.6356 forms an aggregate of 21.61M depositary shares of the new preferred stock IPO that were issued with a liquidation preference of $25, totaling $540M. You can find some relevant information about the new preferred stock in the table below:
Source: Author's spreadsheet
WESCO International, Inc. 10.625% Series A Fixed-Rate Reset Cumulative Perpetual Preferred Stock (WCC-A) pays a fixed dividend at a rate of 10.625% before June 22, 2025, and then switches to a dividend equal to the Five-year U.S. Treasury Rate plus a spread of 10.325%. For reference, the current five-year Treasury is at the rate of 0.34%, translating into a hypothetical post-call date nominal yield at 10.665%. The new issue has no Standard & Poor's rating, pays quarterly dividends, and is callable as of 06/22/2025. Currently, the new issue trades above its par value at a price of $26.06 and has a 10.19% Current Yield and a YTC of 9.55%.
Here's how the stock's YTC curve looks like right now:
Source: Author's spreadsheet
The Company
WESCO International, Inc. is a distributor of products and provider of supply chain management and logistics services used in industrial, construction, utility and commercial, institutional and government ("CIG") markets. The Company is a provider of electrical, industrial and communications maintenance, repair and operating ("MRO") and original equipment manufacturers ("OEM") products, construction materials, and supply chain management and logistics services. Its product categories include general supplies, wire, cable and conduit, communications and security, electrical distribution and controls, lighting and sustainability, and automation, controls and motors. The Company provides customers a portfolio of solutions within a range of service categories, including construction, e-commerce, energy and sustainability, engineering services, production support, safety and security, supply chain optimization, training and working capital. - Source: Reuters.com | WESCO International, Inc
Below, you can see a price chart of the common stock, WCC.
Source: Tradingview.com
We have not paid dividends on our common stock and do not currently plan to pay dividends. We do, however, evaluate the possibility from time to time. It is currently expected that earnings generated between signing and closing the Anixter merger will be used to support growth initiatives and debt reduction. In addition, our Revolving Credit Facility, 2021 Notes, and 2024 Notes limit our ability to pay dividends and repurchase our common stock. - Source: Company's 2019 Annual Report
For reference, the yearly dividend expenses for the new Series A preferred stock will be $62.5M.
