Brighthouse Preferreds: Balancing a 10.5% Yield with Investment-Grade Risks in a Shifting Credit Landscape

In an environment where traditional fixed-income assets struggle to deliver meaningful returns, Brighthouse Financial's Series C non-cumulative perpetual preferred stock (BHFAN) has emerged as a compelling yet contentious proposition. Offering a current yield of approximately 10.38% as of December 2025, these shares represent a rare opportunity to access double-digit returns while ostensibly retaining investment-grade status. However, the interplay between yield, credit risk, and structural vulnerabilities demands a nuanced analysis.

The Attraction of a High Yield

The allure of Brighthouse Preferreds lies in their yield, which has surged to 10.38% due to a combination of a 5.375% annualized dividend rate and a depressed market price of $12.95 per share. This yield stands in stark contrast to the sub-4% returns offered by most investment-grade corporate bonds, making BHFAN a magnet for income-seeking investors. Yet, as with all high-yield instruments, the trade-off involves heightened risk.

Credit Ratings: A Tenuous Safety Net

Brighthouse's investment-grade status remains a critical factor in its appeal. As of December 2025, the company's long-term issuer credit rating of 'BBB' from S&P Global Ratings is technically intact but placed on review for potential downgrade. Concurrently, Fitch Ratings has already downgraded Brighthouse's Long-Term Issuer Default Rating to 'BBB' from 'BBB+', while AM Best has placed its ratings under review with negative implications. These actions reflect growing concerns about the company's financial resilience, particularly in light of its pending acquisition by Aquarian Capital, which is expected to close in 2026.

The 'BBB' rating, though still classified as investment-grade, sits at the lower end of the spectrum. Historical data suggests that issuers rated 'BBB' face a higher probability of default compared to those rated 'A' or above. For instance, a report by S&P Global notes that 'BBB' issuers have a 1.5% annual default probability over a five-year horizon, compared to 0.1% for 'A'-rated entities. This underscores the fragility of Brighthouse's current credit profile.

Structural Vulnerabilities: Non-Cumulative Dividends and Liquidity Risks

A critical caveat to Brighthouse Preferreds is their non-cumulative dividend structure. Unlike cumulative preferreds, which accrue unpaid dividends, BHFAN holders have no claim to missed payments. This design exposes investors to the risk of dividend suspensions, particularly if the company faces liquidity pressures during the Aquarian acquisition process. Analysts have rated the dividend safety of these shares as a "C", signaling significant credit risk.

Moreover, the pending acquisition introduces operational and strategic uncertainties. While the transaction could stabilize Brighthouse's balance sheet in the long term, the short-term integration process may strain resources. AM Best explicitly cited this transition as a key risk factor in its recent review. Investors must weigh the potential benefits of a stronger capital structure against the immediate volatility of the acquisition timeline.

The Investment-Grade Paradox

The central tension in evaluating Brighthouse Preferreds lies in reconciling their investment-grade ratings with the deteriorating fundamentals. While the 'BBB' rating provides a veneer of safety, the recent downgrades and reviews suggest that this status is precarious. For investors prioritizing capital preservation, the risks may outweigh the rewards. However, for those with a higher risk tolerance and a focus on yield, the current pricing may represent an opportunity-if they are willing to monitor the credit closely and exit before a potential downgrade.

Conclusion: A Calculated Gamble

Brighthouse Preferreds exemplify the delicate balance between yield and risk in today's market. The 10.38% yield is undeniably attractive, but it comes with the caveat of a ratings agency under siege and a dividend structure that offers no guarantees. Investors must ask whether the current pricing adequately compensates for the elevated credit risk. For those who answer in the affirmative, BHFAN could serve as a high-conviction addition to a diversified portfolio. For others, the risks-particularly the potential for a downgrade to non-investment-grade-may justify caution.

As the Aquarian acquisition nears completion, the coming months will be pivotal. A successful integration could reinforce Brighthouse's creditworthiness, while setbacks could accelerate a downgrade. In this context, patience and vigilance will be as valuable as the yield itself.