FTAI Aviation Preferred Series C: Is the 8.26% Yield Too Generous for a Junk-Rated Investment?

The FTAI Aviation Preferred Series C (ticker: FTAIN) offers a yield of 8.26% as of April 2025, a figure that appears deceptively attractive at first glance. However, this yield sits uncomfortably alongside the company’s junk credit ratings and the structural risks inherent in its preferred shares. Investors must ask: Is this yield sufficient to compensate for the elevated credit risk? Or is the market undervaluing the true risks embedded in this instrument?

The Yield: A Slight Premium, But Not Enough

The FTAIN’s yield is derived from its $25.00 liquidation preference and an 8.25% fixed coupon rate, which generates an annual dividend of $2.0625 per share. As of April 2025, the shares traded at $24.96—a 0.16% discount to par—which nudges the yield to 8.26%. This slight premium over the coupon rate reflects minimal market skepticism about FTAI’s ability to pay dividends in the near term. However, the calculation ignores two critical factors: FTAI’s speculative-grade credit ratings and the inherent risks of perpetual preferred stock.

Credit Ratings: A Stark Reminder of Risk

Both Fitch Ratings and Moody’s have assigned FTAI Aviation speculative-grade ratings. As of April 2025:- Fitch: Long-term foreign currency IDR at BB- (junk) with a stable outlook.- Moody’s: Long-term local currency rating at Ba2 (also junk) with a stable outlook.

While these ratings suggest FTAI is not in imminent default risk, they categorically place the company in the higher-risk tier of corporate issuers. Historically, preferred stocks with similar ratings typically offer yields in the 9%–11% range to compensate investors for default risk. FTAIN’s 8.26% yield sits well below this threshold, raising questions about whether the market is underpricing the security’s risks.

Structural Risks to Consider

1. Perpetual Tenor: FTAIN is a perpetual preferred stock, meaning there’s no maturity date. Investors are reliant on FTAI’s ongoing financial health to sustain dividend payments indefinitely.
2. Call Risk: The shares are callable starting June 15, 2026. If FTAI’s credit improves or interest rates drop, the company may redeem the shares at $25.00, potentially leaving investors to reinvest proceeds in a lower-yield environment.
3. Reset Mechanism: After June 2026, the coupon resets to the five-year Treasury rate plus 737.8 basis points. While this could boost yields in a rising rate environment, it also introduces volatility tied to macroeconomic factors.

Comparisons to Peers and Historical Precedent

Historical data shows that BB-rated preferred stocks have averaged yields of 8.5%–9.5% over the past five years. FTAIN’s 8.26% yield is below this range, even though its parent company’s ratings align with the peer group. This discrepancy suggests one of two scenarios: Either FTAI’s specific circumstances (e.g., strong cash flows from aviation leases) justify the lower yield, or the market is overlooking key risks.

Fundamentals: A Mixed Picture

FTAI’s financial health provides some reassurance. Its Q1 2024 Adjusted EBITDA hit $164.1 million, a 156.7% year-over-year increase, driven by demand for aviation infrastructure post-pandemic. However, the company’s balance sheet remains leveraged, with debt exceeding equity, and its business relies heavily on airline demand—a sector prone to cyclical volatility. If air travel demand weakens or interest rates rise further, FTAI’s ability to service debt (and preferred dividends) could come under pressure.

Conclusion: Yield vs. Risk—A Mismatch

The FTAIN’s 8.26% yield is undeniably appealing, but it fails to adequately compensate investors for its speculative-grade credit risk and structural vulnerabilities. Key data points underscore this imbalance:- Rating-Based Benchmark: BB-rated preferred stocks typically yield 8.5%–11%, yet FTAIN offers just 8.26%.- Call Risk: Investors face the possibility of early redemption at $25.00, locking in minimal capital gains if the shares remain near their current $24.96 price.- Leverage Exposure: FTAI’s reliance on cyclical aviation demand and high debt levels introduce tail risks that are not fully reflected in the current yield.

For income-focused investors, FTAIN may still appeal as a “best-of-a-bad-bunch” option in the preferred space, but it’s a bet on FTAI’s resilience rather than a fair compensation for risk. Conservative investors may want to demand yields closer to 9%–10% before considering this issue, while aggressive traders might pair a long position with downside protection. Either way, the math suggests the market’s generosity toward FTAIN’s yield may not last if credit metrics deteriorate or rates rise further.