First Horizon's Preferred Redemption: A Strategic Crossroads for Investors

The redemption of First Horizon Corporation's Series B Preferred Stock (FHN.PRB) on August 1, 2025, marks a pivotal moment for investors holding this security. At a redemption price of $25 per depositary share, the decision to hold or sell hinges on understanding the terms, market dynamics, and strategic implications. This analysis dissects the calculus for investors weighing liquidity, yield, and timing in this evolving scenario.

The Redemption Terms: A Clear End Date

First Horizon's Series B Preferred Stock, a non-cumulative perpetual security, will be fully redeemed on August 1, 2025, at par value ($25 per depositary share). Key terms include:
- Redemption Date: August 1, 2025.
- Price: $25.00 per share, excluding accrued dividends (as the redemption coincides with a dividend payment date).
- Final Dividend: A semi-annual dividend of $0.15 per share will be paid on August 1 to holders of record as of July 17.

The redemption concludes the lifecycle of this issue, with no shares remaining post-August 1. For investors, the critical question is: Should they hold until redemption or sell earlier?

Market Context: June 2025 Volatility and Investor Sentiment

The stock's price in June 2025 fluctuated between $19.10 and $21.69, closing at $21.49 on June 1. Two factors shaped this movement:

1. June 13 Dividend Ex-Date: The $0.15 dividend caused a typical price drop to $19.10, reflecting the removal of dividend value from the stock. Non-cumulative terms mean missed dividends are not recoverable, so timing the holding period around the July 17 record date is crucial for capturing the final payout.

2. Anticipation of Redemption: While the redemption was officially announced on July 2, 2025, market whispers likely influenced June trading. Investors may have discounted the redemption price, causing the stock to trade below $25 until the announcement. Post-July 2 data shows the stock trading near $25.70, a slight premium to redemption value, suggesting investor optimism about the August payoff.

Strategic Implications for Holders

Option 1: Hold Until Redemption
- Pros: Guaranteed $25 per share return by August 1, plus the final dividend.
- Cons: Capital is tied up until redemption; no upside beyond par if the stock trades at or below $25 by then.

Option 2: Sell Before Redemption
- Pros: Liquidity before August 1, potential to capitalize on premium pricing if the stock rises above $25.
- Cons: Risk of selling below redemption value, especially if market volatility persists.

Key Considerations:
- Dividend Capture: Holders must ensure they are on the record by July 17 to receive the final $0.15 dividend.
- Tax Implications: Dividends may be taxed differently than capital gains; consult a tax advisor.
- Opportunity Cost: Compare the 6.625% fixed rate (now floating post-2025) to alternative investments.

Market Timing Opportunities

1. Buying Opportunity Before July 2:

2. The stock traded below $25 in June, partly due to uncertainty around the redemption timing. Investors who acquired shares before the July 2 announcement could profit from the post-announcement rally toward par.

3. Final Weeks Before Redemption:

4. As August 1 approaches, liquidity may tighten, and price volatility could subside as investors converge toward the $25 redemption price. Those needing liquidity might sell earlier, but waiting until the final days carries minimal risk.

5. Post-Redemption Considerations:

6. After August 1, FHN.PRB ceases to exist. Investors must reinvest proceeds into other securities, such as First Horizon's new preferred issues or alternatives offering comparable yields.

Investment Advice

• Hold Until August 1: For those with a long-term horizon and no liquidity needs, this is the safest route. The guaranteed $25 return minimizes principal risk, and capturing the final dividend adds incremental value.
• Buy Before July 2: For contrarian investors, the June price dip offered an entry point at a 15% discount to redemption value. However, this requires confidence in market pricing efficiency post-announcement.
• Avoid Premature Sales: Selling before August 1 risks missing the redemption premium, especially if the stock stabilizes near $25 in July.

Conclusion

First Horizon's Series B Preferred Stock redemption is a zero-sum game: investors will either secure par value or exit early for potential gains. The calculus depends on liquidity needs, dividend capture, and the ability to stomach short-term volatility. For most, holding to redemption offers a straightforward path to capital preservation. For traders, timing entries and exits around the dividend ex-date and announcement could yield modest rewards. Either way, this episode underscores the importance of aligning security choices with both market conditions and personal investment objectives.

As August 1 approaches, the clock ticks—investors must decide whether to ride the redemption wave or seek better tides elsewhere.