Medallion Bank’s Shift to Three-Month CME Term SOFR for Preferred Stock Dividends:
Medallion Bank, a Nasdaq-listed financial institution with the ticker symbol “MBNKP,” made an important announcement on March 28, 2025. Starting April 1, 2025, the benchmark rate used to determine the dividend rate for each period during the floating rate period of the Bank’s Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, will be the three-month CME Term SOFR (Short-Term Secured Overnight Financing Rate).
Understanding the Three-Month CME Term SOFR:
Three-month CME Term SOFR is a widely-used benchmark interest rate in the financial industry. It is based on the average interest rate paid on repurchase agreements (repos) collateralized by Treasury securities in the tri-party repo market over a three-month period. The SOFR rate replaces the London Interbank Offered Rate (LIBOR) as the benchmark interest rate for new contracts from 2021 onwards due to LIBOR’s upcoming discontinuation.
Determining the Dividend Payment Rate:
The dividend payment rate for Medallion Bank’s Series F Preferred will be calculated using the Term SOFR on the second U.S. government securities business day preceding the first day of each relevant dividend period. This means the dividend rate will be adjusted every quarter based on the current SOFR rate.
Impact on Medallion Bank:
The shift to the three-month CME Term SOFR as the benchmark rate for determining dividends on Medallion Bank’s Series F Preferred stock will introduce more flexibility in the Bank’s dividend payments. The floating rate structure allows the Bank to adjust dividends based on market conditions, providing a hedge against interest rate fluctuations.
Impact on Individual Investors:
- Investors in Medallion Bank’s Series F Preferred stock will receive dividends adjusted quarterly based on the three-month CME Term SOFR rate.
- The floating rate structure may provide some protection against potential interest rate increases, but it also introduces the risk of receiving lower dividends in periods of low interest rates.
Impact on the World:
Medallion Bank’s move to use the three-month CME Term SOFR as the benchmark rate for its preferred stock dividends is reflective of the broader trend in the financial industry to transition away from LIBOR. This shift will help ensure a more stable and reliable benchmark rate for financial contracts and mitigate potential disruptions once LIBOR is discontinued.
Conclusion:
Medallion Bank’s announcement to use the three-month CME Term SOFR as the benchmark rate for its Series F Preferred stock dividends signifies the financial industry’s ongoing shift towards more robust and reliable benchmark rates, such as SOFR. This change will provide Medallion Bank with greater flexibility in managing its dividend payments and help minimize potential disruptions when LIBOR is phased out.
For individual investors holding Medallion Bank’s Series F Preferred stock, this change implies that dividends will be adjusted quarterly based on the SOFR rate. While this introduces some uncertainty, it also provides a hedge against potential interest rate increases. Overall, this move is a positive step towards ensuring a more stable and reliable benchmark rate system in the financial industry.
