Rules of Commenting

I thought I should post a short note on ‘comments’ made on the site.

Thus far I have been really happy about the commenting going on–I learn more from the comments than from anything else–and I am guessing that is true of everyone.

When you comment your name and email are your log ins.  The 1st time someone posts I have to approve the post–after that it is automatically approved.  If the name and email are not identical to the approved post it gets kicked to me for approval prior to showing up on the site.  So the message here is use the same name and email each time (you can use any name and email–we don’t really care–and we don’t save any emails etc for any use whatsoever).

If you embed a link in your post then it will have to be approved by me.  While I could turn this feature off  we would likely be inundated (over time) with more and more bots posting links of all sorts and soon the comments would become as useless as Yahoo Finance became.  I just glance at the links posted and then approve–maybe 99%–we have had a few I have deleted.

Of course this means that if a different name or email is used or a link is posted it could be a few hours before it is approved since one can’t be on the computer 24/7.

 

Monday Morning Kickoff

Last week, which was a shortened holiday work week, the DJIA traded in a range of 25,805 to 26,075 before closing the week at 25,917.  The 10 year treasury traded in a range of 2.87% to 2.95% and closing the week at 2.94%.  This is the highest closing price in a month and reflects the relatively big jump in wages reported to be up .4% during August.

Last week we had the ISM Manufacturing Index which was reported at a hot 61.3% which was way above the consensus of 57.9%, while Vehicle Sales and Construction Spending both came in light of forecast.  The ISM Non Manufacturing Index came in above expectations while Factory Orders fell.  Certainly seems more like a Goldilocks scenario instead of an inflationary one, but one month is not important and we will have to wait another month to see if wages keep rising.  Certainly there is nothing here to worry much about yet–and the Fed has no reason to pause interest rate increases.

For today we have Consumer Credit being released and this one has importance to us (although likely not to markets) as we like to see if the high consumer confidence translate into borrowings.  Wednesday we have the Producer Prices being reported and Consumer Price Index being released on Thursday.  Only the CPI will be considered to be important and we want to follow that just a bit.  Friday there are a number of reports, but as usual none are important from a equity market or interest rate perspective.

The Fed balance sheet assets fell by $10 billion.  We have reached a point where this is running off at a good pace week after week.  In another 5 years or so the Fed will have a balance sheet 1/2 the size of the current level.  Likely we never reach this point as that assumes we don’t have a recession in the next 5 years–highly unlikely.

For a short week we had a number of new income issues priced.  MetLife spinoff Brighthouse Financial sold a baby bond with a 6.25% coupon.  Monroe Capital Corp (a BDC) sold a baby bond with a 5.75% coupon and a short maturity in 2023.  Financial services company B Riley once again came to market with a 6.875% baby bond.  Additionally shopping channel QVC came with a baby bond priced at 6.375%.

The average $25 preferred stock fell by a dime last week–I guess it was a stealth move lower as it didn’t appear to affect anything we owned.  There are now 174 issues trading at $25 or lower compared to 147 the week before–makes sense as the prices fell as the 10 year treasury rose to higher levels.

QVC Sells Baby Bonds

QVC Inc. the home shopping channel from a zillion years ago, has sold a new baby bond issue with a coupon of 6.375% and a maturity date in 2067.

The new permanent ticker will be QVCD.  There will be no grey market trading in the issue.

This new issue has the normal terms, quarterly interest payments and an early redemption option beginning 9/13/2023.

This is a fairly large issue with 9 million shares being sold with another 1.35 million being available for overallotments.

This issue is expected to be rated low investment grade by S&P and Fitch but a couple notches below investment grade by Moodys.

The prospectus can be found here.

The pricing term sheet can be found here.

We have no interest in this issue because of the long dated maturity even though we know nothing about QVC (we didn’t know they still existed) but will do a little homework on the company.

 

B Riley Prices Baby Bonds

B Riley, once again, has come to market with a new baby bond which has been priced at 6.875%.  This after coming to the market on 5/14/2018 with an issue at 7.375%.  Additionally they sold 2 issues last year with coupons of 7.50% and 7.25%.  They had previously come to market in 2016 with a small 7.50% issue.  All total they will now have 5 issues outstanding.

The new issue will trade within 30 days under the ticker RILYI and will consist of 3.48 million shares with another 522 thousand set aside for overallotment.

The pricing term sheet can be found here.

The company plans to use the proceeds for general corporate purposes.

I should note that the new issue contains a bonus payment for early redemption–

The bonds will mature in 2023 and will have an early redemption optionally available to the company starting in 2020.  The early redemption starting 9/30/2020 would be at $25.50 then going to $25.25 starting 9/30/2021 and then after 9/30/2022 at $25.

Earlier issues of baby bonds did not contain this bonus and the most recent 7.375% baby bond DID contain it.  This issue is the only issue trading strongly so apparently this is meaningful to some–not me as the likelihood of them being called early is very remote.

I had originally thought that this issue would trade weakly–but now I believe I was wrong on that observation.  The bonus for an early redemption appears to be attractive to investors and thus they may be willing to own this issue around $25.

Closed End Fund AllianzGI Convertible & Income II Sells a High Quality Preferred

Allianz Global Investors has sold a new super high quality preferred stock in its Convertible & Income Fund II (NYSE:NCZ) with a coupon of 5.5%.

These types of preferred stocks are likely to get knocked down quite a bit as interest rates move higher, but there are no higher quality preferreds in the marketplace–in our opinion.  So if one wants to lock in income and has less sensitivity to net asset values this one is for you.

This issue fits in with other preferreds from closed end funds (CEF) in that they must maintain an asset coverage ratio of 200%.  The issue fits in with many issues from the various Gabelli companies.

We maintain a list of similar issues which can be seen here.

Note that our list does NOT include issues from BDCs which are technically closed end funds–but very different from closed end funds that invest in stocks and bonds traded in public markets.  BDCs mostly invest in Level 3 assets–these are the investments that management values (just trust them type assets) while this fund and the Gabelli funds mostly invest in Level 1 assets which have daily observable values (traded on public markets).

This issue has the normal terms–quarterly dividends payments, an early redemption ability beginning 9/11/2023 and cumulative dividends.

The prospectus can be found here.

This issue has just begun trading on the OTC grey market this morning under the ticker NCZIP and last traded at $24.80.

Our thanks to Wedgehead for the heads up on the quick trading on this issue.

 

B Riley to Offer More Baby Bonds

Financial company B Riley (NASDAQ:RILY) is once again coming to market with 2 million shares of a baby bond.  The issue is not yet priced.

The bonds will mature in 2023 and will have an early redemption optionally available to the company starting in 2020.  The early redemption starting 9/30/2020 would be at $25.50 then going to $25.25 starting 9/30/2021 and then after 9/30/2022 at $25.

As we all know the company has come to market many times in the last couple of year and last sold an issue of baby bonds on 5/14/2018 with an issue priced at 7.375%.

You can see how this new issue will stack up (once it is priced) on the $25 Master List here.

The preliminary prospectus can be found here.

 

Monroe Capital Prices Baby Bonds

Business development Company Monroe Capital (NASDAQ:MRCC) has priced a new issue of baby bonds with a coupon of 5.75%.

The issue is 2.4 million shares in size with another 360,000 shares for overallotments.

The shares will trade under ticker MRCCL within the next 30 days.

The maturity on these bonds is 10/31/2023 with an early redemption available to the company starting 10/31/2020

The company is a business development company (BDC) with a requirement of a 150% asset coverage ratio.

The pricing term sheet can be found here.

 

Brighthouse Financial Prices Baby Bonds

As predicted by our reader RazorbackEA Brighthouse Financial has priced a new issue of baby bonds with a coupon of 6.25%.

There will be 15,000,000 shares sold (with another to cover overallotments of 2,250,000) and they will have a maturity date of 9/15/2058.  An early redemption is possible beginning 9/15/2023.

Quarterly payments will start on 12/15/2018.

This issue allows the company to defer interest payments for one or more consecutive periods that do not exceed five years without a default being declared.

The issue will trade under the ticker of BHFAL within the next 30 days.  There will be no OTC grey market trading with this debt issue.

The final term sheet can be seen here.

 

Insurer Brighthouse Financial to sell Baby Bonds

Large life insurance and annuity company Brighthouse Financial (NYSE:BHF) has announced that they will be sell a new baby bond issue with a maturity date in 2058.

The new subordinated debentures will trade under the permanent ticker symbol of BHFAL.  There will be no trading on the OTC grey market prior to permanent market trading.

The issue will have an early redemption available to the company starting 9/15/2023.

We note that this issue does give the company the ability to defer interest payments for 1 or more consecutive interest periods that do not exceed five years.  Of course this term does show up from time to time in baby bonds–normally in utility issues, and certainly may be unacceptable to many investors.

The issue has not yet been priced.

The preliminary prospectus can be found here.

 

BDC Monroe Capital Corp to Sell Baby Bonds

Business development company Monroe Capital Corporation (NASDAQ:MRCC) is selling a new issue of baby bonds with a maturity date in 2023.  The new issue has not been priced as of this moment.

Currently MRCC does not have any outstanding baby bonds

The new issue will pay quarterly interest payments and will trade with the permanent ticker symbol of MRCCL.  The shares will not trade on the OTC grey market prior to permanent trading on NASDAQ.  Trading will begin in the next 30 days (likely within 1 week to 10 days).

The board of directors approved a change in the asset coverage ration for the company from 200% to 150% effective 6/21/2018.  As of 6/30/2018 the company had a coverage ratio of 312%.

The preliminary prospectus can be found here.

TravelCenters of America Jumps

TravelCenters of America (NYSE:TA) has taken a big jump in share price today as they announced the sale of their convenience store business.  They will take about a $100 million in impairment charges on the sale.




Of course our only interest is the baby bonds the company has outstanding (TANNI, TANNZ, TANNL) with coupon ranging from 8% to 8.25% and maturities dated in 2028 through 2030.  All of these issues are up 2-4% today.

While we don’t currently have time to do an analysis of how this affects the company we may take a gander at it later and see if the baby bonds are now worth buying (we don’t currently hold any shares).

Thanks to Johnny for the heads up.

Tuesday Morning Kickoff

Now with the fall season at hand it is likely that we are going to get lots of excitement in the months ahead after a summer that has been pretty darned quiet.  For September we have a FED rate hike to deal with and we have elections just 5-6 weeks after which could very well change the political landscape of the country.  Additionally we have the Chinese trade situation to deal with and that singular item has the ability to disrupt the economy in a significant manner.  Oh well, our crystal ball has never been that great, so we aren’t going to try to predict the future–just deal with it.

The DJIA traded in a range of 25,882 to 26,167 before closing at 25,965–another quiet week.  The 10 year treasury traded in a range of 2.83% to 2.89% before closing the week at 2.85%.  The super strong consumer confidence number on Tuesday juiced the 10 year, but of course in this day and age once again investors forgot the news once it was 48 hours old and thus rates dropped back from the highs by weeks end.

Last week we had the Case Shiller home price index released on Tuesday and it showed a weaker than expected price increase–this dovetails with our personal observation that housing prices are peaking.  As mentioned above the consumer confidence index was way above expectations–this pretty much tells us we probably won’t have to worry about a recession anytime this year.  On Wednesday we had the 2nd revision of 2nd quarter GDP and it came in a tenth higher than the original reading.  We also had pending home sales which came in weaker than expected–again no surprise to us.   On Thursday we had personal income and personal spending both came right in on consensus at .3% and .4% respectively.  Core inflation came in slightly above expectations at .2%.

For the coming week we have the normal number of data being reported, but all eyes will be focused on the employment report which is coming on Friday and with this report the average hourly earnings will be reported.  Of course ADP will report their employment numbers of Thursday–which no one considers “official”.  Even these important numbers will likely be ignored as long as they are in the “zone”.

The Fed balance sheet fell by $10 billion last week and this run off continues to have no affect on interest rates.

In a confirmation of how quiet market have been we had no new income issues announced last week.  We did have the new 6.25% Saratoga Investment baby bond begin train (ticker:SAF) and it moved nicely higher to close the week at $25.34.  We purchased this issue in both personal accounts and model portfolios.

The average $25/share preferred stock gained all of 1 penny last week and there are now 147 issues trading at $25 or below. Just like the interest rate markets these number are holding really steady.