Preferreds and Baby Bonds Holding Tough

In spite of all the consternation in the stock market preferred stocks and baby bonds are hanging tough, although the average share price has now given back 7 cents on the week. Of course averages are not always meaningful–they tell us there isn’t a broad based selloff going on now, but certainly there are individual issues that are weaker.

I haven’t done anything much all week–mostly just watching, although I had a Good til Cancelled sell execute for the 6.75% UMH-C, which I had bought on 4/24 for $24.91 after it had fallen on the announcement of a reopening of the issue. The issue went ex on 5/14 for around 42 cents/share and I sold it for $24.91 yesterday. We are happy with a 1.5% gain (net), but this issue may well go higher.

With the 10 year treasury as low as 2.16% earlier today and all the trade friction around the globe we are slowly coming to believe that late this year or early next year we are going to fall into a recession. Certainly the economic data doesn’t show this to be the case now, but the tariffs at some point will have to be built into prices–slowing demand, or alternately, companies will have to “take the hit” in their margins. No good can come of the friction.

I have not changed my investing plans at all YET. Just keep holding all of my “base” positions for now and doing a little dividend capture if an opportunity arises. It is likely that we will move to a bit more conservative stance until we can figure out the economic picture.

Lastly one needs to watch energy prices. Anything related to energy will become a dicier holding if we get a slowing economy. Talk of long term contracts and hedging don’t mean much to me at all. Some of you will recall that upstream (producers) MLPs always touted contracts and hedges back in 2010-2015–most of them went broke. You simply can not economically hedge all the risk. Caution is warranted.

Canadian Discussion Page

Without me writing about it I see that quite a few folks are using the Canadian Discussion page which is linked in the right column. I think it was Dave yesterday who suggested this page so thanks to him.

On the old Yield Hunter website we had some Canadian securities and I hope that will become part of this site as well. It’s always a question of getting ticker symbols that will work reliably within a Google spreadsheet.

For some of the “lurkers” out there feel free to read and learn from some smart people by watching the conversation on the Canadian page–it is not required that you participate (obviously) in the discussion–just do like me and let the smart folks educate you.

Interest Rates Spook the Markets

I have just been sitting back watching the markets–interest rates as much as any stock market, given that I own no common stocks.

With the 10 year treasury sitting around the 2.22% area one has to believe that a recession is coming into expectations. We know that global funds are moving strongly into US Treasurys, but even with this being the case the supply gets larger and larger as the government spends like crazy and the Fed balance sheet continues to runoff – so no demand from the Fed.

I just looked at the average price of a $25 baby bond or preferred stock and they have barely budged this week–I expected to find them down a few cents as the ‘baby was tossed with the bath water’ sellers emerged–they didn’t emerge.

With the spectre of a potential recession later in the year or early in 2020 income investors should begin to watch a few of their holdings for weakness in issuer finances. For instance we would be sceptical of some lodging REIT preferreds to hold up during a recession–for instance Ashford Hospitality (NYSE:AHT) has not done well during this long growth period so how are they going to hold up during a recession? Baby bonds and preferred stocks from all of the BDC (business development company) are ones I am highly suspect of performance during a recession. It is true that none went broke 10-15 years ago as we had the global economic crisis–but most of them are newer companies (less than 20 years old) and have not been truly proven during a recession–and they are more highly leveraged now than they were previously.

Whether we have a recession is yet to be determined–but considering that the Atlanta Fed GDP Now shows a forecast of 1.3% growth for the 2nd quarter it is likely we are seeing a slowing–beyond that it is anyone’s guess.

Tuesday Morning Kickoff

Well if we can all kick off the cobwebs of a long week-end it is time to get ready for the next 4 days, which will fly by quickly. We will see if interest rates stabilize in the 2.30% area and if the SP500 can get its footing right in the 2826 area or if it will continue to move lower.

Last week the 10 year treasury moved as low as 2.29% and was as high as 2.44% before closing out the week on the lower end at 2.32%. The SP500 traded in a range of 2805 to a high of 2868 before closing the week at 2826 down around 1% on the week.

The Fed balance sheet fell by a strong $14 billion last week to be at $3.86 trillion. Last week the balance sheet had fallen by $28 billion.

The average $25/share preferred stock and baby bond ended the week at $24.85 which is a move higher of 2 cents last week–this gives us a change in the last 3 weeks of 2 cents–as we had mentioned before the average issue is pretty quiet. The days of easy quick flips and dividend captures are behind us for now–but they will return at some point in the future.

We note that Public Storage called for redemption the PSA-Z 6% issue last week. The next PSA issue–which they WILL call (based on current interest rates) will be the PSA-A 5.875% issue which becomes redeemable on 12/2/2019. You can see this one here–and if I owned it I would sell it now–it is trading now at $25.69–in the next 6 months if it is called it has just 1% of upside (total return) to the end of the year. If desired the company can issue at 5.50% right now.

Eagle Point Credit (NASDAQ:ECC) also announced early redemption of 1/2 of the ECCA 7.75% term preferred issue. The share price fell from the $25.60 area to $25.35 or so. With a potential full call always possible we should see this issue stay in the $25.30 area for the foreseeable future.

Last week we had Ladenburg Thalmann (NASDAQ:LTS) announce a new baby bond with a coupon of 7.75%. Of course the company has 3 other baby bonds outstanding and 1 monthly paying preferred outstanding–you can see the current issues outstanding here. The new issue ticker is LTSH although at this time it is trading only on the bond desk at $24.84.

TriState Capital (NASDAQ:TSC) announced a decent new preferred issue with a coupon of 6.375%. The issue raced to $26/share, before setting back to close the week at $25.52. It is trading under OTC Temp Ticker TRSXL.

Lastly we believe that the newer Algonquin Power and Utilities 6.20% baby bond will begin trading on the NYSE tomorrow as their NYSE registration was just approved a couple of days ago. It has been trading only on the “bond desk” up until now and last priced at $25.32. I believe it will trade under AQNB, although the new ticker wasn’t officially announced.

Algonquin Power and Utilities NYSE Registration

We noted a lot of talk that the new Algonquin Power and Utilities 6.2% baby bonds are not trading on the NYSE as of yet–but apparently with a phone call a purchase can be made.

We see that the issue is trading on the ‘bond desk’ and last traded at $25.30.

We now see that the NYSE registration was just approved yesterday so we may see trading on the NYSE soon. A ticker has never been announced but we are guessing AQNB

Wild TriState Capital Ride

As we mentioned we had entered an order for the new Tristate Capital (NASDAQ:TSC) 6.375% fixed-to-floating rate preferred (TRSXL) this morning.

Our initial bid was $25.30, but it appeared this was inadequate, but didn’t intend to chase. We went ahead and entered a $25.50 order as the shares hit $25.92. Shares then fell back to the $25.50 where after 2 hours our order executed.

Into the close the share price started running again and closed at the high of the day of $26.00

This issue is following the trend of all of the smaller regional backs that are issuing fixed to floating rate preferreds–huge demand and skyrocketing prices.

TriState has a 6.75% fixed to floating rate issue (TSCAP) which is now trading at $26.90–see it here.

Merchants Bancorp sold a 7% fixed to floating issue (MBINP) which has traded as high as $27.60 recently–see it here.

Citizens Financial sold a 6.35% issue (CFG-D) that is trading at $26.65–see it here.

There are others. Quite honestly these are less than investment grade issues with current yields now under 6%, on many. If we owned any of these they would be gone in a minute. The risk reward is inadequate at these prices and yields.

We will flip out of the TriState Capital new issue at $26 or over–this is all we are after–4-6 steak dinners. There is too much froth in these issues and it will end badly for some investors.

Dicey Markets Continue While Preferreds/Baby Bonds Hang Tough

With the sP500 tumbling hard today we always look for “spillover” to the sectors we invest in–and there essentially is none.

With the Chinese trade situation and the more nasty political tone we observe in Washington DC we are watching for a potential “throw the baby out with the bath water” moment. Right at this moment we have the average preferred and baby bond trading right at $24.83 which is to the penny where it began the week.

As most of us know a drop in common stocks of 1, 2 or even 4% over the course of a week is no big deal–but if we reach 2,3 or 4% drop in 1 day there is always a potential of the nervous nellies starting to bail out. Now, with the excepting of the usual suspects of some shippers and retail related REIT preferreds we are NOT seeing anything unusual–in fact when I look at the preferred volumes trading is quiet.

We do see the new TriState Capital 6.375% new issue trading on most venues now at $25.40 (OTC ticker TRSXL). We have entered an order at a bit lower price–probably too low, but we don’t plan to chase it if it shoots higher.

Partial Redemption on Eagle Point Credit Term Preferred

CLO owner Eagle Point Credit (NYSE:ECC) has called for early redemption of the 7.75% ECCA term preferred effective 6/28/2019. These shares have a mandatory redemption in 2022.

The company will redeem 909,000 shares of the $25 issue (we show the issue was a 1.6 million shares issue).

Share price is off 1% today as there was that much call risk in the issue, which we mentioned the other day here. Note that I own a modest position in the issue.

Shares to be redeemed will be determined by lottery among owner accounts per the company filing which can be seen here.

When one of these partial calls occur it tends to keep the share price on the remaining outstanding shares closer to $25 so one should be able to purchase shares a bit cheaper in the future–after the redemption. 7.75% is a tough one to replace and I may pick up shares if mine are redeemed.

TriState Capital Prices Preferred Issue

Bank holding company Tristate Capital (NASDAQ:TSC) has priced their new issue of fixed to floating rate preferred.

The shares are priced with a nice 6.375% initial coupon which remains in effect until 2026 after which the coupon will float at 3 month Libor plus a spread of 4.088%.

Shares are unrated by Standard and Poor’s and Moody’s, but are rated BBB- by Kroll Bond Rating Agency.

The company is selling 2.8 million shares with another 420,000 available for overallotments.

The dividends of course are non cumulative (being a banking company), but will be qualified.

The shares will trade with ticker TSCBP once they trade on NASDAQ.   Shares in the mean time will trade on the OTC Grey Market under temporary ticker TRSXL.  We expect good demand for the issue.

The pricing term sheet can be read here.

Ladenburg Thalmann Announces Baby Bond Pricing

Financial services company Ladenburg Thalmann (AMEX:LTS) has announced pricing for their new baby bonds.

The pricing comes at a juicy 7.75% for 2 millions shares (bonds). There is an additional 300,000 shares available for over allotments.

The press release on the new issue is here.

The SEC pricing term sheet has not yet been filed–but should be any minute and we will post it with full details at that time.

As mentioned earlier the shares will trade under ticker LTSH when they begin to trade in the next few days (or week).

Bank Holding Company TriState Capital to Sell Preferred Issue

TriState Capital Holdings (NASDAQ:TSC) will sell a new issue of fixed-to-floating rate preferred stock. Of course the dividends will be non-cumulative, but qualified.

Details are not know at this time excepting the issue will have a fixed coupon until 2026–longer than the more typical 5 years.

The company currently has a fixed-to-floating rate issue outstanding with a 6.75% coupon which trades strongly at $26.27–seen here.

The preliminary prospectus for the new issue can be read here.

Financial Services Company Ladenburg Thalmann to Sell Baby Bonds

Ladenburg Thalmann (AMEX:LTS) will sell a new issue of baby bonds with a maturity date in 2029. Details are not yet available.

These will not be high quality, but the preferreds and baby bonds the company has outstanding have performed fairly well of the last 10 years. You can see them all here.

LTS trades in the $3.50 area–so that tells you a bit about the quality of the company, but risk equals reward so for shorter maturity dates these may well be reasonable.

The preliminary prospectus can be seen here.

The ticker will be LTSH when it begins to trade. No OTC Grey market trading will take place.

As usual Eugene sees these new issues 1st and he always posts in the “Reader Initiated Alerts” section.

TeeKay Offshore and Dynagas Preferred Units

Wow–what a lousy day for these two companies.

TeeKay Offshore (NYSE:TOO) will potentially be bought by Brookfield Business Partners (NYSE:BPY) for $1.05/common unit for those they don’t already own. The fear is one of a potential delisting or suspension (or both) of the 3 high yield preferred units TOO has outstanding. The A, B and E issues are off between $1.69 and $2.75/share–and that is after falling $3 bucks further earlier in the day.

LNG shipper Dynagas Partners (NYSE:DLNG) is being sued by investors for telling ‘lies’ to stockholders–it looks serious. Both high yield preferred unit issues are off around 12% and trading in the $16-$18 range.

I think most all knew these were high risk issues–and personally we hold none of them, but certainly have off and on in the past.

This is a lesson for newer preferred investors – you can always count on the shipping related issues to be some of the diciest preferreds out there–this has been the case as long as I have watched these companies (15 years). There is a reason they have coupons of 8% to near 10%. We have all had to learn these lessons–and we all continue to learn. It is not just the business model of these shippers, but most are domiciled outside the U.S. and reporting requirements may not be as stiff as they should be–too much “just trust me” from management.

Brookfield Makes TeeKay Offshore Partners Offer-Update

Canadian Brookfield Business Partners LP has made an offer to purchase the publicly traded units of TeeKay Offshore (NYSE:TOO) that it doesn’t already own. The offer was for $1.05/unit–shares are trading at that level now–no premium in the offer.

Recall last month Brookfield bought the last of the general partners interest in TeeKay thereby controlling the company so this is just a continuation for full ownership.

TeeKay has 3 preferred unit issues outstanding and they popped last month on the Brookfield announcement of the general partners acquisition–then they settle way back. Likely we will see a pop today. Those units are here.

Instead of a pop the TOO units are being sold off hard on delisting concerns–as one said, what a punch in the gut.

Monday Morning Kickoff-Corrected

Last week was little better week for stocks as the SP500 opened the week around 2840 and hit a high in the 2888 area before closing at 2859–up a bit for the week.

The 10 year treasury moved in a narrow range of 2.37% to 2.42% before closing out the week at 2.39%.

The FED balance sheet fell but a large $28 billion last week which continues a trend of small weekly changes with 1 large drop each month which still total in the $40 to $50 billion a month runoff. With interest rates falling seems like a good time to let the runoff continue. We note that the balance sheet stands at $3.864 trillion in assets, which is only $114 billion above an earlier predicted runoff goal–of course this is no true goal number an as data changes so will runoff goals.

The average preferred stock and baby bond ended last week at $24.83 which is 7 cents above the previous weeks close (the 2 week change is exactly ZERO). There are now 207 $25 issues selling for $25 or less–this number grows smaller each week, but it’s a long ways from the 72 issues we hit last fall.

Last week we had Algonquin Power and Utilities (NYSE:AQN) announce a new 6.20% baby bond with a fixed to floating rate coupon. It is fixed until 7/2024.

Tectonic Financial announced a new 9% fixed to floating rate preferred–the initial coupon should give one an idea of the quality of this issue. The company is not publicly held. The final prospectus for this issue can be seen here. The preferred will have a ticker of TECTP–we have not seen a OTC ticker on this one.

Weekend Review on Uhaul Investors Club

I thought I would take a little time to review the alternate bond type investment offered by the Uhaul Investors Club. For those of us that have been around a while we are probably already aware of this opportunity, but we have thousands of readers each week and many likely are not aware.

IMPORTANT NOTE–once you invest in these securities THERE IS NO SECONDARY MARKET so you will be holding these issues to maturity–although we note that the company will transfer them to another individual if you know of someone who would like the purchase. So do not invest the weekly grocery fund in these securities or you will be going on a diet in the weeks ahead.

The Uhaul Investors Club is an investment vehicle offered by Amerco (NASDAQ:UHAL) which is the parent company of Uhaul. In the simplest terms investors are able to set up an account with Uhaul directly and once your funding arrives you are able to make direct investment in a variety of debt issues offered by Uhaul–we show the currently available offerings below. The account can be a standard cash account, or as in our case (wife and I), they can be IRA accounts.

As you can see just like any debt instrument you buy the longer the maturity date the higher the ‘coupon’.

Investments must be in $100 increments and $100 is the minimum purchase. An account can be started with almost any initial deposit and with a couple clicks of the mouse you can add or withdraw available cash funds as you desire.

These ‘bonds’ are secured by the equipment shown above and Amerco files prospectuses for the securities with the SEC, just like any stock or bond offering.

Now these are not typical bonds. A typical bond would have a maturity date at which point you would receive the bond principal. During the time of ownership of the bond you would have received interest each month, quarter or likely semi-annually. The Uhaul bonds pay you quarterly and the payment includes a portion of the principal and a portion is interest–thus at maturity you will have received most of your principal and interest already so you only receive the typical part principal and part interest payment at maturity.

Your quarterly payment looks something like this (an actual payment on 1 investment we have with Uhaul)–

So when you receive your quarterly principal and interest payment, assuming it leaves with you with at least $100 in your account you can go right ahead and reinvest. It is important to realize that the principal can come back quite quickly, in particular on 2 year issues, and to maintain your maximum return you need to reinvest quite quickly.

I started our accounts mid 2018 and funded both accounts with a portion of our annual IRA contributions (which I believe was around $7,000) for the year. We have now started funding the accounts with 2019 contributions and have around $11,000 in the accounts. If one desires they are able to move other IRA money into the account with a transfer. While we have just a tiny amount in the account we plan to continue funding with new IRA money–this is just 1 tiny part of the over all plan.

Like any investment one needs to review the issuer–Amerco, to make sure they are performing as expected without obvious financial problems ahead. Amerco had filed for Chapter 11 way back in 2002–so like every corporation these things can happen and they need to be reviewed. We will let each potential investor decide for themselves what they believe the quality of the parent company is at this time, but we will point out a few basics.

For the 1st 9 months of the last fiscal year (ending 12/31/2018)

–Amerco had $2.1 Billion of marketable securities on hand (corporate bonds and treasury securities).

–Amerco had $1 billion of cash on hand.

–Cash generation (net income plus depreciation) of $770 million generated in the 1st 9 months on revenue of about $3 billion.

–The company pays about $35 million in interest each quarter–$105 million during the 1st 9 months.

The company will be reporting their financials for the last 12 months in the next 10 days or so and we will be reviewing them closely.

I believe there is very little risk in holding their bonds at this time and as long as the general economy remains decent–and likely even in a weakening economy.

The 10-Q for the 1st 9 months can be seen here.

Here is a link to the uhaulinvestorsclub website.

As always we don’t recommend investments, but we personally find these securities provide us with some added diversification that we are always looking for in the big scheme of the portfolio.

We can’t complete this article without giving a tip of the hat to kaptain lou for pointing this opportunity out for all to see on this site as well as on Seeking Alpha last year.

Algonquin Power and Utilities Issues Baby Bonds

Algonquin Power (NYSE:AQN) has issued a new fixed to floating rate subordinated note issue. The issue is rated BB+ by both Standard and Poors and Fitch.

The issue is not yet trading and the ticker is not known–although we are guessing that it will be AQNB

The new issue will have a initial fixed coupon of 6.20% which will be in place until 7/1/2024 after which it will float at a rate of 3 month Libor plus a spread of 4.01% until 7/1/2029. Then it will float at 3 month Libor plus 4.26% until 2049. From 2049 until maturity in 2079 it will float at 3 month Libor plus 5.01%.

The notes have the normal optional redemption period beginning 7/1/2024.

Currently AQN has a 6.875% fixed to floating rate issue which can be seen here.

The pricing term sheet for this new issue can be seen here.

Thanks to all for all the discussion on this new issue on the Reader Initiated Alert page.

New Eagle Point Credit Monthly Report-Updated

Eagle Point Credit (NYSE:ECC) has released their monthly update and generally it looks pretty good.

Eagle Point Credit is the owner of collateralized loan obligations (CLOs) and has 2 term preferreds and 2 baby bond issues outstanding which is why they are of interest to us.

Disclosure–we own the ECCA term preferred issue (caution–there is 2% of call risk in these shares as they are now in the optional redemption period),

All of their issues can be perused here.

The monthly report can be read here.

Spire Preferred Shoots Higher

Wow–I knew the new utility preferred from natural gas company Spire (NYSE:SR) would be a good issue, but not certain that I expected it to close at $25.70 on day 1 when the issue was fairly sizable at 10 million shares.

Buyers had to “pay up” to get a hold of some of these shares as public trading opened up around $25.45. I personally didn’t buy shares–I may pick up sock drawer volumes yet, but I know that many readers picked some shares up.

It is amazing that all of the preferreds sold by utilities in the last 6 months of so have been so sought after given the modest coupons of the issues. On the other hand just looking at the Master List of Utility baby bonds and preferreds one can see why a 5.90% coupon is so attractive.

Spire Inc. Prices Preferred Issue

Natural gas utility Spire Inc. (NYSE:SR) has priced a new issue of perpetual preferred stock.

Spire serves 1.7 million natural gas customers through the states of Missouri, Mississippi and Alabama.

The new issue of 10 million shares has been priced at 5.90% and has a BBB rating from Standard and Poors (investment grade) and Ba1 from Moodys.

The issue will have the normal early redemption period starting 8/15/2024.

Dividends are cumulative and should be qualified for preferential tax treatment.

The issue will trade immediately on the OTC Grey market under the temporary ticker SIPRY.

The pricing term sheet can be seen here.

The preliminary prospectus is here.

All is Good in the World

Just forget about all of the tariff issues and the tensions in the Mideast–all is good in the world. At least that is what common stock buyers are saying today–all was bad yesterday–but all is fixed now (not).

The 10 year treasury is trading at 2.42% so there seems to be a disagreement whether we should have euphoria today. For sure Goldilock’s has left the room.

Looking over our holdings and preferred stocks and baby bonds in general we aren’t seeing much action up or down. Ex-dividend dates are playing into some downward action (i.e. Arbor Realty issues are ex today), but outside of the normal suspects of shippers and junky issues things are fairly quiet.

For sure we wouldn’t mind a little interest rate scare to create a bargain here or there–for the most part the 3 month rise in prices has taken all of the bargains off the table so not much out there that we are eager to buy. For now we will just try to do some dividend captures etc., although even that game has become more difficult than it was a few months ago.

Reader Initiated Alerts Fixed

Dave sent me a note on this page being “off” again (the second time this has happened).

I will give some thought as to how we can come up with a better solution to this problem.

Additionally there were a few errors readers had picked up under the “Errors and Omissions” tab which have now be corrected.

Lots of Nervous Nellies in the House

It looks like todays stock selloff is not going to have the type of bounce back we have come to expect–it “feels” (a scientific term no doubt) a bit more serious.

With common stocks falling the 10 year treasury is down in the 2.41% area–in sympathy with stocks.

The spectre of the Chinese dumping treasuries is being raised by some–of course no one really knows whether there is any possibility of this happening. On one hand I think it could happen–but on the other hand if the Chinese started to sell treasuries yields would move higher–thus prices lower–it seems it would be shooting themselves in the foot if they drove prices lower. Additionally it is likely that the FED would step in at some point and buy. Who really knows what will happen?

Surveying our holdings today we are off 1/10th of 1% overall. The average price of a preferred today is off 5 cents–no panic, but there are plenty of issues off 1%–not many that are much lower (except some of the usual suspects such as the CBL issues).

It is our intention to simply wait and watch. I probably wouldn’t even buy “bargains” today – simply better to watch and see how things play out for a day or two.

National Rural Utilities to Sell Baby Bonds

The National Rural Utilities Cooperative will be selling a new $25 baby bond. The issue will have a maturity date out in 2064. There is an early redemption period starting in May, 2024.

The coupon will be 5.50% and they will be selling 10 million shares (bonds).

National Rural Utilities is a cooperative non profit with $25 billion in assets–as such they have no publicly traded common stock.

The cooperative had outstanding $25 debt years ago as some of us old timers remember and we expect this issue to trade strongly.

This issue is rated BBB+ (investment grade) by Standard and Poors.

The expected ticker is NRUC. Being debt there will be no OTC Grey market trading.

The SEC filing can be found here.

The cooperatives website can been found here.

Thanks to Eugene for the heads up on this more obscure issue.