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.

Ladenburg Pricing Finally Filed

The pricing term sheet for Ladenburg Thalmann (AMEX:LTS) has finally shown up on the SEC site for their new 7.75% baby bonds with a maturity in 2029.

The bonds will trade under ticker LTSH in the next week. Larger blocks have been trading at prices of $24.60 to $25.47–the last price today was $25.00.

The pricing term sheet can be found here.

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.