Massive Volume During Last Hour Today

While the first 4-5 hours today were fairly quiet the last 90 minutes or so saw massive volumes of preferred stocks and baby bonds trade as no doubt ETFs were doing some rebalancing while other funds may have been locking down some profits for the end of the quarter.

Many of the high volume issues traded as much as 10-30 times their normal daily volume–mostly these were bank issues.

Many of the high quality issues traded down 25-50 cents on the close. The WR Berkley subordinated note issue (WRB-B) we wrote about last week (WRB-B) which we bought for a dividend (interest) capture fell all the way to $25.08 on huge volume. If it still there in the morning I will buy more.  The issue goes ex dividend in a couple weeks.

Here is a little taste of some of the action today.

Darned Quiet Day All Things Considered

Considering the political environment we are living in it is a quiet day in the interest rate markets–and in general for most all income issues.

VEREIT 6.70% preferred (VER-F) is a really active preferred today with over 1 million shares traded. We do note that 2 large trades account for a good share of this volume. These shares are trading around $25.35–if I could get it a little lower I would take a small position. It is a monthly payer of 14 cents and is callable (and has been since 1/2019) so it does carry about 1% call risk.

As some noted AGNCM–6.875% FTF preferred from AGNC Investment (AGNC) went ex-dividend today and is being sold today with over over 150,000 shares traded. This issue has an early redemption period starting in 2024 and with a current yield of 6.80% is a better issue than the new 6.50% issue which is trading on the OTC Grey Market under ticker AGNIP and is trading at $25.05/share right now—at least for a couple years as the old issue has an inferior spread of 4.332% when it enters the floating rate period, compared to 4.993% for the new issue.

The new Gladstone Commercial 6.625% monthly pay preferred (GLSDP on the OTC Grey Market) seems to have stalled out in the $25.65 area–for now. Our hope was to hold to $26 and then consider selling most of our position–maybe it won’t get there–we’ll see.

Monday Morning Kickoff

Here we go again–no doubt there will be excitement in the week ahead. The S&P500 traded in a range of 2945 to 3007 before closing on Friday at 2962.

The 10 year treasury traded in a range of 1.63% to 1.74% and closed the week at 1.67%.

The Fed Balance Sheet grew by $13 billion. This is on top of the $75 billion the week before which was cause by overnight reverse repurchase agreements the Fed executed to add cash to the banking system. The most recent growth is caused by 14 day reverse repurchase agreements that the Fed executed. Essentially we have a QE operation going on–the Fed is taking Treasuries for the most part as collateral–but they are also taking some mortgage backed securities. The most recent overnight interest rate was around 1.80% on the repo’s.

Last week we had a number of new income issues come to market,

BDC Pennant Park (PNNT) sold a new baby bond issue with a fixed rate coupon of 5.50%. The issue has a maturity date in 2024. The issue is not exchange trading at this time, but we show a ticker of PNNTG on both eTrade and Fidelity. I believe from what I have seen off market the issue is trading around $24.90.

REIT Gladstone Commercial (GOOD) has priced a new monthly pay perpetual preferred with a coupon of 6.625%. The issue is trading under OTC temporary ticker GLSDP and closed the week at $25.66–obviously this is a popular issue. Disclosure, we own this issue, purchased at $25.19.

mREIT AGNC Investment (AGNC) has sold a new issue of fixed-to-floating rate preferred with an initial fixed rate of 6.50%. The issue is trading on the OTC Grey market right now under ticker temporary ticker AGNIP in the $24.90 area.

REIT Urstadt Biddle (UBP) has sold a new issue of fixed rate preferred with a coupon of 5.875%. The issue is trading on the OTC Grey market right now under ticker UTBPP and last closed around $24.81.

Investment Grade Issues In the Early Redemption Period

We have seen some early redemptions recently that caused some investors some consternation as they got ‘caught’ holding issues that were trading way above liquidation preference ($25). In particular those holding the Gladstone Commercial 7.75% preferred (NASDAQ:GOODP) and the Gladstone Commercial 7.50% preferred (NASDAQ:GOODO) took quite a spanking as both issues were trading 8-10% above $25.

With this in mind we thought we would review current outstanding issues to see which ones were going to ‘put the hurt‘ on holders. We started by looking at just those issues (baby bonds and preferreds) that are investment grade. We were surprised that there are only 23 investment grade issues that are in the early redemption period (NOTE–we left off some low fixed coupon issues that are in the early redemption period–with fixed 3-4% coupons they trade much below $25). I guess thinking about it more it only makes sense that the top quality issuers are able to readily ‘refi’ issues when the financials make sense.

Below if you click the link you will find the current list of investment grade issues now in the early redemption period (actually a couple will become eligible for redemption on Monday). NOTE–the Yield to Worst doesn’t calculate accrued dividends or interest in this list so the CALL RISK is very minimal for most issues. What this list tells me is that there are 2 issues that I would NOT hold under any circumstance–these 2 issues from Assured Guaranty are trading at sky high premiums. These issues have been redeemable for over 10 years and investors seem to think they will never be called.

Additionally there are 2 issues from PS Business Parks that are at higher premiums than we would hold, but not at crazy levels.

Lastly the PPL Capital Fund issue is at a premium that is too high for us, although not crazy–we know that some readers have been playing this one off and on for quite some time.

HERE IS THE LIST

Personal Purchases

Of the new issues offered in the last 2 weeks I personally made just made 1 new issue purchase.

Yesterday I made a full position purchase of the new Gladstone Commercial 6.625% monthly pay preferred–I paid $25.19.

Whether I flip this one for a few steak dinners or sell off most of it–retaining just a 100 or 200 share position is yet to be determined.

I do typically like various Gladstone issues–BUT I most like the term preferreds–not the perpetuals. I don’t believe I have ever held Gladstone Commercial shares of any type, but I guess there is always a first, in particular with the lack of reasonable new coupons being offered.

I also bought a full position in the WR Berkey 5.625% Sub Notes (NYSE:WRB-B). This is a pure ‘interest capture‘. I have played this before with good success. This issue is now callable and traded down to $25.29 yesterday. It will go ex-dividend on 10/12/2019 for around 35 cents so right now there is no call risk. I expect it will rise into the $25.50-$25.60 area by ex date at which point I can exit, or alternately hold through ex-dividend and sell a week or two later. This is an issue I would have no trouble holding long term, which generally is the only way I attempt a capture for a measly $150 bucks or so.

Urstadt Biddle Properties Prices New Preferred

REIT Urstadt Biddle (NYSE:UBP) has priced their previously announced new fixed rate preferred issue.

The fixed rate will be 5.875%–about where one would think in the current interest rate environment.

The company is selling 4 million shares and it will be listed on the permanent exchange as UBP-K.

The OTC Grey Market ticker will be UTBPP.

The SEC documents have not be posted yet–we will post a detail form as soon as the filing is in.

The company press release on the issue can be found here (scroll way down the page).

mREIT AGNC Investment Corporation Prices New Preferred

Giant mREIT AGNC Properties (NASDAQ:AGNC) has priced their previously announced new fixed-to-floating rate preferred with an initial fixed rate of 6.50%.

The REIT will sell a whopping 14,000,000 shares with another 2.1 million available for overallotment.

Unfortunately the OTC Grey Market ticker has not yet been announced (assuming there will be one).

NOTE–the permanent ticker appears to be different from the one they printed in their preliminary paperwork.

The final pricing term sheet can be seen here.

Urstadt Biddle Files to Sell a New Preferred Issue

Shopping center REIT Urstadt Biddle (NYSE:UBP) has filed to sell a new fixed coupon preferred stock.

Details of the issue have not been released but it appears to be fairly typical of a REIT preferred, being cumulative, redeemable in about 5 years and non qualified.

The company intends to use the proceeds of this offering to redeem the 6.75% G Series preferred (UBP-G) which is currently outstanding. The outstanding preferreds can be seen here.

The preliminary prospectus can be read here.

The OTC Grey market ticker is not yet known.

As always readers catch these new issues instantly when announced on the Reader Initiated Alerts page.

mREIT AGNC Investment Announces Fixed-to-Floating

mREIT giant AGNC Investment (NASDAQ:AGNC) has announced they will be offering a new fixed-to-floating rate preferred.

The permanent ticker when available for trading on the NASDAQ (the permanent trading exchange) will be AGNCL. The OTC Grey market ticker has not yet been announced.

Terms of the new issue look fairly typical for a REIT–cumulative, redeemable in about 5 years, with non-qualified dividends etc.

The company currently has 3 other preferred issues outstanding, 2 of which are fixed-to-floating rate issues. The outstanding issues can be seen here.

The preliminary prospectus can be read here.

Fred caught this one right away on the Reader Alerts Page.

Gladstone Commercial Prices New Monthly Pay Preferred

REIT Gladstone Commercial (NASDAQ:GOOD) has priced a new preferred stock issue with a fixed coupon of 6.625%. The issue will pay monthly dividends.

The company plans to call their Series A preferred (NASDAQ:GOODP) 7.75% issue. This issue dropped like a rock yesterday–as it well should have given that it was trading at $27.50–I knew this would happen sooner or later. Additionally they will very likely call the Series B 7.50% (NASDAQ:GOODO) issue as both the A and B series are small issues and there will be plenty of proceeds from this new issue–this issue dropped like a rock yesterday as well.

It should go without saying that no one should be holding preferreds in the early redemption period at $27 or $27.50 range in this low interest rate environment (although there are a few exceptions). I had been watching these issues for a long time and wondered why Gladstone was waiting so long.

The final pricing term sheet can be found here.

BDC Pennant Park Prices New Baby Bonds

Pennant Park Investment Corp (NASDAQ:PNNT) has priced a new issue of baby bonds.

The bonds will carry a fixed rate coupon of 5.50% and will have a maturity date in 2024. Beginning 10/15/2021 the bonds will be available for an early call at $25 plus accrued interest.

This issue is unrated.

The ticker for this new issue will be PNNTG. There will be no OTC Grey market trading of this debt issue, but the issue likely will trade within the next week or so. The company has no other issues currently outstanding.

Since this is debt the interest payments are NOT qualified distributions.

At the time we are writing this the SEC paperwork has not been posted, but the company press release on the pricing can be seen here.

The preliminary prospectus can be seen here.

Still Out of Office

I am still out of the office–will be back in Wednesday evening. I think it has been at least 20 years since I have been out of the office for 8 days–and honestly think I am more cut out for 4-6 days of vacation–8 days seems too long.

I haven’t bought or sold anything all week as I haven’t been at the computer during market hours, but I had done a few trades last week which I had not reported.

I sold the Fortress Transportation and Infrastructure 8.25% preferred (FTAI-A), which I had bought for a flip. I had paid $25.15 and sold it for $25.90 so that worked out well as I was targeting $25.80 for a sale.

Also last week I had added MORE Highland Income Fund 5.375% (HFRO-A) simply to ‘capture’ the partial dividend. I paid $25.10 for the added shares and they went ex-dividend Friday for .2326 cents – a partial 1st dividend. Shares now are at $25.11 so I likely will trim back a bit as I am overweight, but given the A1 Moodys rating I am in no hurry–maybe folks will wake up to this bargain and drive the price higher, but as Grid has pointed out ‘names’ matter (if this was a Gabelli CEF it would be trading at $26.00–but Highland is somewhat unrecognizable).

Lastly I am watching the New Residential Investment 7.125% preferred (NRZ-B) which I had bought on 8/9 for a flip. I see it slowly creeping higher and now at $25.27–it will go ex-dividend on 10/11 for 44 cents so I may simply go ahead and hold the issue through ex-dividend and then re-evaluate.

Monday Morning Kickoff

The past week could have been exciting for market participants, but it turned out that the SP500 closed almost where it began the week –closing at 2992 after opening the week at 2996. The low for the week was about 2990 and the high was 3017–so about a 1% range. We remain very close to an all time high in stocks.

The 10 year treasury opened the week at 1.83% and traded as high as 1.88% on Monday and then traded with lower yields the rest of the week to close the week at 1.76%.

All in all markets were quiet for a week in which we saw the Fed Funds rate reduced by 1/4%, jitters from an attack on the Saudi oil fields and of course never ending banter about trade wars.

The Fed Balance Sheet grew by a MASSIVE $75 billion as the Fed had to step into the repo (repurchase agreement) market and provide liquidity to the banking system. This situation is somewhat unnerving and hopefully is a temporary situation. This $75 billion was”created” to allow the cash needs of financial institutions to be met because of shortages in the financial system–causing demand to drive overnight interest rates to as much as 10%—wow. Let’s watch this closely–the Fed stepped in daily this past week and if the supposed reasons for the cash shortages is in fact tax payments for the quarter the situation should resolve itself soon. If it is huge issuance of debt by the treasury to fund our deficits that is causing a cash shortage we may have a huge problem. As of Friday the FED said they would be doing some 14 day repurchase agreements next week–the explanations all seem fishy to me.

We had a few new income issues come to market last week.

REIT Rexford Industrial (NYSE:REXR) cam to market with a new preferred with a 5.875% fixed rate coupon. The issue is trading under temporary OTC ticker REXCP right now and last traded at $25.27.

Athene Holding (NYSE:ATH) sold a non cumulative preferred issue with a coupon of 5.625%. The issue is trading under temporary OTC ticker ATHHF and last traded at $25.50.

B Riley announced a new baby bond with a fixed coupon of 6.5%. Proceeds will be used to call their 7.5% baby bond (RILYL). The new issue will trade under the ticker RILYN–but has not yet traded, although we see it is set up to trade soon.

Lastly JMP Group (NYSE:JMP) sold a new issue of baby bonds with a fixed rate coupon of 6.875%. The company intends to call their 8% JMPB senior notes which are currently outstanding. No ticker was announced for the new issue but we are guessing it will be JMPE.