December, 2019 | Innovative Income Investor

Another Investment Grade Issue Called

Bank of America (BAC) called their 6.50% perpetual preferred (BAC-Y) today for redemption on 1/27/2020 which is the 1st day they are available to be redeemed.

No loss will be incurred by holders as it was trading around $25.40 yesterday.

This is one more issue gone from the “Investment Grade $25 issues in or near 1st redemption date” list.

I did not have this issue on the list from back in November since it was a few months out, but it looks like I should update the list further with additional issues–say up to 3 months out.

Here is the list–showing how many issues have been called for redemption in the last month.

NOTE–the yield to worst shown is incorrect-as it doesn’t count accrued dividends/interest, but I hope to install a new formula before long.

I continue to hold the Vornado Realty Trust (VNO-L) perpetual (VNO-L) 5.40% and the WR Berkley (WRB-B) 5.625% Subordinated Notes.

The reason to hold some of these issues is because they are tied to $25 fairly closely because they are in, or near, potential redemptions and thus likely trade with less volatility–and their coupons are strong in the current rate environment.

As always if you have a Google account you can take your own copy of this list.

Wow–Power to the People–or At Least to Commenters (corrected)

There is definitely power in the commenters on this site.

Sometime back in early December–maybe 12/4–someone (sorry I can’t find the comment so not sure who it was) mentioned that the 7.10% CHS Reset Rate perpetual preferred (CHSCN) was tumbling hard the last few days.

Probably by pure accident I took a look–since I scan hundreds of comments each day I don’t have time to check everything out–but I did on the 5th. Shares had traded as high as $28.28 and now had tumbled down to around $26.70.

CHS has always been a favorite of mine–for no particular reason–maybe just because they are local to me. Being that the company had an ex-dividend date coming up (12/16) for 44 cents I took a modest position (wish it was more) at $26.76.

Shares went ex on 12/16 and shares were ‘marked down’ by the dividend amount–but it never actually traded at that level (as far as I can tell).

Shares had closed at $27.13 on the 13th (Friday) and closed on ex-date (Monday) at $27.04. It closed at $27.25 yesterday–and now trading at $27.12 (corrected these prices from earlier incorrect prices).

I am exiting today–not because there is anything wrong in holding further, but more so because the account it is in holds almost no cash at the moment–and I need some dry powder.

14 days–3% gain.

THANKS TO COMMENTERS – THE MOST IMPORTANT AND PROFITABLE PART OF THE WEBSITE.

Holders of Eagle Point Credit Term Preferred Get a Call

Late today CLO holder Eagle Point Credit Company (ECC) announced the full redemption of the Series A 7.75% Term Preferred (ECCA) issue.

This should really come as no surprise as the company had redeemed 900,000 shares back in May.

The issue closed today at $25.95. With the redemption date being 1/31/2020 holders will receive 2 dividends yet (it is a monthly payer) of around 16 cents (32 cents in total). So holders today will see a capital loss of around 63 cents.

Thanks to Affinity4Investing for being right on top of this call notice.

Interest Rates Creep Higher and Higher

Only 3 months ago we had the 10 year treasury touching in the high 1.40%’s.

Today we see the 10 year treasury trading at 1.93%–a full 4/10th’s of 1 percent higher.

In general, we have not seen substantial damage to preferred stock and baby bond pricing. Sure we see some of the high quality very low coupon issues having trouble with ‘traction’ in moving higher, but the evidence shows that interest rates are having very little affect on pricing–so far.

Only today mSquare wrote on the new “Flipping and Dividend Capture” page that he/she bought the new AT&T 5% perpetual preferred for $24.9x on the OTC Grey market and just sold it on the NYSE for $25.6x. This shows that there has been hunger yet for ‘yield’ –even low yield.

Today Newman mentioned that he/she was getting a bit concerned with the 10 year treasury moving higher.

As income investors we all need to be concerned with higher rates, BUT one can not ‘run for the hills’ because there is no one that can predict what rates will do tomorrow and we all need some sort of income stream–it has almost always been true that money buried in the back yard earns little interest.

As the old commercial on the television used to say “speed kills” (of course talking about driving), but we know that interest rate movements can be fairly well tolerated if the movement is slow–2,3 or 4 basis points up one day and down 1 or 2 basis points the next. The move from 1.4x% to 1.93% took 90 days or so–and this move has been well tolerated.

At this point in time if we see a 1/8% spike higher 2 days in a row–that would be a bigger concern. The low coupon issues will act very badly if we get these kind of moves. Additionally the low coupon issues will act poorly even if we get slow moving higher rates–month after month after month.

Lastly we can never predict some major moves. A few years ago the markets threw a ‘taper tantrum’ simply because the FED suggested a reduction in quantatative easing. The 10 year treasury rose near 1/2% in 2 weeks–simply based on a ‘suggestion’ of a tapering that never happened.

So in summary I would encourage investors to do what makes them feel comfortable. If rates do pop and you lay awake nights – make some sales–store some dry powder–or if you fear the future–next week or next month–sell a little and hold the cash until you mentally feel better. I have made a few sales recently and am in no hurry to reinvest–more because I am hoping for some better pricing ahead. In my 15 years of purely preferred stock and baby bond investing every big sell off has resulted in the opportunity to buy good issues at low prices–so keep a little dry powder.

Axis Capital Formally Calls Preferred–Corrected

Some of our readers caught the ‘formal’ call of the AXIS Capital (AXS) 5.50% perpetual preferred (AXS-D) which was released yesterday. The issue will be redeemed on 1/17/2020.

I had owned a full position in this issue for a portion of this year as it was trading around $25 plus accrued dividends so I anticipated it being called at some point in time, but took advantage of the reduced volatility and issue like this provides to garner a safe 5.50% dividend for a few quarters.

The company had sold a $1000 subordinated note earlier this month and stated the intent to call the AXS-D issue. Investors need to remember that such disclosure in a filing for a new issue isn’t a formal call–that will be done separately with all the details of the call.

In this case after the subordinated notes were sold we put in a limit order to sell our position at a price that I guessed would be about the final realization of value based on a guesstimate of call date. I sold 60% of the holding, but will be carrying the last 40% into the official redemption date of 1/10/2020 when I will receive $25.176/share.

Corrected below

This issue has now stopped trading under the original ticker and is trading under AXS.PR. D.CL (or some such symbol depending on the broker). Currently quoted at 25.13 bid and 25.15 ask.

The call notice press release is here.

Discussion Page Added for Flipping and Dividend Capture

Someone suggested I set up a page for “flipping” and “dividend capture” ideas–so why not?

So I have dedicated a page where we can exchange some ideas on these shorter term techniques that we all hope will add a few hundreds–to maybe a few thousand dollars a month to our portfolios.

The page is here—and I have added a tab to the right column menu for the page.

Gabelli Multimedia Trust Prices Perpetual Preferred

Closed end fund Gabelli Multimedia Trust (GGT) has priced their previously announced cumulative perpetual preferred stock.

The coupon is fixed at 5.125%, which is about as expected for a likely strongly investment grade preferred. The company anticipates a A2 rating from Moodys, but thus far we do not see a Moodys rating on their website.

Being a closed end fund the company must maintain a asset coverage ratio of 200% or more and most recently GGT has a coverage of 382% (as of 6/2019).

The issue will trade immediately on the OTC Grey Market under temporary ticker GABGP–in fact I see a few shares have crossed around $25.03 today.

The pricing term sheet is here.

Medallion Bank Sells New Preferred

As some on the site already know Medallion Bank (a division of Medallion Financial (MFIN)) has sold a new issue of high yield preferred stock.

Note that this was sold last week, but has just begun trading. It is trading weak–now at $24.48.

Note that this issue is floating starting in 2025 and is NOT trading with a 3 month Libor rate, but is with 3 Month SOFR (the replacement for 3 month Libor). You can see the SOFR page at the New York FED here.

The coupon on this issue is high because they are a higher risk lender. Parent company Medallion Financial was the main lender for taxi medallions which has become a very poor business with the advent of Lyft and Uber. Recent financials appear to show they are slowly recovering by reducing taxi medallion lending drastically–which has involved many writedowns in the past.

Approach this issue with caution and make sure you do your due diligence.

The best place for research is the company website–here.

Medallion Bank is regulated by the FDIC so they do NOT file with the SEC.

Parent company Medallion Financial has a 9% baby bond outstanding which trades well–now at $26.33

For those wanting to access the FDIC regulated filings you can go here and then search by Medallion Bank.

CEF Gabelli Multimedia To Issue New Preferred

Closed End Fund (CEF) Gabelli Multimedia Trust (GGT) has announced a new issue of perpetual preferred stock. The issue should be strongly investment grade.

The pricing has not been announced via the SEC site but an OTC temporary ticker has been assigned as GABGP.

The company had previously announced the redemption of the 6% GGT-B issue on 12/26/2019 and they will use proceeds from this new issue to pay for the redemption.

There is just 1 other GGT preferred outstanding which can be seen here.

The preliminary prospectus can be read here.

Further company guidance can be seen here.

Flipping For Steak Dinners

I’m writing this more for newer investors that might be on the site rather than for those that are well seasoned in preferred stocks and baby bonds.

“Steak Dinners” is referring to quick, but modest profits, that some of us take from time to time.

THIS IS NOT encouragement to newer folks to employ these methods, but I know that throughout the website there are comments on what people are doing investment wise. There is nothing that is right or wrong–just what works for you.

Most times when I employ these methods of making a few extra bucks it is with issues I don’t really want to hold long term. I own mostly term preferred stocks and baby bonds with maturity dates in the next 2-10 years, but almost always have a decent chunk of cash in our accounts which I can use for “flipping” or “capturing” dividends. This is NOT true investing as most of us would define investing–but it works for me–mostly.

In my case if I see an issue drop based on news of some sort, I might take a position after the fall, expecting a bounce back at which point I would sell. Normally I am looking for 1% to 2% gains (25 or 50 cents on a $25/share).

Other times I may simply see an issue that is trending toward the lower part of the issue trading band and pick up shares looking to exit if a 1%-2% gain is realized.

Other times I may see an issue that is currently redeemable that is trading around $25 and I may buy it expecting the shares to move higher as dividends (or interest) are accrued–if it moves higher quickly I will sell the shares–otherwise I will hold until at least ex dividend date there by capturing a dividend.

Needless to say these techniques do not always work profitably, although the last couple of years have been a good period for most of my trades–although some have taken longer to “pan out” than was hoped when the position was initiated.

Here are a couple trades lately–I will walk through my thoughts and results.

On October 16th, 2019 Investcorp Credit Management (ICMB) announced that they were selling 600,000 shares of their 6.125% baby bond (CMFNL).

Being a ‘news’ event I thought there was a possibility for a quick profit–a week or maybe a month to play out.

Shares had been trading in the $25.50-$25.75 area prior to the announcement. Shares fell as far as $24.30 before bouncing back on the day (10/16) of the announcement and I bought 500 shares at $24.81. Unfortunately it traded in the $24.60 area a number of times over the next couple of weeks. I simply continued to hold the issue looking for my best exit. Fortunately it finally began to climb into the ex-dividend date (12/12) and reached $25.10. I held through ex-dividend, thus locking in the dividend, and I sold yesterday for $24.90.

On the CMFNL issue above the interest is a little above 38 cents quarterly and I got a measly 9 cent capital gain on the shares–for a total of 47 cents. I had hoped to ‘flip’ the shares originally for a 1-2% quick “steak dinner” trade in a month. Instead it took a full 2 months, but I did get near 2% so I am happy.

On November 22, 2019 Chicken Soup for the Soul (CSSE) 9.75% preferred was trading at $25.17 and I purchased 500 shares.

These shares trade somewhat erratically, but it had just come down from the $25.80 area so it looked ripe for a quick profit. I purchased my shares on 11/22 for $25.17. Shares were going ex-dividend for 20.3 cents on 11/29 (it is a monthly payor) so at a minimum I was going to grab 1 dividend.

Ex dividend date arrived and I held through the date thereby capturing the dividend and was able to sell for $25.21 on 12/2.

In this case I captured 20.3 cents on the dividend and 4 cents on a capital gain–a total of just under 1% in 10 days.

Since I had a plan I stuck to it–but this is one of those cases where one wishes they would have held on because the shares kept climbing and are in the $25.55 area.

Chicken Soup for the Soul is a newer company and while revenues are growing nicely, there is not much chance of a profit anytime soon and I didn’t want to stick around too long.

These are a couple recent trades and I have a couple others currently “in process”, but I am generally unable to do more than a couple of these each month as I don’t have time to ferret out the good candidates.