August, 2020 | Innovative Income Investor

Monday Morning Kickoff

Once again the S&P500 moved higher last week as the index traded in a range of 3414 to 3509 closing the week at 3508–a gain on the week of around 3%.

The 10 year treasury moved in a range of .62% to .75% closing the week at .73%.

The Federal Reserve balance sheet fell by $20 billion — after rising $53 billion the week before–it has become obvious that the current buying by the Fed of government debt, mortgages and other assets will be pretty lumpy week to week. The globe is awash in money and even a meager coupon on U.S. debt is attractive compared to nothing, or less than nothing in some countries.

The average $25/share preferred stock and baby bond followed along with the common stocks and saw an increase on the week of 10 cents a share. CEF preferreds were up 5 cents/share, banks up 9 cents and investment grade 17 cents.

Last week we only had 1 new income issue sold and that was a baby bond from REIT Sachem Capital (SACH). While company has issued a press release with pricing shown as 7.75% the SEC paperwork has not been filed–I expect it will be filed this morning. Sachem has a couple other baby bonds outstanding.

Weekend Odds and Ends

These are just a few items of interest (to some) of odds and ends I have come across this week or that folks have discussed in varying comments.

This morning 2whiteroses posted a notice of partial redemption on the Capital Southwest Corp (CSWC) 5.95% baby bonds. CSWC is a BDC. No harm is done to holders on this call as shares have been trading in the $25 PLUS accrued recently. The SEC filing is here.

CenturyLink (CTL) has announced a partial redemption of the Qwest 6.625% baby bonds (CTZ) issue on 9/15/2020. They will redeem 10 million shares. There are a total of 16 million shares outstanding. The press release is here.

Of course the big item of the week was the surprise call by Southern California Edison (a division of Edison Internation EIX) on old preferred shares that had been outstanding for decades. The big winners were those holding the SCE-D issue which had a bonus redemption price of $28.75 and was trading at $23.87 just prior to the fall announcement. From my reading we had numerous folks holding shares in these issues.

I see that folks are back talking Canadian Preferreds and Gridbird offers up this website for Canadian info. Looks like a good resource for those interested.

Don L posted a press release on the new Sachem Capital (SACH) baby bond–it priced at 7.75%–looks like the issue will be small-around 1/2 million shares. I have not posted the pricing as the SEC filling has not yet been made as of now. Will be a week or so before the new issue trades under ticker SCCC,

Lodging REIT Ashford Hospitality (AHT) has begun turning in the keys to hotels they owned as lenders begin to put their properties up for sale–when you can’t come to agreement with lenders they eventually take the properties–all of Ashfords properties are ‘non-recourse’ to the company so they turned over the keys to an 8 property portfolio this week. As I wrote before I think AHT is essentially broke and will liquidate in the year ahead with common and preferreds holders getting zip.

The Fed Balance sheet fell by $20 billion last week–obviously the buying of treasuries, mortgages and other assets by the Fed in the weeks and month ahead will be ‘lumpy’. There is so much money sloshing around the globe that the Fed hasn’t had to do much buying. There have been a number of huge treasury auctions in the last few weeks and the market has had no trouble buying everything available.

Southern California Edison Calls Preferreds and Trust Preferred

Utility Southern California Edison (a division of Edison International EIX) has announced a call of some old preferreds with coupons ranging from a low of 4.08% to 4.78% as well as their 5.10% Trust Preferred shares–the redemption date is 9/27/2020.

All of the old preferred will be redeemed at premiums–with the SCE-D issue garnering a $28.75 redemption price (plus accrued dividends)–it is currently trading at $23.87.

The company has an additional 4 issues of trust preferreds outstanding, but they are not yet callable.

The company press release can be found here.

The issues–SCE-B,C,D,E can be seen here and well as the SCE-G issue.

Thanks to Ptrader for being up early and noting this call.

Real Estate Lender Sachem Capital to Sell New Baby Bond

Hard money lender REIT Sachem Capital (SACH) has announced a new issuance of baby bonds.

The company generally makes shorter term loans (i.e. 12-36 months) for real estate, both commercial and residential. The average interest rate charged is around 12-13%.

The issue will have a maturity date in 2025 and an optional early redemption in 2022.

The company has 2 other baby bond issue currently outstanding and you can see them here.

The preliminary prospectus can be read here.

Thanks to EarlyBird for catching this one.

Gabelli Utility Trust Preferred Ripe for a Call

I was reviewing the large volume issues from today (large compared to normal daily volume) and I noticed an old friend of mine in the list–Gabelli Utility Trust 5.625% preferred (GUT-A) had traded just 8,700 shares–but that is 7 times normal volume.

It wasn’t really the volume that caught my eye–it was the ridiculous share price that stood out—$27.81 and optionally redeemable since 2008. I think investors are just daring Mario Gabelli to spank them with a 10% loss.

With the call of the Gabelli Dividend and Income preferred (GDV-A) on Monday you would think they maybe would be keeping their eye on other potential calls–especially because they could replace called issues with sub 5% new preferreds if they desired.

I mentioned this as being an ‘old friend’ as I held it for many years – even after it was redeemable–but I guarantee you it was never this far out of line in price.

Gabelli has always been kind of slow to call issues, but it is becoming more difficult for a fund manager to explain to common holders that it makes sense to line the pockets of preferred holders at the expense of the common people.

I am watching for a call here.

Is the Double Dip Coming?

While we are still in a recession so this isn’t really a potential ‘double dip’ are going to see the second downward push in the economy soon?

For years I have watched employment and consumer confidence for clues as to where we were heading in the economy–I quit watching these closely during the last 6 months as the Fed and the treasury overwhelmed fundamentals with never ending money drops–but maybe it is time to watch again.

The Conference Board released their take on Consumer Confidence today and it wasn’t good. The Consumer Confidence Index fell to 84.8 from 91.7 last month–this is a damned big drop. ‘Analysts’ (who ever that is) were expecting an increase in the reading–so much for the smart folks. Seems to me with the $600/week extra cash from the federal government going away confidence both by the employed and the unemployed would head south–we are talking maybe $6 billion a week going away–real money (or is it just fake paper fresh off the printing press?).

The Conference Board press release can be read here.

Last week we had a 1.1 million first time unemployment claims number–up from 910,000 the week before–are small businesses simply running out of cash and having to lay off folks? I didn’t dig into this one, but anecdotally I had 2 nephews get laid off last week–1 in Colorado and 1 in Kansas. Both worked in hospitality related businesses–the businesses simply continue to suffer and eventually lay offs have to happen. In this case both nephews are around 50 and this will be a tough time for them.

Black Knight released the latest mortgage data report last Thursday and there was a bit of improvement overall–but with the $600 weekly going away is this going to worsen again? Their report is here.

While overall mortgage delinquencies improved a bit FHA borrowers are not paying their mortgages–a full 16% of all of them are delinquent!! Yikes!! This is up from 9.7% the month before. While I am for everyone that wants a house to have one–the facts are, time and time again, that when you have little ‘skin in the game’ and you lose your job defaulting is always an option. The feds have a forbearance program and payments can be deferred for up to a year–any wagers on how many of these folks will walk away from their property at some point in the future? A short article on the recent number can be read here.

So the time is here to again watch numbers closely. The wild card being how much money congress will throw at the problem in the weeks ahead–not that money will help in the long term–we are creating zombie businesses, zombie homeowners, zombie employees–when will the ‘piper be paid’?

CEF Gabelli Dividend and Income Calls Preferred for Redemption

Now just how soundly do you have to be napping to be caught holding the Gabelli Dividend and Income 5.875% (GDV-A) cumulative preferred stock when it is trading at $26.35 and has been optionally redeemable since 2009?

Those holders got a 4% lesson yesterday–as a call was announced and the ‘dump’ was swift–tumbling 97 cents.

The redemption will occur on 9/25/2020.

The company had previously called 1.542 million shares on 5/6/2020 so that should have alerted folks shares were in the company sights for a full redemption–but memories are short nowadays and after a fall after this earlier call folks drove the price right back up.

On the other hand holders have garnered a great, safe dividend for many years by holding shares so I guess holders turned out ok–unless you bought last week.

The press release on the redemption can be found here.

mcg was on this at 2:23 pm as was Ptrader 3 minutes later noting a volume spike. I was reviewing the preferred share loss page at the same time and noted the large drop in the issue–I instantly knew a call was at hand–it had traded 25 times normal volume. Posting was on the Reader Initiated Alert page.

Delisted Legg Mason Baby Bonds to Trade OTC

Legg Mason, which was recently acquired by Franklin Resources (BEN), had 2 baby bond issues outstanding at the time of merger, which had previously been announced that they were to be delisted from the NYSE on 8/20/2020. These baby bonds were delisted.

Today it was announced that these issues would begin to trade on the OTC market–I would expect maybe tomorrow or Wednesday.

The ticker for the Legg Mason 6.375% Junior Subordinated Notes will be LMICL while the 5.45% Junior Subordinated Notes will trade under ticker LMIBL.

I now have these in the database as Franklin Resource (BEN) issues and they can be seen here.

EarlyBird noted the new tickers at 2:30 pm today.

Monday Morning Kickoff

With critical consumer confidence continuing to be measured at a very low level, relative to readings just 6 months ago, commons stocks, as measured by the S&P500 continue to move higher.

The University of Michigan Consumer Sentiment survey tells a different story than the stock market–this will not end well–although it may remain irrational for quite a long time.

The index traded in a range of 3354 to 3400 closing the week at 3397 which was 3/4% higher than the Friday before.

The 10 year treasury, which had closed at a recent weekly closing high of .71% the Friday before fell back to close at .64% Friday. Weekly jobless claims spiked up to 1.1 million versus a forecast of 910,000 which helped to keep rates moving lower. Is this the double dip fall in employment?

The Fed Balance Sheet grew by a pretty healthy amount last week–$53 billion–the largest amount since 6/10/2020. The Fed has announced plans for the period of 8/14 to 9/14 to purchase $80 billion in treasurys–so after modest purchases the last few weeks a large jump is no surprise.

The average $25/share baby bond and preferred stock moved slightly higher–up 13 cents/share. Banks were the strongest group – up 30 cents. Investment grade issues were up 16 cents, CEF issues up 4 cents and utility issues up 17 cents. mREIT issues were flat.

Last week we had 3 new issues price.

Prudential Financial (PRU) priced a new 4.125% Junior Subordinated Note. I am not aware that this issue is trading as of yet, but I believe I saw a few folks buying via their brokers bond desk in the $25.30-$25.40 area.

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Small bank holding company CNB Financial priced a 7.125% non-cumulative preferred. The issue is trading now under the OTC temporary ticker CCNEL and last traded at $25.26.

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Lastly lodging REIT DiamondRock Hospitality (DRH) priced a new cumulative preferred with a coupon of 8.25%. The issue is now trading under OTC temporary ticker DRHPP and last traded at $24.70.

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Lots of Great Ideas on New Commenting System

I asked for input on a new commenting system this week and I got lots of good suggestions–of course more good ideas than could ever be implemented in total–but lots of thoughts that can probably be added in.

I will print all the suggestions and then try to match them up to the commenting systems out there and see what might be best.

Also on the topic of commenting I will ‘dial up’ the monitoring of comments. What does that mean?

I have a master page of all comments as I have mentioned before–no matter where on the site a comment is made it shows up on the screen so I will be able to act if necessary.

I ask that everyone be ‘civil’–what does that mean? It is ok to have disagreements, but state your case and move on. We don’t need to have back and forth Pendragon’Y type exchanges (you know back and forth for 100 comments).

The reason I have never made a recommendation on buying a security on this site is because each and every one of us is different–hardly ever is there a right or wrong answer—just the one that works for you.

It seems to me that 100% of people reading the site should be able to comment on their position without any personal attacks–certainly there will be differences of opinions, but they can be stated civilly without personal attacks.

Honestly with over 100,000 comments made there has only been a dozen or two that I know of (and of course I don’t know them all) that should not have been made (in my opinion) and a reasonable person has to be happy with that–there is just no way we are going down the road of the old Yahoo Finance message boards–no way.