Below I outline a potential opportunity. Of course the issue is not investment grade and is non cumulative so it may not appeal to many–on the other hand where can you lock up 7.07%? The risk/reward seems reasonable.
Self storage giant Public Storage (PSA) has announced that they will issue new preferred stock.
The company which has long depended on preferred equity issuance to finance the business currently has no older issues redeemable. The PSA-X and PSA-W issues will be redeemed tomorrow (both 5.2% coupons).
There is a 5.40% (PSA-B) issue which will be redeemable 1/31/2021. This issue is trading at $25.73 right now and holders may want to consider exiting now–this issue will be called 1/31/2021 and thus has about 50 cents worth of dividends to be collected up until call date.
I see that the 3 preferreds from Altera Infrastructure are moving strongly higher today.
The move higher is on an announced open market buyback of shares as they have been trading down in the $14/share area. Altera is the old Teekay Offshore which is now owned by Brookfield Business Partners (BBU)–part of giant Canadian asset management firm Brookfield
The S&P500 had another down week last week–but not by much as a frantic rally on Friday helped the week. The index had a low of 3209 with a high of 3320 before closing the week at 3298 which is 2/3% lower than the Friday before.
As has been the norm for weeks (if not months) the 10 year treasury closed at .66% with the yield running between .65% to .69% on the week.
The Fed balance sheet continued its climb adding $27 billion in assets after adding $54 billion the week before.
The average $25/share baby bond and preferred stock closed last week 15 cents lower than the week before–the losses would have been 27 cents/share, but a rally on Friday moved prices higher. CEF preferreds fell by 47 cents–the big loser on the week. Utility issues fell by 9 cents, banks by 7 cents and investment grade by 10 cents.
Last week it was relatively quiet in the new issue arena with just 1 baby bond issue announced–no preferreds were offered.
DTE Energy (DTE) sold the only issue last week.
The Junior Subordinated Debentures were priced at 4.375%
No ticker has been announced. It is likely this issue will start trading this week.
Almost without doubt equity markets are waiting on stimulus from congress. Like a junky looking for their next ‘fix’ this market is built on the Fed printing press and the big spenders in the government. Actually after all the months of crazy large gains in common shares it is nice to see a little reality come into the picture.
Income investors aren’t seeing many bargains in issues above average quality. The average $25/share preferred or baby bond is off just 1.3% this week–and given the level income issues have been trading at most are still at sky high levels—although given the other options available it is understood. Watching the utility issues, where I would like to buy, we have seen a 1% drop in values–still presenting a pretty lousy yield to call picture, but maybe that is simply the way it will be in the future. A number of commenters have noted the low coupons that are being garnered in the bond market–30 year notes down in the 2.5-3% area–why issue high coupon preferreds?
The big losers this week are some of the ‘junky’ issues–i.e. Hersha Hospitality (HT) preferreds, which are trading with suspended dividends. Each of their issues (3 of them) are off $1/share. Honestly the junky issues are just getting ‘put in their place’–trading down where they should be given the high risk they present.
I remain in the 70% area and continue to look for bargains–although I may be looking for a long time. We’ll see if congress rides in on their white horse to save the day—if not bargains may yet appear.
Lodging REIT Ashford Hospitality (AHT) continues down the road to insolvency.
It is likely many of you have followed this saga, but new twists and angles continue to be unveiled. I follow it a bit–not close as I have no dog in this fight.
AHT has 5 perpetual preferreds outstanding–which you can see here. Dividends have been suspended on the shares and each of the issues have tumbled another 25% in the last few days as survival seems bleak–all now trading in the $3’s.
AHT currently has around 13 million common shares outstanding and the current offer on the table to the preferred holders would expand the number of common shares outstanding to a massive 140,000,000 shares.
Current common holders seem to be screwed no matter what they do. Common shares holders must be asked for approval to issue the new shares to the preferred holders–if they approve the exchange they will instantly be diluted into oblivion–if they don’t they can ride shares into Chapter 11 (maybe).
Preferred holders are pretty well screwed as well. They have been offered common shares which were trading higher when the exchange offer was made–but now are at $1.71/share today. If they do not exchange their shares the company is looking for approval to give them 1.74 common shares for each preferred share, instead of the 5.58 shares noted above.
But really the selloff of common shares is really quite orderly and certainly is not a panic selloff. We all know common shares have been near la la land–so a 800 Dow point drop is not frightening or unexpected.
Of course I care about baby bonds and preferreds and the damage there is not dramatic. Right now the average share is off 14 cents, but there are over 150 issues down by over 1%. This is a larger reaction than we have seen in recent months to common share selloffs–but still minor.
Interesting to see quite a few utility issues off 1/2%- 2% or so–but given the levels they have been trading at being down 1/2% to 2% doesn’t make them a bargain–but worth watching.
Investors should keep an eye on the S&P500 and DJIA and see if something more serious develops later in the day. If we were to see the 3% drop turn into 5% later today we would start to see some ‘baby going out with the bath water’–maybe a chance to deploy a couple percent of dry powder in quality issues.
The S&P500 fell by 22 points last week–about .6%. The index traded in a range of 3292 to 3429 closing toward the bottom of that range at 3319.
As has become the norm the 10 year treasury traded in a range of .65% to .70% closing the week at .69% 2 basis points above the week before.
The Federal Reserve balance sheet grew by a stout $54 billion proving that quantitative easing is alive and well.
The average $25/share baby bond and preferred stock moved higher by a meager 7 cents. Investment grade was unchanged, utilities were 6 cents higher, CEF issues were down 12 cents (but 1/2 the issues were ex-dividend Friday). banks were 2 cents higher with shipper up 4 cents. Lodging REIT preferreds were the strongest–up by 45 cents.
Last week we had 6 new income issues sold.
Business Development Company OFS Capital (OFS) sold a new baby bond.
The issue priced at 6.25% which at first glance seems low–but the issue is just a 3 year issue, maturing in 2023 and shorter dated maturities price lower.
There will not be OTC grey market trading. The issue should begin trading in the next week or so.
Brookfield Infrastructure Partners (BIP) sold a new issue of preferred stock units.
The issue priced at 5.125%.
The issue is investment grade–although low investment grade at BBB- from S&P.
This issue is trade on the OTC market closing at $25.16 on Friday.
Franchise Group (FRG) priced a new issue of preferred stock.
The coupon is 7.50% and the issue will be cumulative and qualified.
There is no OTC ticker or trading, but it will trade today or tomorrow under the permanent ticker.
The Southern Company (SO) has sold a new issue of baby bonds. The coupon will be 4.20%–plenty low, but it will be strongly bought.
Insurer WR Berkley (WRB) has announced a new issuance of baby bonds.
The company which had sold a 4% $1,000 senior note issue around 9/1/2020 with proceeds going to a partial redemption of baby bond 5.625% (WRB-B) will be using some of the proceeds of the new baby bond to call the remainder of the WRB-B issue.
The new issue will be investment grade so look for a coupon in the mid 4’s.
Data center owner Digital Realty (DLR) has called their 5.875% perpetual preferred today–effective 10/15/2020.
The issue went ex-dividend yesterday for around 37 cents.
The issue has been redeemable since 4/2018, but yet was trading near $26 a day or two before ex–it went ex for 37 cents but bounced right back up toward $25.90. The company dropped the call this morning and shares are now trading at $25.06.
It is interesting that DLR is selling Euro Note debt at 1%–hint–don’t be fiddling with investment grade preferreds past call dates.
Of course we all mostly know this, but I post it as one more example of what a newer investor should not do.
Wesco International (WCC) which merged with Anixter International earlier his year is about to make their 1st dividend payment on the juicy 10.625% fixed rate reset cumulative preferred on the 30th of the month.
The WCC-A issue went ex-dividend today for around 73 cents–the first payment is for slightly over 3 months.
The company is a giant in the business to business distribution and supply chain business with revenue now in the $17 billion area.
You can be certain there is plenty of risk in Wesco as they are rate B1 by Moodys and BB- by Standard and Poors. You can read S&P’s take on the combined companies.
I only mention this issue because depending on your risk tolerance this may be a reasonable holding. The reset period isn’t until 6/22/2025 so at 10.625% there is plenty of ‘meat on the bone’ yet even though shares closed at $28.30 today.
Disclosure–I hold a position in this issue which I bought in the $26.90 area.