A Reasonable Idea for Some Investors

For some investors it may be a reasonable idea to buy the Ready Capital 6.50% Senior Notes (RCP) due 2021. My idea is based upon the nice coupon and short maturity in April, 2021.

I mention this (and own it) because it is trading at $25.04-$25.06 and has 2 interest payments until maturity (January and April) for about 41 cents each.

Ready Capital (RC) actually has a 7% convertible note due in 2023 trading around $23.79 which has a better yield, but obviously is 2 1/2 years further out in maturity so has more risk built in.

Assuming financial markets don’t totally implode this seems like a good short term yielder.

Investors should do their due diligence to see if this might be right for you.

Bank of New York Mellon to Sell Preferred in a Refi Deal

The Bank of New York Mellon (BK) will be selling a $1,000/share preferred issue. No listing of these shares will occur. The preliminary prospectus is here.

The bank will be redeeming their series C 5.20% $25/share issue which can be seen here. This issue has been redeemable since 2017–it is likely the redemption date will be 12/20/2020 as it must be redeemed on a dividend payments date.

It is surprising that a bank with a credit rating this high Baa1 and BBB took this long to redeem these shares–investors were lulled to sleep as shares closed last Friday at $25.87 so will take about a 50 cent loss on the redemption.

Eugene pointed this one out.

Monday Morning Kickoff

The S&P500 had a low last week of 3420 and a high of 3502 (just 2.5% from a 52 week high) before closing the week at 3465 which is a loss of about 1/2% on the week–on a relative basis, a quiet week, as investors play the stimulus and election guessing game.

The 10 year treasury continued to creep slowly higher hitting a weekly high of .87% on Friday before backing off a bit to close the week at .84%. Back in June the rate had a spike high in the .90% area so certainly we could see rates bust through this area soon. The range for the week was .76% to .87%.

For some of us this is a bit of a dicey time–low coupon issues would be hurt the most if we were to see rates move above 1%. Remember that ‘speed kills’–a move higher, which is slow–a few basis points a day (or some such move) would be better tolerated that a spike of 10-15 basis points in a day. We don’t ever know the tolerance of income investors for higher rates–but these fast moves can set off some selling. Additionally, it is my understanding that there is a lot of speculation in the interest rates markets based on potential outcomes of the elections–these trades can always be reversed to send rates higher or lower.

The Fed balance sheet grew once again last week with assets expanding by $26 billion after growing by $18 billion the week before–the balance sheet is now at a record high of $7.177 trillion –the previous high of $7.168 trillion was back in early June, before assets dipped down to $6.920 trillion in early July.

The average $25 preferred stock and baby bond rose by 8 cents last week. CEF preferreds were off 7 cents, utility issues were up 11 cents, banks up 4 cents and investment grade were up 9 cents–no giant sector movers last week.

Last week was a bit more active in the new issue marketplace as we had 4 new issues come to market, with an additional preferred issue from Gladstone Land being listed.

Quality banker U.S. Bancorp (UBS) sold a 3.75% non cumulative preferred which is now trading under OTC ticker UBKPL and closed last week at $24.68.

This image has an empty alt attribute; its file name is usb.png

Banker Wells Fargo & Company (WFC)  priced their new issue of preferred stock at 4.70%. The issue is trading under OTC ticker WFCCL and closed the week at $25.17.

Leasing company General Finance (GFN) sold a new issue of baby bonds to refinance an old issue. The issue priced at 7.875% and as of yet it hasn’t traded.

This image has an empty alt attribute; its file name is gfn-1.png

Pennnsylvania banker Fulton Financial (FULT) sold a low investment grade issue with a coupon of 5.125%. This is the star new issue of the week as it came out of the gate hot hitting a high of $25.70 on the 1st day of trading before closing at $25.67. Shares are trading on the OTC grey market under temporary ticker FULPP.

This image has an empty alt attribute; its file name is fult.png

Can You Make a Buck on Lower Coupon Issues?

Nobody is really excited about the plethora of low coupon preferred’s being issued lately, although I see a few folks are buying them–including me.

As I always have to do–I just can’t help myself, I have bought a couple issues lately that I normally probably wouldn’t buy–and I did it as a test–can I squeeze at least 1-1.5% flip profit out of the issues. Right now the answer is not totally known, but of the 2 I have bought 1 has been sold for about a 1.5% flip profit.

1st off I bought 300 shares of the Public Storage 3.875% (PSA-N) issue on 10/05/2020 for $24.82–the issue had traded as low as $24.70. I fully planned to sell these shares when I hit my target of 1.5%.

I then sold the issue on 10/19/20 for $25.16 which gave me my 1.5% profit (slightly less actually). That is a ‘steak dinner’ trade, so I am satisfied with my meager profit. I did notice the shares plunged down to $24.85 today for whatever reason.

On Monday of this week I began to buy shares in the new RiverNorth/DoubleLine Strategic Opportunity Fund 4.375% preferred. This is a high quality issue and I was too ‘excited’ to jump and buy. I started with a 300 share purchase on Monday for $25.10 and followed it up on Monday afternoon with another 100 shares at $24.96. Should have been more patient.

I now wait to see my next move–it closed at $24.95 today. If it falls from here I will buy a couple hundred more shares. The quality of this issue at a reasonable coupon (in my eyes anyway) means I would be willing to go to 600-1000 shares or maybe higher. I am confident I can squeeze out a 1% flip profit, but likely I want to hold some of this issue long term so I will determine later what I want to hold long term.

So assuming there is not an interest rate spike while I hold these issues it looks like it is probable one can get 1-1.5% quick flip

I am not recommending anyone fiddle around like this–I mean really a short term $100 profit is meaningless in the big picture and I would rather have holdings that are long term. This was a test and a boredom trade.

NOTE–I post the brokerage clips above to display the actual transaction–the top clips are from Fidelity and the bottom from eTrade (also note that eTrade charges $4.95 on the OTC trades.

Fulton Financial Prices New Preferred

Fulton Financial (FULT) has priced the previously announced issue of investment grade preferred stock.

Shares priced at 5.125%. Shares are rated Baa3 by Moody’s and not rated by Standard and Poor’s.

Dividends are qualified, but non cumulative and have an early redemption period starting 1/15/2026 (on redeemable on a dividend payment date).

The issue will trade on the NASDAQ under ticker FULTP after a stint on the OTC grey market starting immediately under the temporary ticker FULPP

The pricing term sheet can be read here.

Fulton Financial to Sell Preferred Stock

Pennsylvania banker Fulton Financial Corp (FULT) has announced the intention to sell a new issue of non cumulative preferred stock.

The regional banker, with $24 billion in assets, will sell a $25/share issue with typical terms–non-cumulative, qualified and optionally redeemable in just over 5 years (1/2026).

‘Yield talk’ is in the 5.375% area with a low investment grade from Moody’s.

The issue will trade under FULTP when it hits the NASDAQ.

The preliminary prospectus can be read here.

mcg was on top of this one and razorbackea posited ‘yield talk’

General Finance Prices Baby Bonds

Container and storage lessor General Finance (GFN) has finally priced their new issue of baby bonds.

The issue priced at 7.875%. They will be selling 2.4 million baby bonds with another 360,000 available for over allotments.

The issue will be redeemable on 10/31/2025–the short maturity helped the company to garner a slightly lower coupon. Longer dated issues will have to pay a higher coupon.

The issue will first become redeemable on 10/31/2022 at 104.50% of liquidation value until 10/30/2023 and then 102.25% of liquidation value starting on 10/31/2023 until 10/31/2024 after which it is it is redeemable at 100%.

The company will be able to do a ‘equity clawback’ prior to 10/31/2022 for up to 35% of the bonds at 107.875% of liquidation value. The ‘equity clawback’ allows the company to sell equity to be used in redemption.

Of course all early redemptions include accrued interest.

The pricing term sheet can be read here.

Wells Fargo and Company Prices New Preferred Issue-UPDATE OTC TICKER

UPDATE–the OTC ticker is WFCCL

Banker Wells Fargo & Company (WFC) has priced their new issue of preferred right about where it was predicted to price–4.70%.

The issue is a giant issue with 46.8 million shares being sold (no over allotment). No doubt they will be redeeming the WFC-T 6% issue with part of the proceeds (there are 28 million shares outstanding of this issue)–then we will see what other issue they move on after the ‘T’ issue.

The issue will trade OTC grey market tomorrow (Thursday), but the OTC temporary ticker has not yet been posted as of 5:45 pm (central).

Please note that this issue is rated investment grade by Moody’s only. All WFC preferreds were rated BB+ by Standard and Poor’s on 9/25/2020.

The pricing term sheet can be read here.

Wells Fargo Announces New Preferred Offering

Giant Banker Wells Fargo & Company (WFC) has announced they will be selling a new $25 preferred stock issue.

Nothing unusual about this issue–it will be non-cumulative, qualified and optionally redeemable in 2025.

The banker includes ‘redemption of preferred shares’ in their ‘use of proceeds’ section of the prospectus. The company has 3-4 issues that are currently (or soon will be) redeemable at coupons ranging from 5.125% to 6.0%. With ‘yield talk’ in the 4.75% area it is highly likely the 6.0% WFC-T issue will be redeemed and potentially the 6% WRC-V issue which becomes redeemable on 12/15/2020 will be called–note that all WFC issues can only be redeeemed on a dividend payment date of which the next is 12/15/2020.

All their many issues can be seen here.

The permanent ticker will be WFC-A when it hits the NYSE and will trade on the OTC grey market prior to the permanent exchange, but the OTC grey market ticker has not yet been announced.

The preliminary prospectus can be found here.

Eugene was right on this one.

mREIT Sachem Capital Reopens Notes

Small specialty mREIT Sachem Capital (SACH) has re-opened their 7.75% notes due 2025.

The notes trade under ticker SCCC and can be seen here.

Originally the company had sold just 520,000 notes for gross proceeds of $13 million. The re-opening amount is yet to be determined.

The preliminary offering prospectus supplement can be seen here.

U.S. Bancorp Prices New Preferred

As expected U.S. Bancorp (UBS) priced a new issue of perpetual preferred stock with a very low coupon.

The issue priced with a coupon of 3.75%–even lower than the ‘yield talk’–which has become the norm lately. This is NOT the lowest coupon preferred the bank has outstanding as they have a $25 floater with a 3.50% minimum — USB-H which can be seen here.

The issue is non-cumulative and investment grade–and of course qualified for a lower tax rate.

Below you can see the details of the new issue from U.S. Bancorp.

The pricing term sheet can be read here.

General Finance to Sell Senior Notes

Leasing company General Finance (GFN) will be sell a new issue of Senior Notes with maturity in 2025.

The company will use the proceeds to redeem a portion of their 8.125% notes due in 2021 (GFNSL) which can be seen here.

The company has a $100/share 9% preferred outstanding (GFNCP) which is redeemable now, but chose to refinance the debt.

The new notes will be unrated.

The preliminary prospectus can be found here.

Investors beware that GFN has shown net income in only 1 of the last 5 years, although free cash has been decent because of the giant sized non cash charge expense of depreciation. The company leases steel containers, mobile offices and other modular products which depreciate fairly rapidly.

GFN has a new presentation out to accompany the new issue.

mcg and Eugene were on top of this one.

US Bancorp to Sell New Preferred Stock

US Bancorp (USB) will be selling a new preferred stock issue.

This highly rated bank will likely garner a A3 from Moody’s and BBB from Standard and Poor’s which is where there current issues outstanding are rated.

You can see the current issues outstanding here. The company has a 5.15% issue which is now redeemable (USB-O) which will likely be redeemed with the proceeds from the new issue–shares today in the ‘O’ are taking a shellacking–down 3-4%.

Yield talk is in the 4% area–plus or minus an 1/8% (more likely minus 1/8%)

The preliminary prospectus can be read here.

mcg was right on this one.

Gladstone Land’s 6% Series B Preferred Finally Listed–Updated 1st Call Date.

Nearly 3 years after the initial launch (in 1/2018) Gladstone Land (LAND) has listed their 6% perpetual preferred stock under ticker LANDO.

The issue began to trade today and closed the day at $23.99. After trading in the $25/share area at the open today a big ‘dump’ came midday and large orders throughout the afternoon continued as holders decided it was time to exit. Holders of the shares, which previously had no exchange trading, were able to tender shares back shares previously at $23.50–so of course a premium today looked good to them.

Gladstone Land had initially offered these shares in 1/2018 acting as their own underwriter. When 6 million shares were sold the promise was to list the shares and they had sold near 6 million by 3/9/2020.

These shares will have an optional redemption period starting 6/1/2022. This is a monthly payor–which we always like.

I caution folks to not compare these to LANDP which is a 6.375% TERM preferred with a mandatory redemption on 9/30/2021. Being a term preferred the share price has a floor and is not likely to trade under $25/share prior to redemption.

Folks have been discussing this issue on the reader alerts page today if you want some opinions on the issue you can get them here.

The detail on the issue is here.

The initial prospectus can be read here.

Monday Morning Kickoff

The S&P 500 barely moved last week as the index rose by about 2/10% over the close the previous Friday—the range was 3440 to 3550–closing at 3482.

The 10 year treasury traded in a range of .64% to .78% before closing at .74%. With employment now faltering and no stimulus package being agreed to this is locked in a pretty tight range. When we see a stimulus I think we will see a pop higher in all rates.

The Fed balance sheet grew by a relatively giant $77 billion after growing $18 billion the week before–the balance sheet is just $18 billion below the highest level ever which was hit in early June.

The average $25 baby bond and preferred stock fell by 10 cents last week. Utility shares fell by 10 cents, bank related issues fell by 7 cents, investment grade issues fell by 10 cents—the only segment (I track) rising were the CEF preferreds which rose by 15 cents.

Once again the new issue market was very quiet with only the 1 new issue from RiverNorth/DoubleLine Strategic Opportunity Fund (OPP) being announced and priced. The issue will trade right away this morning on the OTC grey market under ticker OPPRP

This image has an empty alt attribute; its file name is opp.png

RiverNorth/DoubleLine Prices Preferred Issue

Closed end fund RiverNorth/DoubleLine Strategic Opportunity Fund (OPP) has priced the previously announced new preferred stock offering.

The issue priced with a coupon of 4.375%–pretty darned tasty for a A1 rated issue. This will be a ‘hot’ issue come Monday morning.

The terms are fairly standard for a perpetual preferred–optionally redeemable in about 5 years, cumulative, potentially qualified dividends (but can vary from year to year).

The issue will trade Monday morning under OTC temporary ticker OPPRP.

The pricing term sheet can be found here.

Preferreds ‘Pop’ on Heavy Volume

Dave in Texas mentioned the big pop in CIT Group common shares early today–well how about their 5.85% preferred – up $2.32 on 12 times regular volume. Turns out that CIT is being acquired by regional lender First Citizens (FCNCB).

I personally noticed the PennyMac FTF preferreds popping on large volume–3 and 5 times normal volume–both issues up around 3%. I had held a modest speculative position and needed this pop to unload it–collected 1 dividend and 75 cents on the pop–not really looking to hold long term. I see no news to account for the pop.

You can see these issues on the large volume spreadsheet here.

I think what we are seeing is some bargain hunters no being forced to dip a bit lower in the quality rankings to find issues under $25–of course this means many of the mortgage REITs could pop–at least those that hold agency paper. You can peruse the mortgage REITs here.

Still Awaiting Pricing for RiverNorth/DoubleLine Preferred

Yesterday CEF RiverNorth/DoubleLine Strategic Opportunity Fund (OPP) announced they would be selling a new preferred issue. As of this moment no pricing (coupon) or further details have been announced–nor any OTC grey market ticker.

Since the pandemic hit I have noted a longer time between announcement and pricing. Instead of the pricing being announced the same day as the original announcement many are taking an extra day or two. Like everyone I am impatient and am curious as to what price level a CEF can garner now, in the current environment.

Sit tight–maybe we will see it in the next hour or two.

Rates Drift Lower as Investors Look For Stimulus

Only last week the 10 year treasury popped into the .80% area–but as has been the case all year, there is no follow through on anything higher–pop and drift lower–pop and drift lower. Right now rates are at .70% which has been the settling point for weeks and weeks.

Common shares today fell on the open by around 300 Dow points–but now have clawed their way back as the eternal optimists believe in the almighty stimulus package to come bail them out–and they are likely correct–at some point prior to the election congress will decide to spend massive amounts of money. I can hardly wait to receive money I don’t need (sarcasm intended)–more money to salt away for a rainy day I guess. I would think that interest rates will again pop higher when/if a stimulus is announced.

I read kaptain lou’s Seeking Alpha piece and it motivated me to throw caution to the wind and buy some mid level quality preferreds yesterday (versu just investment grade). I bought a full position in UMH Properties (UMH-C) 6.75% perpetual, Monmouth Real Estate 6.125% (MNR-C) perpetual and finally I bought a full position of the RiverNorth Specialty Finance 5.875% term preferred (RMPL-P or RMPL.PR or RMPL- depending on your broker).

Nothing in common with the above different issues, but I am very familiar with the companies and thus comfortable holding them. Honestly after having a stellar September because damned near everything I owned paid their quarterly dividend I was hungry to add more fuel to the fire.

I did note today that the Compass Diversified (CODI) preferreds went ex-dividend yesterday and today they are off more than a buck from Tuesday–so they have fallen about twice their ex-dividend amount. Maybe an opportunity here. Note–CODI is a partnership so they do issues K-1’s.

CEF RiverNorth/Doubleline Announces Preferred Stock Offering

Closed end fund RiverNorth/Doubleline Strategic Opportunity Fund (OPP) has announced a new preferred stock offering.

This is the 1st CEF preferred offering we have seen for quite a while and we will see what type of coupon the company is able to garner.

Remember that CEF’s must have an asset coverage ratio of 200% which adds some safety to the shares. This closed end fund is paying a dividend of north of 15% as the price of shares has eroded–remember lousy CEFs can have very nice preferreds.

Moodys has rated the new issue A1–high investment grade.

The preliminary prospectus can be found here.

Eugene was on this one right away.

American Financial Group Comes a Calling

American Financial Group (AFG) has officially called their 6% baby bond issue (AFGH) for redemption on 11/15/2020, which is the 1st date the company was allowed to call them.

The company has a gaggle of baby bond issues outstanding which can be seen here.

The company recently issued baby bonds with a 4.50% coupon and at that time (in September) they said ‘they may’ call this issue–guess we know now.

As the called issue is trading at $25.38 this is not loss to current holders on the call.

The call notice is here.

Monday Morning Kickoff

Last week the S&P500 was up by almost 4%. The markets are waiting and betting on a stimulus package from congress and as has been the case all year (or actually a few years) massive liquidity simply keeps moving markets higher. This likely won’t end well, but whether the reckoning comes next week, next year or in 5 years no one knows.

The 1 year treasury closed around .78% on Friday after knocking on the door of .80% all week. This was an increase of about 8 basis points from the close the previous Friday. I suspect if we do get a stimulus package soon we will see an interest rate pop that will put us up in the 1% area (or maybe I am still in my dreams from last night).

The Fed balance sheet grew by $18 billion. While this is a sizable increase the balance sheet fell by $37 billion the week before. It is surprising that the balance sheet isn’t growing faster–the treasury auctions have been sizable recently so all in all liquidity is still sloshing around and huge issuance of debt is still being soaked up–maybe my rant last week was premature? We’ll see how these markets perform when the next $2 billion worth of stimulus hits.

Just like common stocks last week income issues took the opportunity to move to the highest levels since early March.

The average $25/share baby bond and preferred stock moved higher by 17 cents. CEF preferred moved higher by 43 cents, utility issues by 18 cents, banks by 14 cents and investment grade issues by 20 cents. Obvious the move higher in interest rates had little affect on price movements–as expected. Seasoned holders of income issues know that ‘speed kills’–slow movement in rates will have little affect on pricing.

It was a super quiet week in the new issue marketplace. We had only 1 new issue announced and priced.

Only Brookfield Finance (a part of Brookfield Management (BAM)) announced a new baby bond with a 4.625% coupon. You can see the details here.

Time to Move Interest Rates Higher

My headline says ‘time to move interest rates higher’–but honestly it is way past time to move them higher. Going way back to 2012 or so the Fed refused to cut back QE (quantitative easing)–honestly they have screwed up in this respect for 8 years now. Because there was a ‘taper tantrum’ once is no reason to keep doing the wrong thing.

The Federal Reserve, by proclaiming interest rates are going to remain low for years, is simply prolonging some pain, which can be alleviated, to a small degree, right now.

If the economy is so bad that we need to have the 10 year treasury at .77% why do stock prices keep going up and up?

The Fed needs to get out of the way–start cutting back asset purchases (in the last 2 months they have bought $130 billion in assets) NOW. We need the 10 year treasury to move to at least 1.50% in the next 6 months.

Through the asinine actions of the Fed insurance companies and pension funds throughout the country are all going to be on the verge of bankruptcy within a couple years. They will be the next bailouts–it’s coming, just a matter of time.

From my reading virtually all pensions systems use a totally unachievable rate of return to calculate their pension contributions and payouts–usually 6-7%–not going to happen when low risk assets such as corporate and muni bonds are paying 1-3% and over time, just like individual income investors, their achievable returns are going to fall dramatically.

Like pension systems, insurance companies, depend on safe income assets to fund their business–they live on the ‘float’–and the float isn’t paying much, if anything, right now.

It’s time for the Fed to quit kissing ass on Wall Street and do what they have to do for the good of the country.

New Website Project

After reviewing a bunch of options for the website and participation of folks in discussions I have decided to do an addition to the website.

I have asked Chad to add a new ‘forum’ to the site. This will not replace anything in particular now on the site, but will be a new addition–and I hope one which invites maximum participation by readers and participants.

So you ask–what is a forum? Think of the Silicon Investors website. A place where folks can start new topics and readers can skim down and decide if they want to read a particular thread. With premium add ons to the forum I think we will be able to search topics and authors.

You will recall I was researching new options for commenting a month ago–I still have that in my head and as a potential project, but the desires of the participants was not as clear which way to go. With the addition of a forum it may not be necessary to make changes to the commenting package–we’ll see–like everything I know this will not be the answer to all problems, but it seems like a low risk option (i.e. if it doesn’t work out I can just delete it).

Depending on Chads schedule and workload I hope to see this change in the next two weeks.

Brookfield Finance to Sell Baby Bonds

Brookfield Finance, an arm of Brookfield Asset Management (BAM) will be selling new $25 subordinated notes.

The notes will carry a coupon of 4.625%

The notes will be rated Baa3 by Moodys, BBB by S&P and BBB by Fitch–investment grade.

Potential investors should note that under certain circumstances the company can force conversion of shares into common shares of BAM and additionally can defer interest for up to 5 years one or more times. Make sure to read the prospectus before any investment.

The ticker for this new issue has not been announced as of yet.

The preliminary prospectus can be read here.

The pricing term sheet can be read here.

Bob-in-DE was right on top of this one.