The new senior notes from United States Cellular (USM) have been priced with a coupon of 5.50%. I had personally hoped for a 5.75% simply because these fit in my current wheelhouse pretty good (just a tick or two under investment grade) so I always hope for the best.
The company is no AT&T, but the financials have been reasonable–here is the 10Q from the quarter ending 9/30/2020. Revenues are relatively flat year-over-year, while net income was up nicely. USM has been a no growth company for many years and I don’t expect that to change–on the other hand the balance sheet is strong, which is an important factor when I am perusing the financials.
The issue will not trade on the OTC grey market, but for those who can’t wait for exchange trading you will need to call your brokers bond desk.
Cellular telecom United States Cellular Corp (USM) will be offering a new $25/share baby bond.
The issue will likely be rated BB by Standard and Poor’s and Ba1 by Moody’s.
The company currently has 4 baby bond issues outstanding with coupons ranging from 6.25% to 7.25%. You can see the issues here. The company ‘may’ use the proceeds from the new issue for debt repayment. It would not surprise me a bit to see the company call one of the 7.25% issues.
Once again we will have markets dominated by news of vaccines for Covid 19–we are getting very close to approval and the start of vaccinations. Once again there is no reason to believe markets will turn lower as virtually ‘all news is good news’.
The S&P500 traded as high as 3644 last week before closing the week at 3638. The index was up over 2% on the holiday shortened week.
The 10 year treasury traded in a range of .846% to .89% before closing near the low for the week.
The Fed Reserve balance sheet has not been updated with the Thanksgiving holiday interrupting the normal schedule–I would expect that the balance will be updated at noon today.
Last week the average $25/share baby bond and preferred stock moved higher by 16 cents. We continue to see investment grade issues lag junk issues–investment grade issues were down by 4 cents/share while mREIT preferreds moved higher 33 cents/share. We have seen the junk move higher for a few weeks as investors shy away from those issues with prices dramatically above $25 with low (or negative) yields to worst.
As one might expect there was absolutely no action in the new issue marketplace as the Thanksgiving holiday interrupted any potential new issue.
I will be adding a new link titled “Sandbox” in the right hand menu.
That link will get you to this page.
I had originally set up the “Reader Initiated Alert” page for ‘alerts’. I was thinking this, for instance, might be when a preferred stock is undergoing a temporary selloff and someone wants to let the population know about it quickly. Of course we all (including me) use the ‘alert’ page for general messaging.
I am requesting that we start using the Sandbox page for all general talk, and try to preserve the ‘alerts’ page for ‘alerts’.
I have had a screen up on one of my monitors all week where I see all comments – no matter where they are posted–it is a great page and I wish everyone had a page like that–believe me we all benefit from all the knowledge being shared. I don’t want to stifle any of the exchange of knowledge, but hope to get things a bit better organized by adding the Sandbox page.
Each day common stocks go higher and higher–where it stops no one knows–really NO ONE.
I can find all sorts of fundamental data that would show that the never ending climb higher in equities is silly–but really who cares about fundamental data? We all know that we have a new type of investor in the market–they are young and wealthy–they think totally different.
For years one believes they have cracked the code to earning a nice 6-7% annual return–but the rules change and I am back to being as dumb as I was 25 years ago. If I was really smart I would be up 25% this year instead of hoping I can reach 5% If I was really smart I would hold nothing but speculative equities that have no earnings, but they have sexy names. Oh well not to be–I feel good about staying the course of working to get that 5% (or maybe 6-7%) year after year through conservative investing.
In the Monday Morning Kickoff this week I wrote “I wouldn’t bet on a stock market tumble now”. In spite of the silliness in stocks 2 key indicators point to higher prices.
I have taken to watching the Fed Balance Sheet as well as the Personal Savings Rate (let’s call it PSR).
The Fed Balance Sheet is going higher and higher–now at record levels. While the balance sheet took a dip in June it is now rising steadily as the FED buys all the excess assets that they can sop up. Now whether I agree or not with the FED policy it matters not–as long as the assets are moving higher they are manipulating markets to where they want them–interest rates and thus equities.
Now I being to look at the Personal Savings Rate–the definition being personal income less outlays for expenses and taxes.
You can see that the normalized level on this chart is around 7%, but in March it started to sprint higher with helicopter money flowing freely–peaking out at 33.6% in April–wow. Now the drift lower begins and now we are at 14.3%–still a huge increase from the norm. To say that the consumer is well ‘funded’ right now would be a huge understatement.
So the question is simply will markets continue higher with the FED manipulating interest rates and with the consumer having more cash than they know what to do with? Will the party continue until consumers get back to the normal savings rate? Or will it continue until that ‘black swan’ shows up one day?
Kicking off another week with some trepidation as states around the U.S. go into various forms of ‘lockdowns’. In Minnesota bars and restaurants and fitness centers will again take the brunt of the economic damage as all of them have been ordered to shut down for 4 weeks–and who knows whether it will be 4 weeks, 8 weeks or more.
The various shut downs and economic damage will be battling with the vaccine news for headlines–I wouldn’t bet on a tumble in stock markets now – a surprise stimulus package could send markets steeply higher–along with interest rates.
Last week the S&P500 traded in a range of 3544 to 3629–closing the week at 3558 which is a loss on the week of near 1%.
The 10 year treasury drifted off .82% to .92% before closing the week right near the .83% level—it looks like the 1% level won’t be breached this month.
The Federal Reserve balance sheet took a giant sized jump moving higher by $68 billion. The balance sheet has again reached the largest balance ever–big surprise.
Last week the average $25/share preferred stock and baby bonds rose by 1.5%-a pretty large jump. The mREIT preferreds lead price higher with a jump of near 4%. Banks were up just 1/2% with investment grade being up around 3/4%. Obvious folks are moving into the lower quality issues because those are the few issues that are trading below $25.
Last week we had 4 new income issues price.
REIT Vornado Realty Trust (VNO) priced a 5.25% perpetual preferred issue. The issue is trading on the OTC grey market under ticker VORTP and closed on Friday at $25.10.
Insurance company CNO Financial Group (CNO) priced a issue of baby bonds with a coupon of 5.125%. I have not seen trading take place in this issue as of Friday–would guess it will trade this week.
Brookfield Finance I (a division of Brookfield Asset Management) priced an investment grade issue of baby bonds with a coupon of 4.50%. No trading has taken place in the issue.
Insurance company Assurant (AIZ) priced a new issue of baby bonds with a coupon of 5.25%. This issue is below investment grade. The issue has not traded as of yet as far as I can tell. Expect trading this week.
Office REIT Vornado Realty Trust (VNO) will be selling a new issue of $25 preferred stock.
The terms of the issue are typical–cumulative, optionally redeemable in about 5 years and non qualified.
The company has 3 other issues outstanding, 2 of which are currently redeemable with coupons of 5.7% and 5.40%. The company has NOT signaled an intention to call these, but one can never tell. Neither issue has much, if any call risk built into the price.
I believe this issue will be split investment grade–Baa3 by Moodys and BB+ from S&P.
Brookfield Finance I (UK) PLC, a Brookfield Asset Management (BAM) company has sold a new issue of $25 subordinated notes. These notes are fully and unconditionally guaranteed, on a subordinated basis, by giant asset manager Brookfield Asset Management Inc.
These notes will be listed on the NYSE and will pay quarterly interest payments.
NOTE–this is not a typical baby bond–in fact from my review of the prospectus it is more akin to a cumulative perpetual preferred than a bond. There is no maturity date, but the optional redemption begins in 2025
I believe the interest payments will be treated as dividends–and likely qualified for income tax purposes, but this is not a certainty.
The company may defer interest payments without being in default.
If you are interested please read the pricing term sheet and the preliminary prospectus, but which are lengthy documents. Some of the folks have been discussing this issue on the Reader Alert Page so one might look there for additional details.
The Gabelli Healthcare and Wellness Trust (GRX) has announced they will be calling the only preferred they have outstanding.
The 5.875% GRX-B shares will be redeemed on 12/24/2020 for $25 plus 35.9 cents of dividends accrued.
The various Gabelli funds have been redeeming issues by selling shares in the trust–versus doing a ‘re-fi’ with a new preferred. Essentially they are selling shares at high prices–shrinking the size of the trust and reducing leverage–seems like a smart move.
The shares which had traded as high as $27 or so in October are now trading at $25.33–falling about 55 cents from yesterdays close.
Insurer Assurant Inc. (AIZ) has priced their previously announced subordinated notes.
The issue was priced at 5.25%. The issue is rated Ba1 by Moody’s and BB+ by Standard and Poor’s–both 1 notch lower than investment grade.
The issue will pay quarterly interest payments, but the company will have the right to defer interest payments for up to 5 years, on 1 or more occasions although not past the maturity date which is 1/15/2061. If deferred interest will continue to accrue.
The typical optional redemption can occur beginning 1/15/2026 for $25/share plus accrued interest.
There will be no OTC grey market trading on the issue, but those with a desire to buy notes before exchange trading occurs can call their broker with the CUSIP. It is likely the issue will begin to trade on the NYSE within a week or 10 days.
Large insurance company Assurant Inc (AIZ) has announced they will be selling some $25/share subordinated notes.
The $44 billion asset company will sell notes with the typical terms–including the ability to defer interest payments for up to 5 years on one or more occasions. The interest deferment is a relatively typical provision in insurance company issues.
The issue will mature in 2061 and have an optional redemption starting in 2026.
I believe this issue will be rated Ba1 (a notch below investment grade) by Moody’s, although I don’t see a specific rating as of this minute.
Ready to get a new week underway and get back in the swing of things after 5 days on a ranch in Arizona, although after being 5 days without a TV and work it may take the better part of this coming week to get ‘fired up’ again.
The S&P500 moved in a range of 3511 to 3594, closing the week at 3385 about 2.5% above last weeks close.
The 10 year treasury hit a weekly high of .937% before backing off on the week to close Friday at .893% which is still 7 basis points higher than the close on the previous Friday. The interest rate increase over the last month or so while amounting to 20 basis points has been a perfectly paced increase to keep investors from panicking.
The Fed balance sheet grew by $18 billion last week- nothing new here–just marching higher with no end in site.
The average $25 preferred and baby bond rose by almost 1% last week gaining 23 cents. Bank issues were up just over 1%, CEF issues up 1/2% with mREIT preferreds up 1%. Shipping issues were up a strong 2.2%.
Last week we had 3 new income issues come to market.
Public Storage (PSA) sold a new 3.90% perptual preferred which is trading under OTC temporary ticker PSAOL closing on Friday at $24.64.
Brighthouse Financial (BHF) sold a new non cumulative preferred with a coupon of 5.37%. The issue is trading on the OTC grey market under ticker BTHFL and closed last week at $25.30.
Cullen/Frost Bankers (CFR) sold a new investment grade, non cumulative preferred with a coupon of 4.45%. The issue is trading nder temporary ticker CFRBL and closed last week at $25.18.
Insurance and annuity company Brighthouse FinancialInc. (BHF) has announced a new issue of non cumulative preferred stock.
The terms are normal for a large insurer–non cumulative, but qualified for preferential tax treatment.
The company currently has 2 preferred issues and 1 baby bond issues outstanding that trade very strongly–you can see them here. Of course the coupons on these issues are high–6.25% to 6.75% so you would expect them to trade with high valuations in this low interest rate environment.
This new issue is rated low investment grade (BBB-) by Standard and Poor’s, but Ba2 by Moody’s – a couple notches below investment grade.
Self storage giant Public Storage (PSA) priced a new preferred stock issue right where expected.
The coupon is 3.90%–just 2 1/2 basis points above the last issue sold in September.
As with all REIT preferreds the issue will be cumulative, but not qualified for preferential tax treatment
It is likely there will be little ‘upside’ to the share price on this issue. The N issue with a 3.875% coupon sold on 9/29/2020 traded as low as $24.74 and as high as $25.31 while closing today at $24.95. On the other had if we get a continued spike in interest rates this issue, plus many other low coupon perpetuals, could take a sharp tumble.
We will see immediate trading on the OTC grey market under the temporary ticker symbol of PSAOL.
I had previously mentioned that I would be adding a ‘forum’ to the website and I wanted to update folks on progress.
I have the forum installed–at least the basic framework. I am now testing some functions (i.e. search capabilities etc).
Right now I am pretty pleased with search functions–you can search by author or by topic.
Participants will be able to set up topics within the broader forum etc.
Also you can receive emails on any response to a post and ‘subscribe’ to a given topic. This is within the basic functions of the forum. After that there are dozens of ‘add ins’ that I can add to expand the functionality–but I just want to get the basic set up going before I try to get too darned fancy.
I am going to have Chad make some tweaks to what you see below–i.e. larger text and getting the ‘search’ box in the right place.
Equity futures are way, way up on a Pfizer announcement of a highly effective Covid 10 vaccine. With the S&P500 up by 3-4% you would expect higher interest rates–and we have the 10 year treasury up by 11 basis points–at .93%. If this rally continues for a day or two we may see a few ‘bargains’ start to appear in the income issues–we’ll see.
The S&P500 traded in a range of 3280 to 3510 before closing the week at 3509 a gain of near 7%–once again common shares were sent sky high because of the flood of cash trying to find a home.
The 10 year treasury traded in a range of .76% to a high of .90% and in spite of the huge equity gains the 10 year closed the week at .82%–not exactly a huge vote of confidence in the economy.
The Fed Reserve balance sheet grew by $11 billion last week (after falling by $31 billion last week) extending the sawtooth upward pattern of balance sheet growth–this is destined to grow year after year.
The average $25/share preferred and baby bonds rose by 35 cents last week, a very strong gain following on the loss of 32 cents the week before. Investment grade rose by 15 cents as did banking issues.
Last week we had no new income issues sold–considering the turmoil of the elections and market movements this is no real surprise.
Some earnings that are out that are of interest to me (and maybe you).
Amerco (UHAUL) announced earnings that almost doubled the year ago quarter on strong revenue. Earnings plus non cash depreciation charges amounted to almost $400 million. Those of us in the UHAUL Investors Club always like to see strong earnings from the company.
CHS announced earnings for the year ending 9/30/2020–off about 50% from last year. Crude refining was way down year over year while other segments (i.e. ag) improved somewhat off really low levels. The ag economy has approved very substantially with corn and soybean prices strongly higher in the last few months–maybe it will help the ag business for CHS.
VEREIT (VER) announced earnings which were way up from the year ago quarter. The year ago quarter had a huge charge ($832 million) for litigation which is now behind them. Rent collections are now at 97% (in October after quarter end) while they were 94% for the quarter ending 9/30.
While updating the asset coverage ratios on the CEF preferreds tonight a glaring issue jumped out at me relative to the Gabelli Multimedia Trust (GGT). This CEF has 2 preferred issues outstanding.
On 6/30/2020 the trust had an asset coverage ratio of 200%–this is down from 297% on 12/31/2019. WOW–close call. The fund is required to have a 200% (or more) coverage ratio on the last day of each quarter–if not, they have a 60 day cure period after which they are required to redeem some level of their preferred shares to cure the asset coverage default. Of course we know that if they don’t cure the coverage default they are not allowed to pay dividends to common holders or make common share buybacks–not a position you want to be in when you have a declared level dividend policy of 10%.
But did you know that the fund can force redemption, at $25/share plus accrued dividends, BEFORE the 1st optional redemption date to cure a coverage default? Well they can.
Now in this instance this is bothersome-neither issue of the GGT preferreds have reached the optional redemption period yet. The GGT-E 5.125% issue is trading at $26.04 and the GGT-G 5.125% issue is trading at $26.40–they have traded at this level for a few months–I’m not sure they would have traded here if folks knew they had a potential redemption hanging over their head. Their respective optional redemption dates don’t arrive until 2022 and 2024.
You might say ‘why don’t they buy some shares on the open market?’ This would reduced the size of their portfolio while raising the asset coverage ratio–this may be possible, but up until now their policy is to buy on the open market only under $25/share and earlier in the year they did do a little buying of preferreds down in the $22-$23 area–but it was a minimal number of shares.
The good news is that on 6/30/2020 the net asset value was $6.14 and right now it is $7.15—so trouble was averted–for now. If Mario Gabelli was smart he would start looking to sell common shares soon–get while the getting is good Mario.
Here is my concern for this issue. Markets tumble and don’t spring back OR markets remain level and the 10% dividend eats into assets reducing coverage (over time).
Let’s see what happens here–minimally an educational study.
My source for the forced redemption comes from the original prospectus which can be found on the individual security pages linked above.