4/29/2024
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Entergy Louisiana, a subsidiary of utility giant Entergy (ETR) has announced a new $1000 bond issue.
The company will be calling 2 $25 baby bond issues now outstanding. The 4.70% issue (ELU) which became callable in 2018 and the 5.25% issue (ELJ) which became callable in 2017.
ELU closed Friday at $25.49 and ELJ closed on Friday at $26.07.
Further details are not known yet.
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.
Data on the asset coverage ratio can be found here.
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.
Wells Fargo (WFC) has announced the redemption of the series T and V issues of $25 preferreds stock. Both carry 6% coupons.
The series T had previously had a partial call on 2/12/2020 of 26.7 million shares leaving 5.28 million shares outstanding.
The series V issue was 36 million shares with 4 million over allotment shares.
The calls are effective 12/15/20 (a normal dividend payment date).
The SEC filing with the call is here.
A4i was on this one earlier.
Under normal circumstances I would say “what the hell” in reaction to the current movements in equity and interest rate markets, but with the elections I simply say just another day to ignore and to wait longer before taking any actions whatsoever.
As most all of you know when stocks go sharply higher–for 3 days in a row now–interest rates would generally move higher as well–but this week the 10 year treasury started the week at around .86%–rose to almost .90% yesterday and today plunged to .77%. All I can say is that there are plenty of shenanigans going on with traders and I don’t want to participate in anything for a few days.
For all I know equities will plunge tomorrow and interest rates could spike–it’s a crazy time we live in for sure.
I am not inviting political discussions here–just conveying there is no reason to be involved (beyond current holdings) in these markets for a while.
Last week I added to my positions in some of the CEF preferreds–not necessarily those I prefer to hold, but just the same, ones I feel comfortable holding. At the right price I prefer the Gabelli related preferreds, but most of them have been priced too high all year long.
I added to 3 issues–all which I already owned. Specifically the Highland Income Fund 5.375% preferred (HFRO-A), the RiverNorth Specialty Finance 5.625% term preferred (RMPL-)and the new RiverNorth/DoubleLine Strategic Opportunity Fund 4.375% preferred (OPP-A). The RMPL- issue is unrated while the other 2 are both A1 from Moodys.
Now I have pretty much full positions in these–or in the case of the new RiverNorth/DoubleLine issue an overweight position.
Certainly I will do nothing today–or maybe for the rest of the week as markets gyrate a bit–then restarting my hunt on the weekend.
I’ve closed the comments–keep us all from going off the rails.
We’ve waited all year for elections and even though a good shares of all of us have already voted tomorrow is ‘election day’.
I was really surprised to see equities head so sharply today–really thought we would see a treading water type of market–the push and pull of the bulls and the bears, but yet the markets remained solidly higher all day long–what does that mean?
Honestly the only thing that should have made investors overly exuberant today is that no matter who wins the elections we are going to see a big, fat, juicy stimulus package soon–the helicopters will be flying daily for months spreading all the greenbacks to everyone that needs them–and most certainly also to those that don’t need them.
For now I am just watching–which is what I do most of the time. Are we going to see a big market swoon? Or are we going to see a real blow off top?
Buckle up just in case–we now switch from political commercials on TV to non-stop nonsensical talk from the various talking heads.
General Finance (GFN) has announced a partial call of their outstanding 8.125% baby bonds (GFNSL).
On 11/30/2020 they will redeem $57.2 million of the $77 million outstanding.
Shares are now trading at $25.16 and have a potential of 3 interest payments of 51 cents left before maturity on 7/31/2021–of course the balance could be called at any time. See the details here.
Maybe I will get a ‘taste’ to hold for as long as a little remains outstanding.
FLASH–large mall owner CBL Properties (CBL) has finally officially filed for Chapter 11–they have 2 preferred issues outstanding, both selling around 65 cents/share–they will now be worthless.
Also Pennsylvania Real Estate Investment (PEI) has filed a prepackaged Chapter 11, but the common and preferred will continue to trade. Dividends were already suspended and we will see where shares go from here.
It was a pretty rough week last week in common stocks as the S&P500 traded down as low as 3224 after opening the week at 3441, which was the high for the week. The index ended at 3270 on Friday–a loss of 5.6% for the week.
In spite of the tumble in equities the 10 year treasury closed the week at .86% which was 2 basis points higher than the week before. The bond had traded as low as .75%. With equity futures up 400 Dow points this morning are we going to see rates pushed above .90%?
The Fed Reserve balance sheet fell last week by $31 billion last week which is consistence with the sawtooth upward pattern–no reason for this to change.
The average $25 preferred and baby bonds fell last week by 32 cent last week. Investment grade fell by 31 cents, banks by 25 cents, CEF preferreds by 20 cents and mREIT preferreds by 29 cents.
Over the last 10-12 weeks movement in preferreds and baby bonds are consistent with interest rates creeping higher while preferred and baby bond prices are flat to down.
With the volatile nature of the equity markets the new income issuance arena was slow last week with just 1 $25/share issue coming to market.
Bank of America (BAC) sold a new non cumulative preferred with a coupon of 4.375%. The issue is trading now on the OTC grey market under temporary ticker BACPL. Shares closed at $25 on Friday.
