Closing Out a Wild Year

Well markets are quiet today–as expected as everyone takes a holiday for the next 3-4 days.

After this year, who isn’t looking for a ‘fresh start’? But we all know that there are high odds that 2021 will hold just as much uncertainty as was presented in 2020.

The 10 year treasury will close the year out around .92%–never making the assault on 1% in a strong fashion the last few weeks–but I think it is coming–I only wish I knew when. I hear all the ‘smart people’ saying it will close 2021 in the 1.50%-2% area, but I know better than to make such silly predictions as no one knows what will happen. With the FED essentially being part of the MMT (modern monetary theory) camp we are heading down paths that have never been explored—well I shouldn’t say never–there was Germany in the 1920’s when Germany hired all the printers in the country to print money. Of course we don’t need ‘printers’–we have computers and a few key strokes will get us a trillion dollars.

So as we go into 2021 the country is laden with ‘zombie’ companies–airlines, the cruise industry, hospitality and lodging–kept alive only by printing helicopter money and spreading it far and wide. Long term most will not be helped by this money–most ‘zombies’ are piling debt on top of debt–I see lodging REIT Ashford Hospitality (AHT) has borrowed $200 million (with options for more) from Oaktree Capital–at the bargain rate of 16%–exactly how this helps a company that was darned near insolvent before the pandemic I will never know–but ‘Wall Street’ has always been able to spin a good yarn.

So we can see as we enter 2021 most anything is possible—cheap or free money cures all your ailments.

Back on a more personal note–investing was difficult in 2020, but I am happy with the 4%ish I earned during the year. Too much cash most of the time, but December ended up being an excellent month and for this I am thankful.

I can’t help but think of the nervous nellies that bought high and sold low. The folks that entered the pandemic fully invested and when the market tumble occurred they sold out at the bottom. It happens every time we have a sharp drop in share prices–unfortunately many times it is those that can least afford it that sell at the bottoms. These folks now have all the money in money markets at .023% interest (I have a little dab still in the Gabelli money market and noticed today I got a 24 cent payment).

It is tough to fight the FED so for 2021 I will be starting off going with the flow–the FED will try damned hard to juice markets every time there is a tiny setback so I have to go with them until they stop. I will without doubt have dry powder, because I am pretty darned certain buying opportunities will occur multiple times during the year–and I will be there.

Alta Equipment Group Sells Preferred Issue-Corrected

Corrected—I had the 1st call date wrong and now have corrected it. Also 2whiteroses mentioned this issue on 12/17/2020 which I missed–Bob in Thailand mentioned it last night which I saw–credit where credit is due.

Alta Equipment Group (ALTG) has sold a new cumulative preferred issue with a high yield coupon of 10%.

Please note that this one flew under the radar until Bob in Thailand noted it yesterday–actual issuance was on 12/18/2020. I can find no trading on the issue yet (although maybe you can).

They have sold 1.192 million $25 shares with an over allotment available of 10,000 shares.

The company sells construction equipment (primarily) and had revenue of near $600 million through the 1st 9 months of the year with a loss of around $20 million during this time.

I an not familiar with this company and I would encourage all to do some deep due diligence before any purchase.

The pricing term sheet is here.

The final prospectus can be read here.

Another Mid Quality Preferred Purchase

I continue to add mid level quality preferreds to our portfolios–some might say low quality for some of the issues–it is starting to feel like the ‘olden days’ after tending toward higher quality issues for the last 9 months. I will continue to hold plenty of dry powder–around 20 to 25%.

Today I added a 1/2 position in the Gladstone Commercial (GOOD) 6.625% monthly paying, cumulative, perpetual preferred (GOODN)

Gladstone Commercial is a triple net lease REIT focused office and industrial properties. I am not impressed by their financials, but they do cover their $1.50/share common stock dividend, which gives a nice level to safety for preferred shares. They have collected 99% of their lease payments in the most recent months–but personally one has to wonder about the future with ‘work from home’ likely to cut into office demand to some level.

The companies most recent earnings release can be read here.

These preferred shares trade up last month–a bunch, but now are back down to earth–seems like a good time to put a few shares in the portfolio.

Just a note that the REIT has a 7% issue outstanding (GOODM) as well which is trading at the same level as the 6.625% issue . An investor could well purchase this issue, but it has call protection only until 5/21 so the holding could be short term if bought–but either if fine.

Monday Morning Kickoff

Well we are going from one holiday week to the next–last week was relatively uneventful—suspect we may see more of the same, but one never knows what surprises may be in store for us.

Last week the S&P500 traded in a range of 3636 to 3711 before closing the week at 3703—a gain of only 6 s&P points on the week.

The 10 year treasury moved in a range of .9% to .97% closing the week at .96%. I am awaiting an assault on the 1% mark–but I think as long as we get the assault a few basis points at a time little market damage will be done–if we get a 1/8% (12.5 basis points) point move in a day we could have a rush to the exits in income issues (although probably short lived).

Last week the Federal Reserve balance sheet remained flat–since the numbers weren’t released because of the holiday–they will be released on Monday.

The average $25/share baby bond and preferred stock moved slightly higher by 5 cents. Investment grade moved higher by 14 cents. Banks, insurance and closed end fund issues moved lower by 4 cents.

Last week we had no new income issues priced–not unusual for a holiday shortened week.

Quick, Cautionary Note on Customers Bancorp Preferreds

Smaller bancorp Customer Bancorp (CUBI) has 4 fixed-to-floating rate preferreds outstanding of which 1 issue is currently floating–the 7% CUBI-C is floating.

The other 3 issues all become floating in 2021 and based upon the current yield of the 7% issue it looks like all of the 3 issues are trading 3% to 7% too high and holders can expect to have no return during 2021 if held too long.

CUBI-D has just one more dividend at 6.50% before it begins to float in March. This issue should trade around $24 and currently trades at $24.74–current yield is 6.58%, but this will need to adjust to the 5.3% area–so look for it to drift lower over 3 months–or maybe take one quick plunge.

Anyone holding the D issue should consider moving to the C issue. The other 2 issues will drift lower as well over time.

Capital Southwest to Call Baby Bonds

BDC Capital Southwest (CSWC) will be calling their 5.95% Notes due 2022 (CSWCL).

The company had called 800,000 shares on 9/29/2020 and they will be calling the balance (about 1.485 million shares) on 1/21/2021 for $25 plus accrued interest.

This is another case of a good issue falling to the proceeds of a 4.50% $1,000 note issue.

No loss will be taken on the call as shares are trading at today at $25.10.

Even a Blind Monkey Can Earn a Good Return

For years (going back to at least 2013) I have posted model portfolios simply to see what happens to various quality portfolios of income securities over long periods of time–by long periods of time I mean 5 or 10 years.

I started the initial portfolios back in 2013 (I think) and kept tracks of a number of them until 2 years ago and then lost track of them as they were part of the original ‘Yield Hunter’ website which was sold about 5 years ago.

I always set these up to be ‘held’ – not traded – really ‘buy and hold’. I really wanted to see the results from portfolios that were held through thick and thin–through the big ups and downs. I know I had an ‘investment grade’ portfolio, another was ‘short duration’ and I think another was ‘high yield’.

So with the Innovative Income Investor I did the same–set up a couple of portfolios. 1 is ‘High Yield‘ which is all preferreds and baby bonds. I chose issues that at the time of initiation were high yield issues I would be comfortable holding–and in fact I did hold many of them at various times.

The issues in the High Yield Model were mREITs, many energy related issues (midstream, shipping, LNG etc) and some financial issues (BDCs, asset managers etc).

The model can be seen here.

On the portfolio page I make short notes to look at as time goes by. I see the original goal on 1/25/2018 for the annual return was 8.25% and then I see on 9/30/2019 I lowered the goal to a more realistic goal of 7.50% given the direction of interest rates.

On 3/19/2020 I wrote that the model was down 43% earlier in the week. and on 8/20/20 I wrote that the model was up 7.75% since inception.

Currently–just adding in recent dividends the model is up 18.83% with a month to go until the 3rd anniversary–so let’s say the model is likely to end around 19.50% for the 1st 3 years–an average of 6.5%/year.

And that is how a blind monkey earns a pretty good return without babysitting their pretty junky portfolio.

PS–no blind monkeys were actually used for this model–nor were any monkeys with sight.

Monday Morning Kickoff

Last week was a relatively quiet week in equity markets as Covid 19 vaccine began to be distributed and of course problems to be discovered–no one who has lived over 40 years could have believed it would come off without some difficulties. But thus far markets have digested news readily and I suspect that will mostly continue.

The S&P500 traded in a range of 3646 to3727 and closed the week at 3709 which is a gain of just over 1% on the week.

The 10 year treasury traded in a range of .89% to .95% and closed the week at .95% which is 5 basis points higher than the week before. With the Covid stimulus package finally on the verge of approval by congress will the package help put the 10 year treasury over 1%? With stock futures trading sharply lower this morning no challenge of 1% is likely today.

The Federal Reserve balance sheet exploded higher last week as the Fed bought huge amounts of mortgage securities and when added to a healthy dose of treasury purchases the balance sheet assets grew by $120 billion in the last week.

The average $25 preferred stock and baby bond rose last week 23 cents/share. Investment grade spiked higher by 27 cents , bank issue by 19 cents while the only loser was CEF preferreds which fell 14 cents/chare–mostly because of ex dividend dates.

Last week we had 2 new income issues price.

Annuity company Athene Holdings LTD (ATH) priced a new issue of non cumulative preferred stock. The issue priced at 4.875%. The issue is trading on the OTC grey market under ticker ATHDF and closed last Friday at $25.08.

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Triple net lease REIT American Finance Trust (AFIN) priced a cumulative preferred with a coupon of 7.375%. The issue is trading under OTC grey market ticker of AFINO (same as the permanent ticker) and closed Friday at $24.69.

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Started Adding Gladstone Land Preferred

This past week I added about a 1/2 position in the perpetual preferred issue from REIT Gladstone Land (LAND).

Gladstone Land 6% perpetual preferred (LANDO) differs from almost all other income issues that the various Gladstone companies have sold in the past in that it is a pure perpetual. Typically they have sold either ‘term’ preferreds (preferred with firm redemption dates) or they have sold short maturity baby bonds. To date only Gladstone Commercial (GOOD), another REIT, has used perpetual preferreds.

This issue was originally sold starting in 1/2018 by Gladstone Land in an continuous untraded offering, which was completed in 10/2020 at which time the shares were listed for exchange trading.

Now trading at $24.82 the issue provides up a current yield of just over 6%.

Net income of Gladstone Land is not impressive, but being a REIT we can focus on funds from operations (FFO) which is relatively solid.

We had held the term preferred LANDP which carries a 6.375% coupon but has a mandatory redemption date on 9/30/2021 which gives it a current yield of 6.06%–but a terrible yield to worst of around -5%. Trading at $26.30 right now, even if held to maturity, an investor can only look forward to earning 30 cents in the next 9.5 months. We have sold all of our LANDP.

Lastly we always like the monthly dividend payments that Gladstone companies tend to pay–I always say–“better in my pocket than their pocket”

VEREIT Comes Calling Again

Large triple net lease REIT VEREIT (VER) has again called 4 million shares of their 6.70% perpetual preferred (VER-F).

This has been about a quarterly event this year–they called in 6/20, 9/20 and now in December (effective 1/21).

Many of you are already aware of this redemption–but for those maybe thinking about buying some shares it is good to know the history. If you click the link above you can see what has happened over the last 18 months or so.

This issue was originally over 42 million shares and after this call there will be around 14.9 million shares outstanding. Given the history it would seem logical that by this time next year there will be NO shares outstanding.

I see shares have popped today to $25.36/share. Dividends are about 13.9 cents/share monthly so one might be wise to buy only a little lower–unless they call all shares in the next 90 days one will make money–but you can’t always tell what they might do. I am guessing they will make 3 more calls over the next 9 months–meaning 9 dividends left to be paid–but that is simply a wild guess.

Disclosure–I own a little of this issue bought at lower levels, but will buy more if it sets back into the $25.15 area.

Sachem Capital Reopening Baby Bond Issue

Hard money lender, and REIT, Sachem Capital (SACH) has announced they are ‘re-opening” the currently outstanding 7.75% baby bond issue (SCCC).

No offering price, no number of shares to be sold has been announced although I expect the offering price to be $24.75 to $25/share.

This issue was originally sold on 8/26/2020. This issue was small–just 520,000 plus over allotment. The issue was reopened 10/20/2020 and another 520,000 shares were sold. The issue had been trading at $25.07/share today–the issue had just gone ex-dividend for about 48 cents a few days ago.

NOTE–this offering was announced late in the day and no negative reaction was logged this trading day in the pricing of the outstanding shares–but normally we will see a setback in prices with more shares being sold. aview made note of the offering on the Reader Initiated Alerts page today at 3:25pm.

The offering prospectus can be found here.

General Finance Announces Redemption of Baby Bonds

Leasing/rental corporation General Fiannce (GFN) has announced that they will redeem the last $11.6 million of the 8.125% baby bonds (GFNSL) on 1/15/21.

The announcement is here.

The company had previously made 2 partial calls of the bonds.

GFN has a newer baby bond outstanding with a coupon of 7.875% as well as a $100 perpetual preferred with a coupon of 9% which you can see here.

Updated Fidus Investment Information

As mentioned yesterday BDC Fidus Investment (FDUS) plans to call their 5.875% baby bonds (FDUSL) with the proceeds of a new $1,000 bond issue.

FDUS updated their ‘use of proceeds’ to include the partial call of their 6% baby bond issue (FDUSZ) which becomes callable 2/15/2021.

CR mentioned this possibility yesterday as did others.

The revised filing is here.

The $1,000 bond was priced at 4.75% as noted by some others.

BDC Fidus Investment Comes a Calling

Fidus Investment (FDUS), a BDC is issuing a new $1,000 note due in 2026.

The company has announced the intention to redeem their $25/share notes due in 2023 (FDUSL) which carry a coupon of 5.875%.

There will be a minor loss for holders as the shares (bonds) were trading at $25.42 yesterday and are $25.00 premarket today. It is likely the company will pay a full quarter interest payment (although we don’t know the call date yet) which is about 37 cents/share so shares have a value in the $25.37 area.

The ‘use of proceeds’ statement can be read here (from the prospectus for the $1000 notes).

Another case of a decent $25 issue going down in flames to a $1,000 issue.

On Line Medical Company Ontrak Re-opening Preferred Issue–UPDATED

UPDATE–Ontrak has announced they are selling 1.73 million shares in this follow on offering. They will also have 259,500 shares available for overe allotment. The offering price is $24.75. The pricing term sheet can be found here.

Ontrak (OTRK) has announced a reopening of their 9.50% cumulative preferred stock which originally was issued in August.

Pricing and the number of shares to be sold have not been announced, but I assume it will be in the $25 area.

The preliminary prospectus is here.

This is a relatively young company and just taking a quick peek at their financials their revenue growth has really ramped up—of course no income at this stage.

Current outstanding shares are trading at $24.72 right now after being as high as $25.50 in the last few days preannouncement.

Triple Net Lease REIT American Finance Trust Prices New Preferred–Update

UPDATE–OTC grey market ticker is same as permanent ticker AFINO

Smaller triple net lease REIT American Finance Trust (AFIN) has priced their new preferred issue. The issue prices at 7.375%.

The issue is cumulative, but not qualified. There is no rating on the issue.

No grey market ticker has been assigned although one should be assigned shortly.

The pricing term sheet can be found here.

Athene Holdings OTC Grey Market Ticker

Ever since the Covid 19 pandemic arrived the filing of pricing documents in the evening is very SLOW. So I will publish data on this new issue (Athen Holdings LTD) later tonight or first thing in the morning when it is finally filed.

I know the issue priced at 4.875% (thanks razorbackea) and a OTC Grey market ticker has been assigned. The grey market ticker will be ATHDF. That is all we know at this time.

Baby Bond Stock Quotes Down

As many of you have noticed many of the baby bond stock quotes in spreadsheets went off last Friday and haven’t been back since that time.

Of course over the 14 years I have published websites this has been a persistent issue as Google doesn’t supply many baby bond quotes and Yahoo Finance cut us out maybe 3 years ago.

I am looking for alternatives, but thus far have not found a suitable alternative–I am about to the point where I am going to contract with a ‘real’ quote supplier for the quotes–we’ll see.

Triple Net Lease REIT American Finance Trust to Sell Preferred

Triple net lease REIT American Finance Trust (AFIN) has announced they will be selling a new issue of cumulative preferred stock.

The company has 1 other outstanding preferred with a coupon of 7.50% which can be seen here.

The issue will be unrated and ‘yield talk’ is in the 7.375% area.

The preliminary prospectus can be read here.

J was on this early with EarlyBird some ‘yield talk’.

Annuity Company Athene Holdings to Sell Preferred Issue

Athene Holdings LTD (ATH) will be selling a new issue of non cumulative preferred stock.

This will be an investment grade issue with yield talk in the 4.75% to 5% area (which lately translates into around 4.625%).

The company has 3 other issues outstanding which can be seen here. None of these issues is yet redeemable.

The preliminary prospectus can be read here.

J was right on this one with EarlyBird chiming in on some ‘yield talk’.

Public Storage Announces Redemption

Public Storage (PSA) has called for the redemption of the 5.40% perpetual preferred effective on 1/20/2021 at the normal $25 plus accrued dividends.

The company press release is here.

The issue was trading at $25.76 last Friday so there will be small losses on the call for some–the issue goes ex dividend today for about 34 cents and there will be a small stub payment on redemption.

Monday Morning Kickoff

Last week we saw a rare drop in equity prices as the SP500 fell by just a bit less than 1% on the week. The index traded in a range of 3633 to 3712 before closing at 3653.

It looks like for the coming weeks the release of the Covid-19 vaccine will drive the start of the week as equity futures are up by around 1/2% at 8 pm central time. Conversely any problem that arises with the vaccine plan could send the market tumbling. Any tumble should be shallow and short living.

The 10 year treasury yield fell back by 7 basis points last week closing the week at about .89% after hitting a high during the week of .96%. Treasury auctions last week came off very strong with high demand–a continuation of global liquidity sopping up all levels of note and bond supply.

The Federal Reserve balance sheet grew by $20 billion last week-as expected (at least the growth was expected–the amount is always anyone’s guess).

Last week the price of the average $25/share preferred or baby bond rose by just a penny. Investment grade rose by 2 cents, mREITs by 2 cents and CEF preferreds were off 1 penny. Not much movement at all.

There were 2 new income issues priced last week.

Biotech asset holder XOMA Corporation (XOMO) sold a cumulative preferred with a coupon of 8.625%–obviously plenty of risk with this one. I see no OTC grey market ticker.

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New York banker Signature Bank (SBNY) sold a new non cumulative preferred with a coupon of 5%. They have sold 28 million shares with another 2 million available in over allotment.

The issue is rated Ba1 by Moodys (below investment grade).

The ‘official’ pricing document has not been filed so information is incomplete.

The issue began trading on Friday under the OTC ticker SBNYL and closed at $24.86.

Sometimes Pure Junk Trades Very Strongly

Almost 3 years ago the small company 1347 Property Insurance (PIH) sold a small issue of preferred stock. The issue carries a 8% coupon and of course is not rated. It is one of the few insurance company issues that is cumulative.

Here is what I wrote in February 2018.

Below you can see the chart of the pricing since about 1.5 – 2 years ago. Honestly for the junk that it is trading has been strong.

Now I will just tell you now that the company is headed for the “trash heap” and holders of the preferred don’t seem to know that while they will receive a few more dividends it is likely they will see very little of their investment in a few more quarters–up in smoke–oh well I hope none of you are holding this issue. If the shares were trading at $5/share maybe it would be a good speculative–but that might be too high.

Now let’s turn to the reality of this issue–more specifically the company itself.

Here is the balance sheet for the quarter ending 9/30/2020. Note that the total assets have fallen by darned near 50% year over year. The cash hoard has fallen by near 50%. Sorry the data is small and hard to read. The SEC document is here.

Now let’s look at the income statement.

As you can see they have a loss of $20 million on the 9 months and a loss of almost $10 million during the most recent quarter.

Back in 2019 they sold a good deal of the business for cash and securities in buying company (FedNat). The buyer writes high risk homeowners policies in Florida and other gulf states–this is wonderful when there are no storms–but with all the storms the company has been hammered hard.

Now I am not going to go further with this–it isn’t worth it. I learned my lesson with the small insurer Atlas Financial where I took a 75% loss of some of their 6.625% baby bonds.