I have pondered recently whether I want to move into the domain of GridBird and try to snag some long term holdings of some $50 and $100 preferreds (illiquids).
While I already hold the Tricontinental 5% preferred (TY-P) which I consider the most solid preferred outstanding, the AMG Capital Trust 5.15% convertible (AATRL) and more recently the Bunge 4.875% convertible preferred (BGEPF) maybe I should try to chase down some true ‘illiquids’.
With coupons falling certainly these become more attractive–whether I want the frustration of trying to secure some of these with the low volume is another story.
Anyway–I do maintain an incomplete list of these $50 and $100 issues here. While data is incomplete clicking the ticker will get you a chart and what little information I have dredged up–it is just a start for folks, but it gives a flavor for volumes etc.
Almost forgot why I landed on this page (EP-C it was) after getting sucked into Gridbird’s RR history lessons told via the perspective of antique preferred issues. This concern some express for folks that place market orders for “illiquids” is touching, but, education is like most everything else, you get what you pay for. That a tutor charges the tutored a fee is a tradition going back to Socrates. Why mess with traditions that are actually useful for the next generation of devotees?
I tried to come up with my own reason why it would be unhelpful to disseminate info about, or, to own these exotics for a quick minute. All I could conjure up was they might be ‘inappropriate’ in an estate bequeathment without detailed instructions that a clueless/unmotivated (enter age here)-something(-or-other) could understand. But, you are going to lose them with the ‘detailed’ aspect before they finish the first paragraph anyway, so, there’s no point in that. Probably better off selling them to those that are able to appreciate them. In which case, if Gridbird doesn’t teach us about the illiquids there won’t be anybody left in a hundred years that appreciates them enough to muster up the patience necessary to buy them. Razorbackea (I imagine I get the “razorback” part, so is the “ea” for East African?) conveniently supports my conjecture.
Anybody knows what happened to nee-q with a 7% increase today?
Is it a weird order or something else?
Well, I’m not sure about these thinly traded issues, but at least for me I see no reason to jump into them as the volume is just too low, yields on them are scant and see no long term capital appreciation. While the “thread” by Tim was appreciated (thank you Tim), there really is no value here on the discussion. Nice idea, but no way to take any action on these. Simply put – there is no way to take any action on many of these thinly traded issues. I could also post volumes about my thinly traded REIT that gives me 6%+, but clearly it would only be done to sell my shares on this board, which I won’t do. Hope all investors here carry on and take some good advice from Walk Two Moons – “Everyone has their Own Agenda” Thank you Mrs. Partridge for this great advice.
Bravo KL, very well said.
I would disagree with you. I’ve probably done about 10 trades in these types of issues and money on every trade. I don’t believe anyone is trying to front run on this site. Anyone who buys these based on the discussions is hopefully using limit orders. Some people are buying to hold and some are buying to flip. If people want to see front-running, SA is a fine place to go.
kapil, perhaps I should have said there is no value in the securities for my investing style instead. However, many of the securities are trading well above par and are callable immediately – so there is a real risk to investors if the issue is called and they could lose several dollars per share very quickly. The other issue is the rates are so low on some of these (in the 4.5% range area), so after taxes and inflation there would be almost nothing left if bought in a regular brokerage account. Also, I believe there are several thousand people that are reading this website (and maybe more), so there is no practical way for all of those investors to get into some of these issues. So with the low rates and the potential to also lose some capital, plus the securities not being very liquid, it would be a poor investment choice for me.
I can’t disagree with you on the 10 trades – a profit is a profit. However, there are so many good securities selling at such a discount to their true value now that my funds are better being placed elsewhere. Also to remember, on those trades you will have to pay federal and state income tax (in most states). However, my long-term capital gains over the next several years should have very, very favorable rates for federal purposes. Taxes normally play a very important factor in my long-term investment decisions.
Kapil, I think we all have an agenda some just arent aware of their own. I definitely have an agenda with illiquids because they were the sole reason I even ventured into preferreds. It started for me in 2012-13 when extensively studying them from 08-09 crisis when I discovered illiquid utes lost 25-30% over that period while reits and financials were absolutely smoked 60-90%.
Thus my initial purchases were only in this subset. It has certainly came in handy for me as you name the event (2013 Taper Tantrum, 2016 rate rise, Dec 2018 credit spread blow out, March 2020 route), and those stayed strong. When things go bad, one likes a little stability in portfolio, and even use to rotate into the blown up ones to increase return. But, price point matters. If its not an attractive price point, it does one know good. So buying these without a proper entry point serves little purpose either.
But just because one owns these doesnt mean thats it. Personally I run across the spectrum. I own these but also own the ilks of WCC-A and QRETP on other end of spectrum in addition more mundane issues such as MNR-C and KTBA.
And having “cash” type isnt so bad either as I own a decent amount of NGHCO (maybe a little P, also) to use if a deal pops up somewhere.
But admittedly, being a history guy, I just love the historical nature some of these have. Some have incredibly interesting histories behind them. AWRY and DMRRP have incredible researchable stories behind them. DMRRP was a landmark court case that proved preferreds could not be taxed like bonds. MNR-C? Ya I own some and its fine, but there is no historical story there. I find it interesting why things are as they are and why they are even still around…. I loved it when a CFO actually returned a phone call a year ago or two ago about his companies preferred. He was truly fascinated also, and said he had been checking and reached a dead end in 1920, but knew it was around before then also….And couldn’t find a prospectus either, lol.. Maybe if I hadnt been a history major this stuff would be totally uninteresting to me.
Kapil said: “I don’t believe anyone is trying to front run on this site.”
Kapil, I would say exactly the opposite. Many of us, myself included, attempt to profit off of temporary irrational pricing. Obviously we might be wrong on the price and it might be rational. But we LOVE, LOVE, LOVE when someone puts in a “market” buy order and runs the price up so we can sell. Same for a market sell order. Even if we assume that 100% of the III readers use limit orders, there are still folks using market orders. We see them most days.
I do not recall seeing anyone on III encouraging investors to knowingly make irrational buying/selling decisions. There are often differences of opinion about a particular issue, but that are usually directed over a longer holding period. As opposed to short term flipping.
And yes, I am guilty of this also. I had a roundtrip trade on a preferred today. The holding period was ~ 2 hours. And I will do it again tomorrow if ‘The Price is Right.” (Where is Bob Barker when you need him?)
Tex are you aware of a brokerage that allows OTC market orders? I only have experience with the three I use and they dont allow it. So I just assumed it wasnt possible. I thought hard about flipping some of my SBNCM shares today when a 16.30 ask popped up today. I just refilled the kitty at 15 just a couple weeks ago. Normally a year and a half divi scoop for a few week hold would have sent me hitting the sell button. But I decided I am not letting go of any of my noncallable issues at least for time being.
Grid, I do not use market orders on anything I trade, so I cannot say for sure but Schwab and IB appear to allow them. I just entered a market buy order for a very illiquid issue and it was accepted at both brokerages. I do not know how each brokerage defines “illiquid” that prevents you from using market orders. Maybe there is a FINRA or SEC rule on this, but I am not aware of it. When somebody causes a trade on a 100 bid/ 130 ask issue, my assumption is that it was a market order. Even if it is a limit order, we would say they used an irrational price, which is to our benefit.
I see mini “flash crashes” almost daily, where an order blows through most of bid or ask order book. You cannot say for sure if the issue was defined as illiquid or not. Maybe it was deemed liquid and the market order was so large it took out the whole stack.
Tex, I can do market orders on illiquid NYSE issues. I do it every now and then when something smells. I cant tell you how many times either buying or selling I will dump 100-200 (no more as I dont want to spill through the book as you also referenced) shares at market and get 5-15 cents better pricing than my unmolested bid or ask sat at untouched. Illiquid isnt the issue per se that I am aware of. Its the fact that I was under assumption that all OTC issues were not able to be transacted with market orders and must use limit orders in all transactions.
Grid, just to be clear. The ticker I tried was an OTC and illiquid both. Schwab and IB both accepted the order. . .
Ok, thanks Tex, that was what I needed clarification on. So it is possible then. My only experience is with Vanguard, Ally, and TD, and they wont allow it. So its really an individual brokerage decision then.
Allright, one of you SOB’s has to come to confessional on FIISO. Today 5 shares traded at $130 and 5 more shares traded at $212!!!!!!!!!!
Hard to think somebody would have put in a limit buy order @ 212. My assumption is that it was a market order.
The lucky SOB is buying the next round at the bar and I ain’t drinkin PBR! . . .
Wasn’t me, unfortunately.
I was guessing you Inspy since you snagged some the other day..
Tex, I am going in tomorrow and overpaying bigly for an illiquid. I finally found the rosetta stone to confirm my suspicions. Almost as bad as FIISO at $212 is, lol.
I’ve never been able to put in a market buy or sell on any illiquid I hold. Please tell me the broker where you can do this and I’ll open an account there.
JMO
Camroc, I think we are conflating the word “illiquid” with “OTC Issues”. You pretty much are referring to the old delisted utility preferreds and such on OTC, correct?
Yeah. same-o same-o. All my illiquids are OTC.
Camroc, I learned something today through Tex. I just thought we were joking about fat finger market order OTC issues over the years, as I have never been allowed too.
Yes market orders on OTCs are allowed, individual brokerages may not allow them but there is no regulation preventing it
MCG, Is it possible for any subsidary shares that are held at the DTC (Depository Trust Company) actually be still owned by the holding company and yet are still included in the DTC share count?
AFAIK as long as they are not retired, the shares are still outstanding. I don’t have a lot of insight into DTC policies though
Thanks, MCG. I am just trying to align a holding companies statement of “owning over 99% of the preferred shares” with the share count showing at DTC. They would have to own some of them there in order for me to make the math work. Unless of course DTC is incorrect but that issue was apparently recently updated.
What would make the difference between shares held at DTC and shares outstanding? Some still in certificate form? Another depository agency?
Yes. There are numerous places shares can be other than DTC.
The transfer agent would have a record.
I would guess old certificated shares.
But there are other depositories, though it is unlikely any US issuers have any number held by them.
Thanks, Justin. I have to assume they are not lying and continue to hold some in the DTC, as they stated in public regulator agency filing owned, quote, “the vast majority (greater than 99%) of its preferred stock”. The other two series were redeemed and retired 15 years ago. Just leaving the stranded non callable that has been tendered and bought up over the years. I went ahead and pulled the trigger this morning as I have been chasing this ghost for 7 years and may not get another shot.
The holding company has to own majority of outstanding float in a non callable or they in effect could lose control of the company for deferred payments on just a few hundred shares.
Why would you want to use a market order on an illiquid issue? You can place a marketable limit order and still potentially get price improvement.
An honest man. We need you in govt.
Just to humor some people here as like me they find these interesting. Last week in odd lot shares I bought at $130 little over 100 shares (for the heck of it, not for any perceived value) of probably the oddest $100 par issue of them all. First because it is not even a true preferred but a “guaranteed 6% dividend”. 32,000 shares at $100 each were issued In 1898. CSX now owns 16,210 so the tradeable float is 15,790. They own and keep a majority so no push can be made to extract value and possibly liquidate the approx. 60 mile rail line as it would be worth considerably more than $3.2 million dollars today. Railroad history is most interesting. If you go back over a 100 years ago there were literally hundreds of railroad stock and preferreds on the market.
Allegheny and Western Railway Company (the “company”) is a railroad
incorporated in the Commonwealth of Pennsylvania on January 22, 1898. It owns a line of railroad 62 miles long which lies between Punxsutawney and Butler Junction, Pennsylvania. Pursuant to leases dated October 1, 1898, and January 15, 1900, between the company and Buffalo, Rochester and Pittsburgh Railway Company (“BR&P”) the company leased its railroad to BR&P for the duration of the company’s corporate existence, at an annual rental equal to 4% on its bonded debt and 6% on its common stock ($100 par value). The principal and interest on the company’s bonds are guaranteed by BR&P.
Under an agreement dated December 15, 1931, as amended, CSX
Transportation, Inc. (“CSXT”), as successor by merger to the Baltimore and
Ohio Railroad Company, operated the properties of BR&P, and incident there to also operated the properties of the company in the name and for the account of CSXT without separation or segregation of the results of such operations.
Under such agreement CSXT agreed to pay all leased line rentals but did not
assume or guarantee payment of the principal on the bonds. In addition to the rental paid by CSXT for the payment of the company’s dividends and bond interest, CSXT paid all the expenses of the company, including all taxes
assessed against it.
On July 18, 1988, CSXT, BR&P and Buffalo & Pittsburgh Railroad, Inc.
(“B&P”) entered into certain agreements collectively referred to as the
“Purchase and Sale Agreement” and closed in escrow. The B&P took possession and control of operations of the line of railroad of BR&P on July 19, 1988.
The purchase and sale agreement provided that BR&P and CSXT shall assign,
transfer, and convey to B&P all their obligations and duties arising under the
lease agreements. On October 7, 1991, CSXT, BR&P and B&P executed an
Assignment and Assumption Agreement which concluded the escrow and B&P assumed all of the terms and conditions of the Purchase and Sale Agreement with the exception that CSXT would retain its right, title and interest in the 16,159 shares of common stock of the company, being all the stock of the company owned by CSXT at that time. As of March 24, 1997, CSXT owned 16,210 shares of common stock of the company, or 50.66%.
Since the interest and dividends on the company’s bonds and common
stock are paid from moneys obtained from the lessee, reference is made to
CSXT’s Form 10-K for the year ended December 27, 1996, a copy of which is
available from Patricia J. Aftoora, Vice President and Corporate Secretary of
CSXT, S/C J-160, 500 Water Street, Jacksonville, FL 32202.
There has been some recent liquidity here. About 500 traded today and I noticed a standing 100 share bid of $139.99 always remained. I wish I had the means to figure out how many were left. Not interested enough to buy any at $139.99 to find out though, ha.
Talk about a love of history! You enjoy taking the time to uncover all this kind of crap (just kidding) and yet still have time for the links, GF and trips to Vegas and Mexico… Go figure……… lol.. Fun story….
2WR, I forgot ticker is AWRY.. Actually I researched it years ago. For a couple years I wouldnt buy it because I didnt understand what “guaranteed dividend” meant. This was a “railroad thing” back in the day where the lessee of the line would be the 3rd party guarantor of payment. CSX paid off the adjoining 100 year bond in 1998. That was when they effectively delisted the issue and absorbed it into their web of subsidiaries under CSXT which is basically the consolidated subsidiary of CSX. DMRRP is buried into this along with AWRY. They did the exact same thing with DMRRP and DMRR, own just slightly more than half the tradeable float to control it and just left the other small lot shares outstanding blowing in the wind.
I bought a few hundred several times around $100 and flipped at $120. Would have been better off just to have held them, lol.
Hope the investment doesn’t go AWRY (sorry, couldn’t help myself).
Ha, Bur, I love it, thats a great line!
Tim, why do you consider TY-P the most solid preferred outstanding?
TY-P has a super high asset coverage ratio 4100%. Minimum is 200%.
You will get your principal back if the fund closes.
Here is the latest coverage ratios (Sep 30) for the Gabelli CEFs (right-most column):
https://gab-misc-pdfs.s3.us-east-2.amazonaws.com/LevAnalysis.pdf
Released each month here:
https://gabelli.com/funds/closed_ends
Click on “Menu” and then on “Leverage Analysis.”
I’d like to see the $50, $100, and $1000 listed, yes. Who cares what PAR is? Sure, some are illiquid (to one degree or another), as are some of the $25 tickers. The PAR value shouldn’t determine whether a particular security is worth considering. If the illiquids should be left out, that’s fine, but maybe leave the semi-liquids in, and only exclude the significantly or grossly illiquids.
Sorry, the link and prices listed above are for NEE-P. The link to NEE-Q is
https://www.sec.gov/Archives/edgar/data/753308/000110465920105755/tm2030767-3_424b2.htm
And the conversion prices correspond to $295.70 and $369.63.
I took the opportunity to buy NEE-Q when NEE pulled back on the news leak that they were pursuing a merger with Duke.
What happens to the conversion prices after the 4-1 stock split
I’m trying to reconcile the risk of owning some of the utility company “forgotten” preferreds. Certainly there is interest rate risk and opportunity cost risk. But, if you’re content with safe returns in the 4% to 5% range from investment grade utilities, and you buy at close to the redemption price, I see no other issues. Does anyone? I’ve owned some of the Alabama Power, Ameren (and subsidiary), and Connecticut Light and Power issues for a long time. Occasionally, taking a cue from Gridbird, I’ll flip a few. It’s usually easy to flip for a few dollars profit and buy back a bit later (before the next dividend). Once in a while, I can put in an outrageously priced sell order and it will hit (those poor schleps placing market orders!). But, by and large, I own these to hold for safe income. With interest rates continuing to decline, a lot of these issues are producing higher than market yields. I know these comments invite others to the party and that could cause the party to end. But, knowing there are far more experienced and sophisticated investors posting here, I’d appreciate comments on risks I’m not considering as a buy and hold guy. These holdings constitute my “sock drawer;” what am I missing? Thanks. And, as always, thanks Tim!
I should have mentioned that there call risk and liquidity risk in theory exist. As I understand it, there are covenant deterrents to calls and I’ve never had difficulty selling if I wasn’t going for the jugular. So, I don’t view these as issues. Thoughts?
Oldman, You are simply doing what I am. Dont think for a second I am doing something complicated because if it was I wouldnt know how to do it anyways….I always buy on assumption I am “forever stuck” with it. Because if a preferred drops I at least want comfort in knowing I am getting paid…Not a double whammy of capital loss and dividend suspension. And then from there if a sister like issue drops and mine is up or at purchase price, I just flip into it. Not exactly rocket science. And I get tips too because I am lazy…Im always aware of good entry points, but dont always watch for them. Inspbudget a couple weeks ago put out a warning of one of those Alabama Power preferreds was laying for the taking. So I pounced on 500 I think flipped for several bucks and pocketed the divi all in a couple days. So that was easy money Inspy led me too.
Gridbird, IPWLK is one on Tim’s list that I’ve owned for sometime and is making me nervous. I keep asking myself should I sell and reap the $6/share gain or keep it because of the decent 5.65% yield and risk it being called. Any thoughts would be appreciated.
Jake, Im probably a biased person to ask.. I buy and flip this all the time. At least 4 times this year at $2-$3 a pop plus collected two of the divis also. I repurchased maybe 6 weeks ago at $103.75 collected divi and sold 300 of them at $106.83 a few days ago. I kept a 100 shares just to keep my attention.
Personally, I have found no info tidbit that would predetermine IPALCO to not redeem these. And yields have went down a lot. They have a most onerous clause a company would seem to want to be rid of. If they suspended preferreds for 4 quarters (going from memory there) the preferreds get to take over the board. Which means in effect they lose control of the company.
Its a $50 millionish issue so not a tiny forgotten amount like other floats.
Personally my opinion is the relative yield is good, but not in terms of risking a 6.83% call loss from not selling today.
I dont believe in purchase price as a justified reason to lose $6.83 laying there on the table today. If one didnt take it and its redeemed at $100, and one bought at $100, its not a break even, its a $6.83 loss. So as you can tell, I am a mark to market person.
By “delisting” the $50 and $100 issues or failing to report their prices, you would be throwing out the baby with the bath water. Why not just note which issues are illiquid, including some of the $25 issues? How do we protect people by with holding info?
The illogic of delisting could then be applied to issues with negative yields to call?
I hold quite a few AATRL, which I scooped up in March & April all below $31. I like them as their distributions are classed as interest rather than dividends and, being from the UK, I don’t have to pay any US withholding tax on interest income (vs 15% US tax on dividend income). Current yields are painful, but only getting 85% of current yields is absolute torture.
Gridbird & others – Off the top of your head, are you aware of any other illiquid prefs which have distributions classed as interest rather than dividends? Presumably this would only be the case for a few old trust prefs where the trust holds debentures.
Clangerman, EP-C, is trust preferred interest debt…2028 maturity and legal obligator of payment is KMI.
EP-C seems to be callable since 2002. Any idea why it has not been called since? Especially after KMI buying El Paso way back 2014?
What does happen with convertibility of these now that KMI bought the underlying EP?
Msquare, Its in the annual filings and I read it a while back, but its so far away its not even possible. Its something like KMI needs to get close to $35-$40 before its triggered. You would get partial shares and cash that equals $50. Its not going to happen anyways by 2028. They arent going to call it because its roughly 500 billion in subordinated debt they are paying sub 5% on. Considering the stack level its on, its not really a priority. The whole endeavor was packaged way back when on assumed stock rising and conversion…But, things happen as we know in the world of common stock. But KMI has very reasonable credit ratings so I am not losing sleep presently owning it…But I flip in and out frequently because it bounces around a couple bucks quite often.
Thank Gridbird, will take a close look at these.
Don’t suppose you know off the top of your head whether these are backed by KMI in its entirety or just the El Paso business? Having KMI’s entire $28 billion market cap below me would give considerable comfort.
Clangerman, I barely know my name off the top of my head…But I do know easily where the answers are for complete confirmation. This below on page 98 of SEC annual filing definitively shows KMI legal obligator of funds to pay, and the improbable possibility and share/cash provision of a conversion strike. Notice below the words “full and unconditional guarantee”
Capital Trust I (Trust I), is a 100%-owned business trust that as of December 31, 2019, had 4.4 million of 4.75% trust convertible preferred securities outstanding (referred to as the Trust I Preferred Securities). Trust I exists for the sole purpose of issuing preferred securities and investing the proceeds in 4.75% convertible subordinated debentures, which are due 2028. Trust I’s sole source of income is interest earned on these debentures. This interest income is used to pay distributions on the preferred securities. We provide a full and unconditional guarantee of the Trust I Preferred Securities. There are no significant restrictions from these securities on our ability to obtain funds from our subsidiaries by distribution, dividend or loan. The Trust I Preferred Securities are non-voting (except in limited circumstances), pay quarterly distributions at an annual rate of 4.75% and carry a liquidation value of $50 per security plus accrued and unpaid distributions. The Trust I Preferred Securities outstanding as of December 31, 2019 are convertible at any time prior to the close of business on March 31, 2028, at the option of the holder, into the following mixed consideration: (i) 0.7197 of a share of our Class P common stock; and (ii) $25.18 in cash without interest. We have the right to redeem these Trust I Preferred Securities at any time.
https://www.sec.gov/ix?doc=/Archives/edgar/data/1506307/000150630720000022/kmi-2019x10k.htm#s1F5D1AAA9A675C8CB76679EDF5684656
I have had my eye on these as there are a lack of income options under par
Silly question, in 2028, do share holders get the $50 / share price or is it automatically converted into KMI stock?
Pickle, If it goes to maturity you get $50 cash from the maturing debt held in trust.
Since KMI bought out El Paso original terms are void. Basically you got an owner option conversion or KMI, redeeming early with $50 cash. Owner conversion is useless now, because if you did (and you can), you would basically get about $35 worth of cash and stock for something that is going for ~$48 now…So conversion is useless unless KMI stock jumps a considerable amount from here.
Clnagerman–I scooped up bunches down in that area also–since I have trimmed back my holdings in the 46 area.
Tim – I keep thinking about trimming too after the 50%+ gain, but then I look around and struggle to see much of value to replace it with.
Also it is not held in a tax-free account. I can receive the interest free of US & UK taxes due to no US WHT and tax-free annual allowances here in the UK. However I’ve used up my annual capital gains tax-free allowance in the UK already on other sales – so despite being exempt from US capital gains tax I would be hit with UK capital gains tax if I sell.
I know, I know, first-world problems…
Another consideration. There are 115 $50 or $100 preferreds in my database. 57/115= ~50% traded less than 500 shares a day in the last 90 days. 40/115 =35% traded 100 shares or less. These are by definition “trade by appointment” issues. (I actually think we should start calling them Gridbird issues, but that is for another time.)
With the increasing viewership on III, I am not sure it is a good idea to spend much time/effort tracking issues that cannot be owned by many folks. You sure would not want to spur a lot of newbie preferred investors to do market buy/sell orders. And even if everybody uses limit orders, III investors will mostly be fighting against other III investors.
And just so that you do not think this is a selfish interest, we have owned a maximum of two of these issues in the last year. The one we currently own trades more than 10,000 shares/day. We leave the ultra low volume trade by appointment issues to Grid’s army. . .
Tex, sometimes the law of averages skew share availability… Take UEPEO which can go weeks without trading..An old 213,000 share float from the 1950s. Yet yesterday 2400 shares were sitting unmolested at a fair price of $104. I tried to bird dog a couple hundred at $103, and about an hour later they were gone in a flash…Then there was a residual sell off of 1400 shares today at $104.99… So it isnt always like there are say just 100 shares available daily… There may be 2000 available one day, and then 3 weeks with no shares at a “reasonable price”.
But some have very minuscule floats and wont have volume rarely ever. It depends on share count and how institutionalized the float has become. Some older ones can trade 1000 shares a day as the shares arent fully institionalized.
Grid, you are of course correct that the law of averages skews the number. Let’s take UEPEO, It has traded ~ 75 days year to date out of 190 regular trading days. On 73 of those days where it traded, the highest volume was 800 shares. The only two days with greater volumes were yesterday 9/30 @ 3,334 and today 9/1 @ 1,404. The question is how many III readers could realistically take a position at an attractive price on most trading days of the year? If a III investor wants to wait for that one day per year when he/she might be able to buy a few shares, that is fine. But clearly it will not cover a wide swath of investors, which is why I am not sure I would recommend Tim spending a lot of time on it. It is fine to have these in the database. It is fine for you to talk about these from time to time. I am just not sure Tim should have a separate post on an issue that most investors will NOT be able to acquire. . .
I agree that we should not list thinly traded issues. These are not for novice investors, they can swing violently 5%-10% on a single trade if a seller really needs to sell at market for whatever reason.
And once bought, it can be very difficult to obtain one’s desired selling price, because of the lack of liquidity.
Some brokerages do not allow trading in selected securities, some allow buying but not selling, etc. which adds to the complexity.
If anyone is really interested in such issues, they can always ask on this website, and somebody ( usually Grid ) will have the correct answers.
A seasoned soldier in Gridbird’s army,
IB
Besides Inspy, Its making my life harder. Originally I got in them because most are from highly profitable companies that dont issue preferreds anymore. So their coverage ratios are off the charts compared to the more liquid variety.
But this is a small boat to float in. Get too many in it and it capsizes from the weight.
Do these work like normal $25 preferreds, or are there tax issues like a K-1? Also, your list has a column for “liquidation” and “call price”. What’s the difference? I thought the liquidation was the call price?
The K-1 tax question was about the closed end fund preferred like TY-P.
Yes, with one or two exceptions, they don’t have any tax surprises like a K-1.
research550
Love Pfds. esp. BACPRL & WFCPRL which buy at a “crisis” price.. Also Cobank (own) & AGRIP. FYI: the magazine that once a year publishes “50 safest banks in the world” includes Co & Agrip on the list (last year’s). Of course, am buy&hold when can.
And, always like to see what GRIDBIRD is doing
I have also bot and sold a few of these thanks to insights from Grid.
A note under Fiiso states trade by appointment only. What does that mean?
Its just a little joke, Jeff…The vast majority of that float is owned by founding bank family. A few thousand shares tops have trickled out. This was a private placed issue to insiders back in 1990s. A ticker symbol was assigned many years later.
Hey Grid! Many thanks!
Jeff–I’ll change that to different wording.
Tim,
Due to the good knowledge and hard work Grid has put into this area of preferreds, I have taken the plunge and purchased some of the oldie but goodie utility illiquids. I plan to buy more. Since I invest for dependable cash flow, such securities indeed provide that. Frankly I don’t desire deferral of dividends
or bankruptcy in any of my holdings. I don’t worry much about price changes in either direction. I’m only concerned with timely payments. I think these illiquids meet those needs.
However speaking personally I don’t attach the term safety to these illiquids as much as some folks do. That is safety based on the security’s price. I do attach safety to the probability of receiving cash flow.
For me it seems we had a liquidity problem earlier this year as well as in the 2008-2009 time period. We also may have had existential issues both times but that is hard for me to evaluate since we are still here and everything is still intact.
For any of my liquid holdings, during such times, the quoted prices on many of them plummeted. But I didn’t need to sell and wasn’t forced to sell. And I still got dividends on time. But no I didn’t enjoy looking at my account info prices based on last trades. So was I more safe or less safe or equally as safe as I would have been with more or perhaps all illiquids? And during those trying times had I wanted to sell an illiquid, let’s say a substantial number of shares, what kind of price could I have gotten if I could have gotten a price?
Well I don’t know. Others may, but I don’t.
So for me particularly the illiquid utilities offer a relatively safe source of cash flow – which I like very much – but it’s not clear what else they offer.
For my style of investing for cash flow I’ve had to buckle my seat belts during times of market gyrations but so far have not had to resort to Valiums or any other sedatives. And I’m sure thankful.
Razor, your question is valid…As the years have passed and more people have bought various shares of these so yes a dump could occur because there will be more smaller random owners. Many of these historically maybe had a few dozen people owning them. Funds generally dont involve themselves in these as much, but a few do. Nothing is guaranteed. In fact my mantra on these are buy into liquidity and sell into illiquidity with these if I am of flipping mode…
Lets give you a specific example… I own roughly 30% of the CTGSP… Which is only about 50k in total.. There is no doubt I could quickly sink the price if I was hell bent on dumping thousands of shares at once….In fact I would if I knew I could buy them all back at $3 and smoke out any shares that follow in panic and sop them up down there also. But I know I couldnt pull it off as they would get intercepted at a big loss for me and no buys to snag either. Besides its illegal anyways.
Let me know when you manage some SBNCN.
Sorry but could someone explain the difference between the difference call price and the liquidation price? at times on tim’s table they are the same and at times different. tia sc
SC, largely this is a relic from long ago issued preferreds. Another little bonus thrown in to dissuade company from redeeming. The “call” or correctly termed “redemption price” is the amount they pay you if they redeem or call the issue. Liquidation price is if the company folds up shop, sells everything and liquidates its self… Note this does not mean “bought out” or acquired by another company which would be the redemption price if they were not left outstanding.. Also note “par” actually has nothing to do with either of the above. But it can be liquidation or redemption price depending on the situation, or even $0.00… But that is mostly irrelevant as par is more an accounting balance sheet thing.
grid
much appreciated. sc
Bob, I had a chance a couple years ago and took the SBNCM instead at $10 or so. Mostly because more shares were available. I didnt really know the difference between the two float size back then or the fact insiders own the vast majority of what is left over from SBNCN.
Funny when I was buying I was competing agains a lazy lower bid from an exchange I hadnt heard about. I researched and discovered it focused on “regional illiquid bank issues”. Because of where we are at yield wise, Im not a seller anymore, but dont need to add anymore either, personally.
It might be worth checking out CTA-B. The ex-date is next week and it seems like there’s been a lot of selling over the past few days.
Could add the new QRTEP $100 par
I have been buying NEE-Q. NextEra convertible carries an investment grade BBB rating and recently listed. The common NEE is doing a 4 for 1 split which might give the issue a little juice.
Where do you see the common is splitting?
I just looked all over Nextra’s website and I see no mention.
When is it supposed to happen?
https://www.sec.gov/ix?doc=/Archives/edgar/data/753308/000075330820000165/nee8-kdated09x14x2020.htm
at the end
I also have been nibbling on NEE-Q as I also have with NEE-P and NEE-O equity units in the past year. I buy in small multiples of 20 shares to match the conversion clauses. I find them most tempting when the underlying common (NEE) is below the price at the equity unit’s IPO.
The section of the IPO prospectus on page S40 describes my reasoning why. https://www.sec.gov/Archives/edgar/data/753308/000110465920022881/tv538370-424b2.htm
A holder of Equity Units will receive only a portion of any appreciation in the price of NEE common stock and only if the appreciation of NEE common stock exceeds a specified threshold.
When the stock is between the IPO price and the threshold appreciation price (often 25% above IPO price depending on the issue) there is no “real or guaranteed” price appreciation to the holders of the equity units. Thus I look for times when the underlying stock is below the IPO price and the equity units have moved down the same percentage. This way I can share in the upside movement of the common and not just the downside. You can overlay charts of the equity units and their underlying common stock to see the effect where the gains on the equity units are only a fraction of the gains of the common stock when it is between the IPO price and the threshold appreciation price. But when the common is below the IPO price, the equity units move up and down in near lock step. I figure why accept limited upside with full downside linkage. Buy when the price is outside the two prices listed in the ipo prospectus. In the case of NEE-Q those are when NEE is not between 282.04 and 352.55. If NEE moves above 282, I am tempted to sell NEE-Q and either buy NEE itself or wait till it drops to buy NEE-Q again.