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A Little Buying

Yesterday I bought a small position in the CHS CHSCN 7.1% reset rate preferred @ $25.30. More than I really wanted to pay given that the issue is redeemable starting in March, 2024. I am kind of trusting this won’t be called as they seem to be lackadaisical about calling issues when they could.

CHS (Cenex Harvest States) released earnings last week and as they have been they were stellar–in fact record earnings. If you missed them the detail is here.

I already own a position in the 6.75% reset rate preferred of CHS (CHSCM) which will float in about a year. I decided to go for the sister issue this time for a bit more yield.

Honestly for me this is more about safety that anything else – these are investment grade in my opinion (although they are unrated).

20 thoughts on “A Little Buying”

  1. Tim-
    I’m curious why you label the ‘M’ as FTF, when they have the same description of how the rate changes- I see no mention of floating as you label it up above.
    (unless the 3mo + X% is a float)
    CHSCM: Class B Reset Rate Cumulative Redeemable Preferred Stock, Series 3
    from the prospectus.
    But, they do seem to be FTFs.
    Either way, both worth owning.

    1. Hi Gary–just changed it above since the real name is reset rate.

      Most all the issues out there are fixed to floating officially in their names. Generally fixed for 5 years or so and then floating with a new rate each quarter. Only very few use the reset rate terminology.

  2. Tim ; the parent CHS is being acquired by Sycamore Partners; is CHSCN part of the deal or could this one become an “orphan”?

    1. And- there is the ‘parent Co. ‘ preferred : CHCSP
      Sort of weird- no common, and trades at a $5 premium.

    2. ted – CHS is from a combination of Cenex and Harvest States years ago. It is a cooperative owned by farmers. There are no common shares since it is coop.

  3. Been reading on Yahoo this morning about Berkshire and it’s recent quarterly filing. I’m not promoting like the touts on the other site, but I took notice that they sold 23 billion more of holdings than they bought and now have the highest cash position they have ever had. They completely exited GM, JNJ and PG consumer oriented stocks. They also pared back on their insurance holdings.
    Then I noticed an article about the Morman church investment fund and they also showed as having sold and reduced positions, I assume also building up cash.

    1. C
      I believe that if Berkshire split into two companies: investments and operating companies, the sum of the two companies’ market value would be 30-50% higher. Currently, the operating cash flow and earnings get a discounted multiple.

    2. Same here Charles. Sold/locked in cap gains on 12K+ shares over last week or so. Could not justify holding those gains with such slim credit spreads over risk-free CDs and Treasuries. Built risk-free ladder out at bit further toward three-years with CDs and Treasuries averaged around 5.5% with A-paper bonds averaging around 6.3% peppered out in greater durations. Only a few months ago acquiring those positions would have been unthinkable. The recent rate-drop has mostly stopped that advance, though picking off a few stragglers.

      Still holding most of preferreds heavily in ETD as hedge against any sudden drop in fed funds rate, though will need spreads to normalize before making any substantial further adds. Could happen via a drop in the short side or rise on the long. I’ll wait.

      Know nothing but still in the camp that we’re not out of the woods on potential for long-end rising or an event/reversal during the current turbulence.

      Best to all.

      1. Mr A , Long suffering holder of IBRX I sold 8,000 shares last week for double the money. Still rising but I wanted the Thanksgiving bird in the refrigerator and money in the account. Did make a buy. One of my low ball bids filled a whole 16 shares of RWAYZ someone else got the rest

        1. Charles, No guts no glory! You made me check on IBRX. You know we’re mostly just keeping up with our preferreds/fixed allocations, but wow your IBRX trade was a needle-mover. In addition to the turkey I’m thinking you get not one or two but maybe three pies. Congrats!

  4. Tim, I had an oversized position in CHSCN accumulated over the past year or so, looking forward to the reset to 8%. Over the past couple of months, I have lamented over the wording in the prospectus and have convinced myself that it will remain fixed. Anyway, I took the advantage (or not) of the bump yesterday to swap most of them into CHSCL – fixed at 7.5%. “A bird in the hand…..”. I guess we will find in a few months what is/was the best course of action. Either way these are both excellent preferreds.

  5. Why those are named ” reset” preferreds ? They will not adjust to libor + spread every 3 months ?

    1. Considering how there isn’t even a convention for representing preferred symbols, you can’t expect everyone to agree on the meaning of “reset”.

      Yes, most people would call the CHS issues FTF rather than reset.

    2. Most people consider resets and fixed to floats as different vehicles. Fixed to float is an issue that is generally fixed for 5 years (or whatever predetermined time) and then “floats” quarterly off a predetermined instrument (generally SOFR now) plus and adjustment spread. A reset adjusts at that predetermined time and then stays “fixed” for a predetermined time (generally 5 years). Thus it resets off its benchmark (generally the 5 year note) plus spread.
      NI-B is an example of a reset. But David is 100% correct they dont use uniform terminology. Look no further than CHSCN. It is what most call a fixed to float like he said. But it says right on prospectus headline “reset”. So whatever one wants to call something is what it is I guess.

      1. Grid–yes this is oddball wording – one would think it drives off the 5 year treasury like all the more recent fixed rate resets.

        1. Tim, I wish we had some like this was. Havent seen one since it was redeemed in 2015.
          After 4/30/2010 dividends will be paid at an annual rate of 1.45% plus the highest of the three-month LIBOR Rate, the 10-year Treasury CMT and the 30-year Treasury CMT.

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