As I mentioned earlier today I added shares of insurer Athene Holdings LTD 4.875% perpetual preferred (ATH-D) to my holdings. I had this in the portfolio already so this is just an addition.
As most of you know ATH is now owed by Apollo Global (as of 1/2022) and obviously the company is being very well run. The AM Best upgrade yesterday kind of motivated me to buy a little more of this issue.
Current yield is 6.50%–low odds this will be called anytime in the next year or two so yield to maturity is not relevant–BUT my personal guestimate of where interest rates move in the next 3-6 months is relevant as I am looking for a 10% capital gain before the year is out on these new shares. The shares in the portfolio now have a 10% capital gain already.
I paid $18.71 for my shares this morning.
Athene bulked up w Aviva USA, the super competitive life/annuity US division of UK giant Aviva. Closed in 2013 I think. From 2008-2013 merger, we wholesaled more Aviva life/annuity products than any other company other than John Hancock (Manulife.) Their life products with Index features crushed most competitors, good indexed annuity and fixed annuities. Interesting 10yrs + later to see them flourishing under Apollo. Athene was a nothing burger pre merger. Apollo did a great job building this company. They kept the headquarters in Des Moines, Iowa as well, where Principal Group is headquartered. Waxing nostalgic I guess here. GLTA. No positions. Bea
If you prefer, keep in mind that rating resides at the claims paying subsidiary companies. The actual holding company credit from which the preferreds reside at is lower. The preferreds are bottom rung IG. Which is still very solid for a preferred no doubt.
GB…..Wasn’t referring to their issues lol. I have positions in most of their $25 issues, and have owned all of them. Like any company most of their debt has different ratings.
My evaluation’s, GB, always start with the common and their business models. Are they an ongoing concern. I was looking at their3 yr 5.35% FA’s and was told on Wed the co. itself was A. Go the email of the boost to A+ on Friday! Of course say senior debt would/should have a higher rating than junior subordinate debt! Take JPM, one of the strongest. They had 6 preferred…..and 16,000 cusips! Multiples of diff ratings. But as for ATH I’m in deep. They seem very poorly priced to me.And I think the Global Life scandal has rocked other ins companies ATH included!!
If you prefer, the A+ upgrade is the “FSR”, it is not a credit rating. It is a rating for the other side of the fence. The policy holders expectations to get paid in an insurable event by company being able to meet its obligations.
event.
https://www.ambest.com/ratings/guide.pdf?_gl=1*58ttee*_ga*MTU1NjYxMjExNi4xNzE4ODQ5MTQ1*_ga_VNWYD5N5NL*MTcxOTA1ODAxNy42LjEuMTcxOTA1ODQ5MC4wLjAuMA..
The credit rating is this.
https://www.ambest.com/ratings/icrguide.pdf?_gl=1*nr2cq3*_ga*MTU1NjYxMjExNi4xNzE4ODQ5MTQ1*_ga_VNWYD5N5NL*MTcxOTA1ODAxNy42LjEuMTcxOTA1ODYyNS4wLjAuMA..
And of course as you mentioned the capital stack will determine the appropriate letter slotting assigned.
In this case the FSR and ICR are very similar, which is good. But it is not always the case. A company can have a stronger FSR and lower ICR because the holding company can be generally walled off to protect the operating companies which in this case have no obligation to pay those preferreds or debt, etc.
IYP, I only bring this up because one SA investing service nit wit was promoting an insurer as an A rated company implying it had outstanding high A credit rating. But that was the FSR rating. He never mentioned the ICR of the holding company from where the preferreds and baby bonds resided at and they were solidly below IG. So I always check both as they can be different and misunderstood by some.
The company itself was upgrade by AM Best today from A to A+
Curious to know that if you had liked Athene and like it a bit more now, why not consider the other higher coupon and longer to 1st call preferreds?
Say ATH-E the 7.75% coupon that pays $7.4%-ish nif bought now mid-$25s or ATH-A, ATH-C trading below par and with respectable high 6%s. Sure, less or no capital appreciation but longer to call and if rates finally go lower the ATH-D likely declines more than the higher coupon ones?
These are all my play and my favorite…..BUT these discounted issues have chance for far more total return if the prices move towards par!!
Be aware that ATH-A may not float as advertised if interest rates are still high on the float date (9/30/25). The prospectus gives them the option to stay at the fixed rate.
John, I have two questions here. First, do you mean ATH-A rather than ATH-C? According to the two prospectuses, ATH-C resets every five years starting on 9/30/2025, while ATH-A resets quarterly starting on 6/30/2029. Second, after reviewing both prospectuses, I don’t see the language giving the company the discretion to continue at the fixed rate. Can you refer me to the page number for this information?
If you’re looking at the ATH-A prospectus, page S-60, we’re at the recurring question of what happens to old offerings that used LIBOR instead of SOFR. I believe that the key question is whether there’s a “calculation agent”. In this case there is, and that calculation agent will be able to choose SOFR as the substitute.
Key language at p. S-60:
“Notwithstanding the foregoing clauses (a)—(d), if we or the calculation agent determine that LIBOR has been permanently discontinued, the calculation agent will use, as a substitute for LIBOR and for each future LIBOR determination date, the alternative reference rate (the “Alternative Rate”) selected by a central bank, reserve bank, monetary authority or any similar institution (including any committee or working group thereof) that is consistent with accepted market practice.”
Sailor,
Yes I was referring to ATH-C (I was simultaneously looking at -A and got the float date wrong…so much for multitasking.
I agree that the calculation agent should choose SOFR, and the language in the quote you gave to indicates that it would be appropriate, but it is not obligated to. The last part of that paragraph on S-60 seems to give the issuer some wiggle room:
“If the calculation agent determines, in consultation with us, that there is no clear market consensus as to whether any rate has replaced LIBOR in customary market usage, (i) the calculation agent shall have the right to resign as calculation agent and (ii) we will appoint, in our sole discretion, a new calculation agent to replace the calculation agent, to determine the Alternative Rate and make any Adjustments thereon, and whose determinations will be binding on us and the holders of the Series A Preference Shares. If, however, the calculation agent determines that LIBOR has been discontinued, but for any reason an Alternative Rate has not been determined, three-month LIBOR determined as of a LIBOR determination date shall be three-month LIBOR in effect on such LIBOR determination date; provided, however, that if this sentence is applicable with respect to the first LIBOR determination date related to the floating rate period, the dividend rate, business day convention and manner of calculating dividends applicable during the fixed rate period will remain in effect during the floating rate period. ”
After another read, I think it would be a stretch for the calculation agent to conclude that SOFR was not the accepted substitute.