If I can’t have good faith in interest rates at least holding current levels and not moving higher–and I don’t have that faith right now, I will use some short dated maturities to move my yield a little higher.
Yesterday I bought shares in the Gladstone Land 5% term preferred (LANDM) at a price of $24.65. This issue has a mandatory call for 1/31/2026–so about 9 months away. This is a yield to maturity of just shy of 7%–which hardly moves my portfolio needle–but a few extra nickels and dimes here and there amounts to real money eventually.
After a strong bond rally yesterday afternoon the 10 year treasury is trading at 4.38% this morning–no one knows where it goes next–certainly I don’t know–thus the purchase of a term preferred.
I will be watching for more potential buys of similar types of securities–not very exciting but it for now the best risk/reward for me.
Tim –
“Yesterday I bought shares in the Gladstone Land 5% term preferred (LANDM) at a price of $24.65. This issue has a mandatory call for 1/31/2026–so about 9 months away. This is a yield to maturity of just shy of 7%–which hardly moves my portfolio needle–but a few extra nickels and dimes here and there amounts to real money eventually.”
If you are expecting to receive cash for LANDM in January there is a small chance you are disappointed.
LAND does not HAVE to redeem LANDM on 1/31/26 (although it trades like they certainly will and LAND treats LANDM as debt on its balance sheet).
LAND would have to come up with $60M to redeem LANDM, with its common stock price and additional 6% preferreds LANDO and LANDP trading at very poor levels near 8% yields.
“If the issuer fails to redeem or call for redemption the Series D Preferred Stock pursuant to the mandatory redemption required on 01/31/2026, the dividend rate on the Series D Preferred Stock will increase by 3.00% per share per annum to 8.00% until such shares are redeemed or called for redemption”.
I trade between LANDO and LANDP. Haven’t added LANDM to the mix, lower yield but also less downside risk because of the maturity date. Safer choice if protecting against more carnage.
Martin g–yes certainly not enough movement in M for your type of trading–but great for me and folks like me.
as an owner of LANDO I can say that it has not been a safe haven as it has significantly underperformed VCLT peaking november 2024 ..double whammy underperforming asset in an underperforming sector
As long as it keeps paying the dividend you’re making money, only way you lose is if it defaults or if you sell low. I boost the return trading between LANDO and LANDP on price divergemce, also sold some higher and bought back lower. Nice total return is well worth the risk.
Tim.. We missed one ,..got a bargain BA/PRA ,a $50 bond was 60+ got a bargain $47.99..Bargains flying, and profits rising.. now at $54+.. Georges
Georges,
BA-Pra is a mandatory convertible preferred , which has a floor and ceiling value as a ratio of BA stock. If BA declines substantially, you would not get $50 in stock . At the time the price was where you indicated, the value of the conversion was $45+ change in BA stock.
At the mandatory conversion date in 2027, you very easily could end up with less than $50 in stock if BA is below the collar.
I struggle to find the appeal of mandatory converts.
The really require a thorough reading of the prospectus. There are some that account for price dips and others that could be painful. Glad to see this post, I removed it from my watchlist.
YH similar one to EP-C which I own. Been keeping an eye on KMI as they have the option to pay in stock instead of the 50.00 price. So far KMI stock price hasn’t been near the conversion price. This has a 2028 call date which is a ways out so there is time for KMI stock price to reach the conversion price.
Below is what Quantum has on EP-C. The indication here is that the conversion is the option of the holder.
Notes: From the Kinder Morgan 10K dated 12/31/2020– 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, 2020are 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.
From KIM’s 10-K
Capital Trust I (Trust I), is a 100%-owned business trust that as of December 31, 2024, 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, 2024 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.
So newtothis if the stock goes above 35.00 a share and stays there it might be worth it to take the 25.18 and the.7197 shares of stock for every preferred share.
That would be an option. It appears that the choice to do that is at the discretion of the holder. A nice option to have I reckon. My intention has been to hold until maturity, but I should probably follow KMI more closely to see if there is a chance for a windfall of some sort there.
That’s what I have been doing and was finally surprised to see KMI finally broke above $20.00 a share and has stayed there. We have another 3yrs to find out.
I’m not a fan of convertibles either. I finally dumped my RC-C a few weeks ago at prices a couple dollars higher than it’s been lately. I took a loss on it, but with some of the chatter on here, and just not liking it anymore, I decided to get out.
I’ve been accumulating a small position in EP-C ( a whopping 74 shares with cost basis around $47) for years. As already mentioned, this one is at the holder’s option. I just jettisoned most of them for a small capital gain, plus years of dividends. When we were in zirp times, the 4.75% seemed a nice hiding spot. I stashed part of the proceeds into my MM (yes, less yield, but waiting for other buying opportunities) and used the rest to increase positions in UMBFP, CHSCN, and CMSD.
I’ll be sad if KMI shoots past $35, but I think I have a better chance of rebuilding the position before 2028 at prices lower than today, if I want back in. I do like the guarantee of KMI backing it, but I don’t feel I went too far out on the risk spectrum to gain a couple hundred basis points in yield. I also have some KMI common, so if it does rally, I won’t totally miss out. 🙂
LT,
I think you are right on the money.
In my experience, many (most?) mandatory convertibles, complex equity units, and other complicated offerings are created in the context of a complex corporate transaction like a merger, takeover, etc. as a way to fix a “deal problem”.
The deal teams need to offload a risk, fix an accounting issue, swizzle payouts to someone, or (or something), so some deal guy draws the short straw and gets sent to the corner to concoct an offering that covers all the bases to fix whatever the problem is so the deal can go forward. Some of those offerings get to be pretty crazy to fit within all the “deal needs”, tax and accounting requirements, SEC rules (etc. etc.).
Point is, they are rarely (if ever) issued for the benefit of investors. The investors are just the “marks” who get to carry whatever risks the deal team needs to offload. The team will help put together a (usually very complicated) prospectus that covers all the legally required terms, but they never tell you exactly what the problem is they are trying to fix. In most cases, if they told you plainly, you would never buy the offering.
I personally don’t buy these complex issues unless I can understand why they were issued. Often, I just can’t figure that out (and I used to write them!), so I will just pass. I sometimes miss issues that pay well, but I also miss the many that implode/drop significant value.
Private a recent example that I almost got caught with but just dumb luck I sold before it happened was with AQNU
I was expecting 25.00 when it was to be called then I read the quantum online description closer and realized I wasn’t guaranteed that.
Similar vein as SPNT-B, I have been adding to FTAIN.
It resets in June of 2026 at the 5 year + 7.738%
It’s a bit more risky but I’ve been able to pick up some in the $24.50 – $24.65 range and will see a yield to (likely) maturity of 10% plus.
I think this has been discussed here before but doesn’t this one come with some complex tax circumstances? I think it originally was a k-1 generator, but is it still?
2WH
This Fortress subsidiary changed to a typical corporate structure a few years ago. The distributions for FTAI are now considered dividends. It is an unusual business.
Recent corporate presentation on this link.
https://ir.ftaiaviation.com/news-events/presentations
This SA analyst seems to know the aerospace industry and has a couple of good write ups on the firm.
https://seekingalpha.com/article/4751501-ftai-aviation-stock-why-strong-buy#hasComeFromMpArticle=true
https://seekingalpha.com/article/4763272-ftai-aviation-stock-tumbles-on-q4-earnings-release
Looks like FTAI is a PFIC – so can be messy with the IRS (I haven’t looked into FTAI at all, so just reciting what others have posted)
statement from company:
https://ir.ftaiaviation.com/static-files/97ea9c2f-9971-43c5-b4d6-1275e5fb414f
discussion last night here:
https://innovativeincomeinvestor.com/headlines-of-interest-for-holders-of-preferred-stock-or-baby-bonds-3/
In a similar vein, I’ve now got an overweight position in SPNT-B, 8% coupon resetting 2/26/26 at 5YrT+7.298%. i’ve been throwing money at this one for the last couple of months.
Gumfighter- I love that one and have been overweight forever–don’t want to get deeper into it.
good move.. spnt-b/sjnk pair has gone from near 2 sigma cheap in february to over 2 sigma rich today