As I mentioned last week I ‘had to’ get to buying some preferreds or baby bonds as I had ‘dry powder’ piling up from CD redemptions. CD rates on the 3 month issues are running in the 4.55% area–not terrible, but not as lucrative as we saw previously when the 5% area (or above) was the norm.
I have been doing some roll overs on CDs even at the 4.55% level–but I have to (in my mind) move portions of redemptions into higher yielding income securities since the ability to reach my 7% target is nil buying CDs and moment markets–thus I went ahead and did a little buying yesterday.
I started off by buying a bit of the new issue Eagle Point Institutional Income Fund 8.125% term preferred (permanent ticker EIIA–but bought under ticker EGLPP) at $24.85. In studying the potential issues out there from other Eagle Point company’s I could have locked down a slight yield advantage with other issues, but in the interest of staying diversified I chose the new issue.
I also added to shares to a current position by buying more of the Wintrust Fixed Rate Reset 6.875% preferred (WTFCP). This is likely only going to last for 3 quarters as it most certainly will be redeemed in 7/2025, because it has a huge reset rate at that time–but for now it is a good place to ‘hang out’ in a security which is very close to my hurdle goal and is likely to remain pinned to $25 even if preferreds in general fall for some reason. I need to continue my hunt for longer term solutions. Banking is an area I am very underweight in–because of my tremendously wrong thoughts that a ‘shoe was going to drop’ somewhere in the sector which of course caused me to miss capital gains–oh well I am wrong plenty of times so this is nothing new.
Well it looks like markets will zoom higher again today–at least to start off. Interest rates ticked a bit higher after economic news but still around 4.06%. All news is good news so up we go.
Tim,
My math could be wrong, but to me it looks like at yesterday’s close price (25.21), WTFCP has a ~5.7% YTC. At yesterday’s 25.17 low price, YTC = 6.01%.
Assuming a call on 7/15/25 and knowing that that is a pay date (and that dividends accrue from pay date to pay date, not ex-date to ex-date), they’ll be no partial dividend.
My calculation:
1 div = ~$0.43. 3 divs = ~$1.289.
25.21 cost – 25.00 call price = $(0.21) loss.
$1.289 – $0.21 = ~$1.079 received.
$1.079 / $25.21 cost = ~4.28% for 12-month period.
~4.28% * (12/9) [to account for the 9 months holding] = ~5.7% annualized.
I get ~6.8% dividend yield on the stripped price, but only ~5.7% YTC.
EGLPP now trading as EIIA on FIDO all current orders for EGLPP cancelled
mbg, I added some WSBCP today at 25.07 has 4 more qtr of payments. I expect it to be called. What a difference 1-1/2 yrs make. my average cost on WTFCP is 23.88
Charles, sure looks like it will be a nice coupon on reset. No idea on call risk.
Quite the trading range today so far. A low of 24.42 and high of 25.28.
yes mbg 3 times the volume, someone wanted out. Does it mean anything? I don’t know.
Tim; I too own a large amount of the WTFCP. They don’t have an actual I R MGR. as most large companies do so you have to speak to their CFO. I have spoken to him twice within the last 12 months or so. GREAT GUY and he assured me they are a very “conservatively run bank” & did not do the stupid things of buying long term bonds when coupons were 2 & 3%. Iam sure you are correct that they will call it due to the fantastic reset rate but atleast we can get a nice paycheck in the interim. Its callable on JULY 15th, 2025.
Chuck P – they seem well run from my not very deep DD. I do like issues pinned to 25–although just for 3 quarters or so.
In their May 2023 report, Fitch also liked that they were conservatively run.
I got this off their website:
https://s26.q4cdn.com/937684793/files/doc_downloads/2023/08/wintrust-financial-corporation-rating-report-5-24-2023.pdf
For what it’s worth, it looks like the Wintrust preferreds are rated BB by Fitch:
https://www.fitchratings.com/entity/wintrust-financial-corporation-88039016
Tim,
How does one know how tied together all the Eagle Point companies are? I don’t understand how one achieves diversification by investing in Eagle Point Credit, Eagle Point Income, and Eagle Point Institutional Income, all at the same time.
Thank you
Hi Jay–good question. I always assume they are very close to the same–some difference in asset coverage, but I think the portfolios are probably extremely similar, but I haven’t checked it closely. Most likely the diversifaction is mininal with all the CLO companies. The one that is truly different is the Eagle Point Income issues (which is the one I hold) which holds a majority in the debt tranches versus the equity tranches–the balance of the CLO companies are primarily equity tranches.
Tim, Your call on BWBPP was good. I continue to hold.
I think you mean BWBBP.
Yep, my typo
i have been adding to the wtfcm.
slightly lower yield but it might last a little longer.
Bob–yes potentially–but probably on the bubble.
How would WTFCM last longer? Call is 11 months earlier and would roll into the higher rate if the 3mo stays up.
Own both
Gary,
They both become callable on 7/15/2025.
WTFCP resets at the 5yTsry + 6.507%.
WTFCM floats at 3mS (+ 26.161 bps adj) + 4.06% *
* I assume it will transition from 3mL to 3mS. I haven’t checked for any announcement from the bank.
Current 5yT = 3.9%. 3.9% + 6.507% spread = 10.407% coupon.
Current 3mS = ~4.632%. 4.632% + .26161% adj + 4.06% spread = 8.95% coupon. If/as 3mS rates fall (when Fed cuts), then the coupon will decrease.
Assuming 5yT and 3mS on 7/15/2025 are the same as they are now, then WTFC is more likely to redeem WTFCP and it’s 10.4% coupon than WTFCM and it 8.95% coupon. Especially if the coupon is even less by then.
I’m tremendously underweight also on banking preferreds also, but not losing any sleep over it all. The memory of all’s fine on Friday, the banking Feds moving in over the weekend with a shotgun wedding arrangement with a To Big To Fail partner, and Monday morning the common and preferred wiped out. It will take a while for that to fade. Other places to invest in. WTFCP sounds like a very good place to park some cash in for a few quarters. Think I will look into that one as I have some to park.
I picked up some EGLPV, now EGLPP, soon to be EIIA @ 24.70 as well. If it trades back down to that range, and i can flip EICB near $25, I’ll 3x my position. While I prefer EIC to ECC/EPIFF as longer-term holding, I’ll be trying to play a short term flip.
Mrinprophet EPIFF ?
Sloppy typing… meant EPIIF (Eagle Point Inst. Income Fund) that issued the new preferred. My meaning was that i preferred the issuer focused on CLO Debt to those predominately owning CLO Equity.
Thank you sir! your explanation helps.