Algonquin Power and Utilities Issues Baby Bonds

Algonquin Power (NYSE:AQN) has issued a new fixed to floating rate subordinated note issue. The issue is rated BB+ by both Standard and Poors and Fitch.

The issue is not yet trading and the ticker is not known–although we are guessing that it will be AQNB

The new issue will have a initial fixed coupon of 6.20% which will be in place until 7/1/2024 after which it will float at a rate of 3 month Libor plus a spread of 4.01% until 7/1/2029. Then it will float at 3 month Libor plus 4.26% until 2049. From 2049 until maturity in 2079 it will float at 3 month Libor plus 5.01%.

The notes have the normal optional redemption period beginning 7/1/2024.

Currently AQN has a 6.875% fixed to floating rate issue which can be seen here.

The pricing term sheet for this new issue can be seen here.

Thanks to all for all the discussion on this new issue on the Reader Initiated Alert page.

54 thoughts on “Algonquin Power and Utilities Issues Baby Bonds”

    1. Just got off the phone with Fidelity’s fixed income desk. They say they can’t get it yet.

  1. Merrill can’t trade this unless you buy in 5000 share lots. Dumb! Guess I’ll be waiting until tomorrow and paying up for it.

  2. Got 400 thru Vanguard at 25.37
    Took about 10 mins on the phone at around 2.30ET..again they mentioned it would start to trade on Thurs

  3. Just a heads up for anyone interested. I was able to buy another 1000 shares of Algonquin Power and Utilities Issues Baby Bonds 6.2% due 2079 CUSIP 015857808 @ $25.30 (though it took over an hour to execute) and was passed along to 3 separate traders before the “specialist” could take my order. This trader also told me the baby bond should start trading NYSE Thursday.
    Truth, like gold, is to be obtained not by its growth, but by washing away from it all that is not gold. — Leo Tolstoy

    1. Thank you for lifting my head up, Nomad. Im in like Flynn for 1000 myself. Though at $25.35. Vanguard seemed to have their act together as they knocked it out for me in 5 minutes.

      1. Added thought…Any time I buy subordinated notes, I am not fooled by the term “bond”. In reality these things are as worth as much as a preferred stock when crap hits the fan. I appreciate Algonquins honesty as they make no bones about it in prospectus. If they ever went into bankruptcy these things are automatically turned into preferred stock and not debt anymore without consent of shareholders. So you know what that means, lol…
        If one chooses to buy, do it because you like the terms or the company. Not for the false security of the word “notes” that is slapped into the prospectus.

        1. Grid, you make an excellent point(s); even when the Vanguard Fixed Income trader was reading me the full disclosure he said “in a bankruptcy this subordinated not will drop in quality and be on order of safety with their preferred”. Almost all “baby bonds” and preferreds are worth little to nothing in the safety of their financial stack in a BK…
          Smile, Nomad

            1. Nomad, I do that so much, I knew exactly what you meant. About every post I seem to accomplish that, ha.

        2. I just had a quasi-argument with the Merrill bond desk. After some back and forth, they told me the new AQN offering was NOT a bond, it was a preferred. No, I said, it states that it is a subordinated note. No, she said, it is a preferred. On and on and on until she heard the dial tone I introduced her to.

          1. Did you tell her to punch in cusip number, A4I? If not go directly to trying that method with a different rep. Actually you both are correct for now (but you appear to have been stuck with a dumb rep as I get every so often). If you look on Finra bond site, it trades as bond, but is listed as a preferred. Technically it is a note, unless they become insolvent then they convert it to a preferred without our consent.

            1. Yeah, they could only find it by CUSIP. It should trade tomorrow for us little guys and gals so I’ll just wait until then. Either that or find a quick pot of gold I can liquidate to buy my minimum 5k shares with them!

              1. On another note, CTGSP. What are your thoughts on this super illiquid. I think you used to hold this one. Merrill has also restricted this one as well. Since I can’t buy more and it’s yielding a mediocre rate, I am thinking of selling my small position and rolling to the new AQN issue tomorrow.

              2. Dang they are hard headed. That is all that was needed. What they maybe should have said is they had no inventory to sell.
                CTGSP, yes I sold out most of mine a while back. I got a fair offer and sold as I was trying to buy something else if memory serves. Its basically an A- rated preferred. Very low yield of course. But ring fenced and noncallable. Of course its trading 2x above par. They did a redemption offer afew years ago at a price well above par, and most accepted so the float is roached out.

                1. Because of the yield and the restriction, I am letting them go in the middle of the B/A spread. Will see what happens. B is 5.65 and A is 7.00. Really wanted more KTBA before the ex-date coming up next week.

    2. Nomad, I see the fleecing going on with the bond desk…The “honest trades” are going in the 25.30s while there are plenty of fleecing trades going off in the 25.70s-90s. I bet that is where its going fairly soon after it hits the nig board.

      1. Grid, was a very strange transaction; I insisted that the 1000 share buy go in at $25.30 and he said he saw shares at $25.40+ only. I told him to put my buy in at $25.30 and he told me he’d “pass me” to another fixed adjustment trader and/or a “foreign” securities trader. He had me on hold for what seemed like an eternity. Then came back and said they were working my order. Called me back an hour later and said I filled st $25.30…

        1. Nomad, when I called I told them I saw $25.30 as last trade. They said they would “do what they could”. They came back at 25.35 was best quote. I just said I will take it….They probably were giggly like girls in background fleecing me that nickle. I took the price and let it go.

          1. Grid, like a swift kick in the groin from the financial “service” industry…The SEC should be all over these secret bond magic spread issues (like with Phoenix) that hurt the individual investor…

            1. Nomad, the quickest way to go broke is day trade Phoenix. You will be buying $2 higher than your selling price every transaction. 🙂

          2. I was quoted (and traded at) 25.37 @ Vanguard earlier today without mentioning the $25.30 amount…

            1. Geodad, you were wise and saved your breath. It wouldnt have mattered. At least with me it doesnt….Now Bob (who posts here) at Vanguard has thrown his weight around with them and had better results though on some issues.

            1. Yes, Alpha on this specific issue I did. Called income desk with Cusip and after a call to income specialist they had them in a few minutes for me. Interestingly I have an online friend who bought them at TD. Then towards end of the day he decided for a second bite of the apple and called them back. They were sold out of their inventory already so he couldnt purchase anymore.

  4. Sorry for being such a “newbie”, but I hear investors on this blog and on Seeking Alpha say the have a “full position” in certain issues. What is a full position ? I take it to mean they have a certain percentage of a stock or bond that is a full position for their particular portfolio. But maybe it means 100 shares ? 1000 shares ?

    1. A full position is whatever you decide is your maximum allocation to any one issue. For me it’s 2% of my portfolio.

      1. For me it 2-3% of Total Liquid Assets depending upon quality but instead of any one “issue” I will limit it to any one single “issuer” in case I own multiple securities from the same company.

        Treasuries are exempted from this limitation.

    2. Bill, it kind of mirrors the saying…Beauty is in the eye of the beholder….It varies. I know some people have a hard cap on shares per issue, or percentage of portfolio. I hear many to have a 2% cap and a few have 5%. One online friend just buys flat 200 shares (for $25 par) and that is that. It installs discipline and keeps one from being overexposed in one issue.

      1. Gridbird, thanks for the reply. I suspected it might be a pre-determined amount but wasn’t sure if it was percentage or shares, per your explanation it could be either. I am fairly new at investing, but I try not to have more than 5% in any one issue except BC-B. That one I have almost 10% in, won’t do that again.

  5. I lack the connections you have Tim. Is there any indication if trading will commence today ?

    1. Retired–as tim.moore showed below it is trading somewhere–big blocks–but it isn’t trading where I can get at it now. It will show up on your brokerage site when trading commences–unfortunately no one knows for sure when that will occur–I would think any time know–will just have to keep checking.

      I’m afraid by the time you or I am able to buy it may already be “out of buy range”.

      1. Sounds like institutional buyers get in first and the rest of us get to pick over the crumbs.

        1. Not playing. My view, when you bid up 0.75 cents a share thats 3%. Over 5 years that’s 0.6% per year. In other words subtract 0.6% from the coupon. No thank you. At some point in next 5 years it will beat or below par

          1. That’s true Steve, but unless it hits that mark in the next six months you will be behind at the end of the five year period by waiting to buy it – all else being equal. It all depends on if you feel you have better options in the interim.

            There are lots of ways of looking at these things. And everyone’s needs and comfort level will be different.

            1. This is only how I view it. Others will certainly view it as they choose to view it. Nobody’s right and nobody’s wrong, we all view things as we choose to. Clearly, lots of people are interested in buying this at least 2% above par and it makes sense for them.

          2. The yield at 25.75 works out to 6.019% assuming its never called which, with a fifty year forward maturity date is basically the same. If called at the first optional call date the yield to call would be less. The coupon is rather low but the reset rates are decent so a call is possible depending on what rates and Libor (or it’s equivalent) are doing in five years. You take your chances. AQNA, which has a lower reset rate would actually survive longer. In 2023 AQNA will cost the company less than this new issue will cost them come 2024.

            I’d like to purchase some of this new issue but I’m not paying more than 25.40. I already own a full position in the common.

            1. Retired, thank you for your excellent and informational post. I completely agree with you and feel that the institutional accounts are desperate for quality “higher” yielding utility preferred and bonds, so they bid this one up nicely before the general public gets its opportunity. I own a large position in the common and will just have to wait to see if this new issue moves lower for any type of value buy…
              I’d rather be out of the market wishing I was in than in the market wishing I was out.
              Have a great weekend, Nomad

              1. Nomadicmist I like the common. The dividend was just raised 10% and they’ve been pretty consistently giving common stock holders a nice bump. Heck, pretty soon the yield on cost will be as good as the new baby bond…better if they call this one in five years. The company has a lot of clean energy assets, which is a hot button issue and only going to become more in demand going forward. It’s also why I own NEE and BEP among my utility holdings. I’m not a climate change nut but even I can see the future and it’s not coal. Wind, solar and hydro make power from AQN in demand as hydrocarbons are phased out.

                I live in Northern Idaho but my power is supplied by Spokane, Wa based Avista Utilities (I bought this recently after the merger with Toronto based Hydro One was nixed by the State Utilities Commission). Washington State recently passed legislation phasing out coal, oil and even nat gas generated electricity, so Avista (AVA) is going to either get acquired by someone else or expand their renewable power generation. That’s off topic but I do tend to ramble.

                Happy Trails!

            2. I own an oversized position in AQNA. Was going to split the oversized in some ways. As you have correctly pointed out, the new offering has a greater chance of being called 1st and is the better option after 5 years.

              I can deal with where I am.

        2. From the book-runners perspective, it just makes sense to give the institutions buying large tranches the first crack. Their obligation is to the issuing company, not the general public.

          1. Why? small buyers are a large group collectively and could bid up the price. So if they are really obliged to issuing company they would let everyone buy from the underwriter. But this is just business as usual with large institutions getting favors. This is the way the USA works now, whether it is on Wall Street or Washington or anywhere else. The little guy does not get a fair shake.

          2. Does the company get the extra money? My belief is it all goes to the underwriters – the company get less than $25 a share. If the offering goes way under $25, the underwriters get the loss.

            Maybe I am wrong

              1. But in general, the issuer wants to have their new issue rise to a small premium because they want investors to end up with a good taste in their mouths at the end of the day, especially if they’re serial issuers of different series of securities (serial issuer does not necessarily apply to AQN but still this is probably what they wanted of the issue).

              2. According to Doug Le Du, who sells his service as cdx3, has his subscribers to believe that the market makers got somewhere between 8 – 10% discount from the company. Doug uses this as one of his own selling points to his subscribers. On issues which were expected to have very low demand, e.g. the second preferred offering of UMH-C, for example, I suspect that the Company would allow more discount in order to push the large volume through so that they will have the money to call the higher coupon B.

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