Allstate Announces Preferred Stock Redemptions

We all knew it was coming and it has happened with Allstate announcing the redemption of 6.625% issues ALL-D, ALL-E and 6.25% ALL-F.

When I say “we all knew it was coming” I am maybe speaking too broadly because the ALL-D 6.625% issue is trading at $26.76 and the ALL-F 6.25% issue is trading at $25.84. Maybe I am going crazy–but I fail to understand folks trading a security at $26.76 when it has reached the optional redemption period and the company had just sold an equivalent 5.10% issue. Do we have that many ‘rookies’ in the market now? Look at the trading in the ALL-D issue here. I wrote on 8/1 when the 5.10% issue was announced that “folks were asleep at the wheel” and from the chart you can see they woke up and sold the ALL-D issue hard—and then the buying started anew. Qeez.

The company’s announcement can be read here.

11 thoughts on “Allstate Announces Preferred Stock Redemptions”

  1. Buying was done by PFF and they are always asleep..i just bought it and sold it to PFF last Friday! very expensive to short these things generally speaking.

    1. Shorting this one was astronomically higher than shorting the Entergy Texas issue.
      4.00% v 36.00%
      But the short would have been fairly short in duration.

      1. Can you maybe explain what is the Entergy Texas Issue? I am bewildered what the below Investment grade rating (Ba2) assigned yesterday to the newly issued Preferred Stock had to do with a sell off of the Baby Bonds (Moody’s – Baa1/ S&P – A) which are First Mortgage Bonds? The default risk on these bonds should be about as low as it gets? Are the proceeds from the preferred stock going to be used to call the bonds in early?

        1. Derek there is no direct indication of that occurring yet and the issuance size indicates “general corporate purposes” not redeeming. But anytime a new preferred comes to market anything call exposed to this issuance sneezes to the risk. And truthfully it should because all other Entergy sister subsidiaries baby bonds are squealing opportunity for a call and refinance in this particular issue.

  2. Tim, this is a good teaching opportunity. If ever there was a more telegraphed, more predictable, call I don’t know what it is.

    If it’s high quality (especially), past call or coming up to call, and trading more than 10-20 cents above stripped par, think twice about buying, or even holding.

    The list of issues that are highly likely to be called is very long. And many are trading well over par.

    Much too much wishing and hoping going on.

    1. I think the preferred stock ETFs are partially to blame. They passively (blindly) track an index, and as more people buy the ETF, they keep buying more of the preferreds. PFF alone owns 2.67M shares ALL-E, 893k ALL-F, 349k ALL-D (as of 8/30) – around 8-10% of each float.

      1. JDubs, Also interesting is that if we have an “event” and there’s a rush for the exit door, the blind ETF sales will cause a temproary oversell.

        1. And this is why, if I’m buying preferred in a fund, I’ll buy the CEF, not the ETF.

          ETFs can have redemption, forcing them to sell into a down market. Usuallly their most liquid issues. The loss from such sales is a permanent capital impairment. The “losers” are the ones who remained in the fund.

          CEF’s don’t need to sell, as shares can’t be redeemed. They continue to hold and benefit from price recovery. The “losers” are those who baled out of the CEF when the price was depressed. (love it when this happens as it’s what’s called a buying opportunity!)

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