As we mentioned we had entered an order for the new Tristate Capital (NASDAQ:TSC) 6.375% fixed-to-floating rate preferred (TRSXL) this morning.
Our initial bid was $25.30, but it appeared this was inadequate, but didn’t intend to chase. We went ahead and entered a $25.50 order as the shares hit $25.92. Shares then fell back to the $25.50 where after 2 hours our order executed.
Into the close the share price started running again and closed at the high of the day of $26.00
This issue is following the trend of all of the smaller regional backs that are issuing fixed to floating rate preferreds–huge demand and skyrocketing prices.
TriState has a 6.75% fixed to floating rate issue (TSCAP) which is now trading at $26.90–see it here.
Merchants Bancorp sold a 7% fixed to floating issue (MBINP) which has traded as high as $27.60 recently–see it here.
Citizens Financial sold a 6.35% issue (CFG-D) that is trading at $26.65–see it here.
There are others. Quite honestly these are less than investment grade issues with current yields now under 6%, on many. If we owned any of these they would be gone in a minute. The risk reward is inadequate at these prices and yields.
We will flip out of the TriState Capital new issue at $26 or over–this is all we are after–4-6 steak dinners. There is too much froth in these issues and it will end badly for some investors.
With the sP500 tumbling hard today we always look for “spillover” to the sectors we invest in–and there essentially is none.
With the Chinese trade situation and the more nasty political tone we observe in Washington DC we are watching for a potential “throw the baby out with the bath water” moment. Right at this moment we have the average preferred and baby bond trading right at $24.83 which is to the penny where it began the week.
As most of us know a drop in common stocks of 1, 2 or even 4% over the course of a week is no big deal–but if we reach 2,3 or 4% drop in 1 day there is always a potential of the nervous nellies starting to bail out. Now, with the excepting of the usual suspects of some shippers and retail related REIT preferreds we are NOT seeing anything unusual–in fact when I look at the preferred volumes trading is quiet.
We do see the new TriState Capital 6.375% new issue trading on most venues now at $25.40 (OTC ticker TRSXL). We have entered an order at a bit lower price–probably too low, but we don’t plan to chase it if it shoots higher.
Shares to be redeemed will be determined by lottery among owner accounts per the company filing which can be seen here.
When one of these partial calls occur it tends to keep the share price on the remaining outstanding shares closer to $25 so one should be able to purchase shares a bit cheaper in the future–after the redemption. 7.75% is a tough one to replace and I may pick up shares if mine are redeemed.
TeeKay Offshore (NYSE:TOO) will potentially be bought by Brookfield Business Partners (NYSE:BPY) for $1.05/common unit for those they don’t already own. The fear is one of a potential delisting or suspension (or both) of the 3 high yield preferred units TOO has outstanding. The A, B and E issues are off between $1.69 and $2.75/share–and that is after falling $3 bucks further earlier in the day.
LNG shipper Dynagas Partners (NYSE:DLNG) is being sued by investors for telling ‘lies’ to stockholders–it looks serious. Both high yield preferred unit issues are off around 12% and trading in the $16-$18 range.
I think most all knew these were high risk issues–and personally we hold none of them, but certainly have off and on in the past.
This is a lesson for newer preferred investors – you can always count on the shipping related issues to be some of the diciest preferreds out there–this has been the case as long as I have watched these companies (15 years). There is a reason they have coupons of 8% to near 10%. We have all had to learn these lessons–and we all continue to learn. It is not just the business model of these shippers, but most are domiciled outside the U.S. and reporting requirements may not be as stiff as they should be–too much “just trust me” from management.
Canadian Brookfield Business Partners LP has made an offer to purchase the publicly traded units of TeeKay Offshore (NYSE:TOO) that it doesn’t already own. The offer was for $1.05/unit–shares are trading at that level now–no premium in the offer.
Recall last month Brookfield bought the last of the general partners interest in TeeKay thereby controlling the company so this is just a continuation for full ownership.
TeeKay has 3 preferred unit issues outstanding and they popped last month on the Brookfield announcement of the general partners acquisition–then they settle way back. Likely we will see a pop today. Those units are here.
Instead of a pop the TOO units are being sold off hard on delisting concerns–as one said, what a punch in the gut.
Last week was little better week for stocks as the SP500 opened the week around 2840 and hit a high in the 2888 area before closing at 2859–up a bit for the week.
The 10 year treasury moved in a narrow range of 2.37% to 2.42% before closing out the week at 2.39%.
The FED balance sheet fell but a large $28 billion last week which continues a trend of small weekly changes with 1 large drop each month which still total in the $40 to $50 billion a month runoff. With interest rates falling seems like a good time to let the runoff continue. We note that the balance sheet stands at $3.864 trillion in assets, which is only $114 billion above an earlier predicted runoff goal–of course this is no true goal number an as data changes so will runoff goals.
The average preferred stock and baby bond ended last week at $24.83 which is 7 cents above the previous weeks close (the 2 week change is exactly ZERO). There are now 207 $25 issues selling for $25 or less–this number grows smaller each week, but it’s a long ways from the 72 issues we hit last fall.
Tectonic Financial announced a new 9% fixed to floating rate preferred–the initial coupon should give one an idea of the quality of this issue. The company is not publicly held. The final prospectus for this issue can be seen here. The preferred will have a ticker of TECTP–we have not seen a OTC ticker on this one.
I thought I would take a little time to review the alternate bond type investment offered by the Uhaul Investors Club. For those of us that have been around a while we are probably already aware of this opportunity, but we have thousands of readers each week and many likely are not aware.
IMPORTANT NOTE–once you invest in these securities THERE IS NO SECONDARY MARKET so you will be holding these issues to maturity–although we note that the company will transfer them to another individual if you know of someone who would like the purchase. So do not invest the weekly grocery fund in these securities or you will be going on a diet in the weeks ahead.
The Uhaul Investors Club is an investment vehicle offered by Amerco (NASDAQ:UHAL) which is the parent company of Uhaul. In the simplest terms investors are able to set up an account with Uhaul directly and once your funding arrives you are able to make direct investment in a variety of debt issues offered by Uhaul–we show the currently available offerings below. The account can be a standard cash account, or as in our case (wife and I), they can be IRA accounts.
As you can see just like any debt instrument you buy the longer the maturity date the higher the ‘coupon’.
Investments must be in $100 increments and $100 is the minimum purchase. An account can be started with almost any initial deposit and with a couple clicks of the mouse you can add or withdraw available cash funds as you desire.
These ‘bonds’ are secured by the equipment shown above and Amerco files prospectuses for the securities with the SEC, just like any stock or bond offering.
Now these are not typical bonds. A typical bond would have a maturity date at which point you would receive the bond principal. During the time of ownership of the bond you would have received interest each month, quarter or likely semi-annually. The Uhaul bonds pay you quarterly and the payment includes a portion of the principal and a portion is interest–thus at maturity you will have received most of your principal and interest already so you only receive the typical part principal and part interest payment at maturity.
Your quarterly payment looks something like this (an actual payment on 1 investment we have with Uhaul)–
So when you receive your quarterly principal and interest payment, assuming it leaves with you with at least $100 in your account you can go right ahead and reinvest. It is important to realize that the principal can come back quite quickly, in particular on 2 year issues, and to maintain your maximum return you need to reinvest quite quickly.
I started our accounts mid 2018 and funded both accounts with a portion of our annual IRA contributions (which I believe was around $7,000) for the year. We have now started funding the accounts with 2019 contributions and have around $11,000 in the accounts. If one desires they are able to move other IRA money into the account with a transfer. While we have just a tiny amount in the account we plan to continue funding with new IRA money–this is just 1 tiny part of the over all plan.
Like any investment one needs to review the issuer–Amerco, to make sure they are performing as expected without obvious financial problems ahead. Amerco had filed for Chapter 11 way back in 2002–so like every corporation these things can happen and they need to be reviewed. We will let each potential investor decide for themselves what they believe the quality of the parent company is at this time, but we will point out a few basics.
For the 1st 9 months of the last fiscal year (ending 12/31/2018)
–Amerco had $2.1 Billion of marketable securities on hand (corporate bonds and treasury securities).
–Amerco had $1 billion of cash on hand.
–Cash generation (net income plus depreciation) of $770 million generated in the 1st 9 months on revenue of about $3 billion.
–The company pays about $35 million in interest each quarter–$105 million during the 1st 9 months.
The company will be reporting their financials for the last 12 months in the next 10 days or so and we will be reviewing them closely.
I believe there is very little risk in holding their bonds at this time and as long as the general economy remains decent–and likely even in a weakening economy.
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.