Tim McPartland | Innovative Income Investor

Monday Morning Kickoff

The Standard and Poors 500 moved in a range of 3091 to 3127, about a 1% range, before closing the week at 3110–around a 1/2% loss for the week.

Interest rates, as measured by the 10 year treasury, stayed pretty tame last week, moving in a range of 1.73% to 1.85 before closing the week at 1.77%.

The Fed balance sheet actually fell last week by $17 billion–this is the first fall in the balance sheet since 8/28/2019.

Last week we had the following new income issues announced.

Morgan Stanley (MS) announced a new preferred stock with a coupon of 4.875%. The issue is trading under OTC Ticker MSLQL and last traded at $24.98. Further details are here.

QVC Inc. sold a new issue of baby bonds that while investment grade rated carry a coupon of 6.25%. The issue will trade under ticker QVCC, but it is not yet trading on public exchanges. Further details are here.

Insurance company AXA Equitable (EQH) sold a new perpetual preferred with a coupon of 5.25%–not toop bad for a split rate investment grade issue. The shares are trading on the OTC Grey market under ticker AXQEL and last traded at $24.85. Further details are here.

REIT Global Net Lease (GNL) sold a new preferred with a 6.875% coupon. This is an unrated issue which is now trading under the OTC Grey market ticker of GBLNP–last trading at $24.64. Further details can be found here.

Insurer American Financial Group (AFG) priced an investment grade baby bond with a coupon of 5.125%. There is no OTC Grey market trading in the issue, but the issue will trade soon on the NYSE under ticker AFGC. Further details are here.

Lastly partnership Fortress Transportation and Infrastructure (FTAI) sold a fixed to floating rate preferred with an initial coupon of 8%. Being a partnership the shares will bring a K-1 at tax time and the issue, while cumulative, will not be a qualified distribution. Shares will trade today (Monday) on the OTC Grey market under ticker FTABP. Further details can be seen here.

Fortress Transportation and Infrastructure Prices Preferred

Fortress Transportation and Infrastructure (FTAI) priced their previously announced fixed to floating preferred stock with an initial fixed rate of 8%. The issue will float starting in 2024.

The company is a partnership and as such it will issue a K-1 at tax time. As a partnership it will not pay a qualified distribution.

The pricing term sheet can be read here.

Investment Grade Preferreds and Baby Bonds Now Callable-REPLAY

About 2 weeks ago I posted this spreadsheet which is Investment Grade Preferreds and Baby Bonds Now Callable.

I am reposting–I did not update the dates as little changes over a 2 week period (although since the original post 6 issues have been called for redemption), BUT prices do change and I see a couple I don’t own that are in the list which I may pick up.

Currently I own the following off the list–

Axis 5.50% preferred (AXS-D)

WR Berkley 5.625% baby bond (WRB-B).

Vornado Realty Trust 5.40% Preferred (VNO-L)

So I now see a couple others that I will look closer at for potential purchase.

1st is the DTE Energy 5.25% baby bond (DTQ).

2ndly is the Kimco Realty 5.50% preferred (KIM-J)

The idea is that if interest rates don’t move too violently up or down these issues should stay relatively closely tied to liquidation preference ($25) while providing high levels of safety. I don’t really want to deal with any issues under 5%, because the redemption likelihood is small thus exposing the issue to bigger share price moves (down).

Here is the list again.

Note that the yield to worst DOES NOT include accrued dividends so the actual yield to worst is slightly better than that listed.

For those wanting the full investment grade list of baby bonds and preferred stocks you can click here. You can toggle on the bottom for investment grade.

Dynagas LNG Partners LP Reports Earnings

It is always amazing how poorly these shipping companies are operated—or maybe it is just amazing that supposedly educated lenders will lend them money knowing odds are high that they will never get their cash back.

Dynagas LNG Partners (DLNG) is one of those shippers that one would think had an opportunity to make a decent profit–they are a small partnership–revenue in the $135 million/annually area. They have only 6 LNG carriers and their sponsor has been in business since 2004. 5 of the 6 LNG ships are ice rated–they can travel the northern seas–up near the Artic circle–in fact their sponsor was the 1st LNG carrier to do so back in 2012.

DLNG was formed in 2013 with an IPO in the 4th quarter. Reviewing the financials for the 9 months prior to the IPO we see a company with stellar numbers–in fact I can clearly remember reviewing these financials and thinking “maybe these LNG carriers have some real potential”. Take a look at the results for 3 months and 9 months ending 9/30/2013. The partnership operated only 3 ships at this time and they were contracted at $76,000/day each. This shows a net income of $1.59/share for 9 months.

Speed ahead to 2019–the company operates 6 LNG carriers now instead of 3. Below is their recently released earnings statement. They are contracted at an average daily rate of $62,000—and they can’t even bring a single damned cent to the bottom line!!

One can look at these income statements and clearly see that while revenue is up 50% in 6 years, interest expense is up 400%–easy money and stupid lenders. But I am sure the sponsor of the partnership is happy – they get their management fees year end and year out irrespective of their incompetence.

Of course there is much more to the story–I’m am sure the sponsors screwed the partnership on ‘drop down’ assets–financed with easy money–but the point really is–BE DARNED CAREFUL WITH THE 2 OUTSTANDING DYNAGAS LNG PARTNERS PREFERRED SHARES–which can be seen here. The shares had big jumps when the company was able to refinance their debt–so instead of a instant bankruptcy they will now go into ‘slow motion’ bankruptcy.

The company has now been restricted from paying any further common share distributions while their new loan is outstanding–BUT the next available source of funds will be the preferred dividends. The company has only a bit of cash, but no doubt they will survive for a few years (the cash you see on the balance sheet 9/30/2019 is already restricted for debt repayment)–lenders will be forced to keep them afloat for a while. Honestly there is a 50/50 chance they will be liquidated within 5 years and common and preferred holders will get ZIP.

For all practical purposes this is now a Zombie company.

Here is their earnings release.

Fortress Transportation and Infrastructure Announces Fixed to Floating Preferred-Corrected

Correction–FTAI is a LLC and thus Non-Qualified and will issue a K-1.

Transportation infrastructure company Fortress Transportation and Infrastructure (FTAI) has announced the issuance of a new issue of Fixed-to-Floating Rate preferred stock.

The company currently has 1 other fixed-to-floating rate coupon issue which was sold in September with a fixed rate of 8.25% which moves to floating on 9/15/2024 with a coupon of 3 month Libor plus a spread of 6.886%. This issue is currently at $25.79 after trading as high as the $26.40 area prior to the new issue announcement. You can see it here.

Obviously this issue is not investment grade, but will be cumulative, but NON qualified (K-1)

The preliminary prospectus is here.

Eugene was right on top of this one earlier this morning.

VEREIT Announces Partial Preferred Redemption

As we all knew was coming, REIT VEREIT (VER) has announced the redemption of 8 million shares of the VER-F 6.70% perpetual preferred.

The company had previously redeemed 4 million shares so now in total they have redeemed 12 million shares of almost 43 million outstanding–so we still have 31 million shares trading.

The shares being called represent about 20.58% of all shares outstanding and will be redeemed at $25.028/share which represents liquidation plus accrued. A full dividend of about 14 cents will be paid to holders on 12/15/2019.

So for those that were wondering – the shares will be redeemed on a pro rata basis, so you will see 20.58% of your shares get segregated in your account and on the call date (12/21) they will disappear and cash will be received.

VER-F shares are now trading at $25.26 after falling as low as $25.07 yesterday. I know many folks took the opportunity to buy more shares (I bought 300 more) since the call risk had left the price. My purchase came as one of the readers pointed out a partial call instead of a full redemption–initially I had missed the partial call note.

Thanks to Dave for posting the company press release late today. The press release can be read here.

American Financial Group Prices Subordinated Debentures

As noted earlier today insurance company American Financial Group (AFG) is offering a new baby bond.

The investment grade rated issue has been priced at 5.125% with a maturity date in 2059.

The issue carries a BBB- from Standard and Poors and a Baa2 from Moodys.

There is no OTC Grey Market trading, but it might be available to you before big board trading if you call your broker with the CUSIP.

The pricing term sheet is here.

American Financial Group to Offer Baby Bonds

Insurance company American Financial Group (AFG) has announced a new issuance of baby bonds.

The company has a number of issues already outstanding–3 baby bond issues to be exact.

The company intends to redeem the 6.25% baby bonds due in 2054 (AFGE), which have been redeemable since 9/30/2019.

The new issue will likely be investment grade (BBB- from S&P and Baa2 from Moodys) so the coupon will be fairly low. The permanent ticker will be AFGC when it begins to trade on the NYSE in a week or two.

The preliminary prospectus can be found here.

Ready Capital Reopens Baby Bonds

Multi strategy REIT Ready Capital (RC) will reopen (sell more shares in a currently outstanding issue) their 6.20% baby bonds (RCB).

This issue was originally sold in July, 2019 and was most recently trading in the $25.59 area.

Disclousre–I own this issue and may take this opportunity to add a little more.

The selling price of the new issue has not been announced yet.

The preliminary prospectus can be found here.

Global Net Lease Prices Preferred Issue-UPDATE – OTC Ticker

FINALLY the OTC Grey market ticker has been posted. It is GBLNP–of course now you have to wait on your broker to update their systems.

Diversified triple net lease REIT Global Net Lease (GNL) has priced their new preferred.

The issue comes with a coupon of 6.875% and it will be cumulative, but non qualified.

This is unrated–they will sell 3 million shares plus 450,000 more for over allotments.

The issue WILL trade on the OTC Grey market–likely tomorrow, but the temporary ticker has not been announced–likely one of the folks will post it here in the morning the minute it is announced.

I may/may not have a personal interest in the issue–probably only if it trades at $24.75 or at least below $25–then our interest might only be for a flip.

The pricing term sheet can be found here.