Tim McPartland | Innovative Income Investor

Just Energy and CBL Properties Cut Preferred Dividends-Updated

It has been a tough time for investors in the preferred stock of Canadian energy reseller Just Energy (JE) and mall owner CBL Properties (CBL).

While the preferred shares have been under pressure for some time it was only yesterday that both company’s announced suspension of their preferred stock dividends.

Just Energy has just 1 preferred issue outstanding which can be seen here. The issue had been trading around $16-$17/share last week and plunged yesterday to $9.80/share on the suspension announcement.

For what it is worth these shares are cumulative–thus dividends will continue to accrue. Of course whether they are ever paid probably is kind of a long shot, but speculators can determine that for themselves.

The Just Energy announcement can be read here.

Of course CBL Properties preferred stock had already seen tough times and the announcement was expected by many. CBL has 2 outstanding preferreds which can be seen here.

UPDATE

These shares which were already depressed trading around $10–per Ptrader they are trading much lower this morning.

The CBL issues are cumulative so dividends continue to accrue–again, whether they will ever be paid may be dicey.

The CBL announcement can be read here.

While very conservative investors such as myself are unlikely to have any interest in these preferred shares an opportunity may present itself for more adventuresome folks–only time will tell.

SVB Financial Group Prices New Preferred

SVB Financial Group (SIVB) has priced the previously announced new preferred stock offering.

The issue priced at 5.25% and will be non-cumulative, but qualified.

The issue is split investment grade with Moodys rating the issue Baa2 and S&P being at BB.

The issue will trade today under OTC Grey market ticker SIVBL.

The pricing term sheet can be seen here.

SteveA was right on the pricing under yesterdays announcement article.

Common Stocks Can Go Down?

For the 1st time today I looked at the stock market numbers at 11 a.m. (CST)–wow the DJIA is off 200 points. I didn’t know stocks ever fell–in particular 2 days in a row.

So just for the fun of it I turned on the TV (which I seldom do during the daytime anymore) and found 5 panelist on CNBC arguing about the market fall–each one of them was the smartest person in the room, at least that is what was conveyed.

Honestly while I don’t want to see a stock market crash, or even anything close to it, it would do all the smart people some good to see the equity markets take a nice 10% or even 20% setback – once we see that kind of a market we will at least have more of a clue who really knows what they are talking about.

Also a nice tumble in markets would separate the wheat from the chaff on Seeking Alpha where the never ending “recommendations” by some folks of total crap companies really grinds on me. With the ‘rising tide lifts all boats” market these folks are allowed to lead the sheep to slaughter. Not that there are not some good items on Seeking Alpha, but most of the most popular writers are legends in their own minds.

I concentrate on what I own–I watch interest rates and some potential causes of movement in the rates. I can’t say I get any ideas off of the TV and I get few ideas from Seeking Alpha–BUT I will admit to stealing ideas from the folks commenting around this website. I am only looking for a 6-7% annual return–I don’t need ideas from goofballs-and their are plenty of them out there.

SVB Financial Group to Sell Fixed Rate Preferred

California banking company SVB Financial Group (SVB) has announced a new issuance of fixed rate preferred stock.

The issue will be non-cumulative, but qualified and will have an early redemption period starting in February, 2025.

We find no rating for this new issue at this time from S&P, but it will be rated Baa2 by Moodys.

The issue will be traded on the NASDAQ once it trades on its permanent exchange under ticker SIVBP.

No OTC Grey Market ticker is yet known on the issue.

The preliminary prospectus can be found here.

2 Favorites to Be Called For Redemption

It looks like the Axis Capital 5.50% perpetual preferred (AXS-D) will be called soon (no official notice has yet been made).

Axis Specialty Finance LLC has announced a new $1000 Fixed-Rate Reset Junior Subordinated Note issue with the stated “use of proceeds” for “redemption of all of our outstanding 5.50% Series D preferred shares”.

This issue was one of the issues we owned as it traded right in the $25 area and had little to no call risk (i.e. money would not be lost on a call). It is now trading at $25.07 after going ex-dividend on 11/14 with a pay date of tomorrow. Assuming the call notice will give 30 days notice the accrued dividend should be in the 11-14 cent range meaning a value of $25.11 or 25.14.

Additionally Kimco Realty (KIM) has announced the redemption of the 5.50% KIM-J issue on 12/31/2019. We did not own this issue, but had studied it for a potential purchase. The issue will be redeemed at $25.29028 as it will have about 2.5 months of accrued dividends included as the last payment date was 10/15/2019. The notice is here.

Monday Morning Kickoff-Corrected

I HAVE REMOVED THE CHART ON PREFERREDS AND BABY BONDS AS I FOUND AN ERROR IN CALCULATIONS.

Last week, being a holiday week, was fairly quiet, although–of course, the S&P500 moved higher. The average moved in a range of 3117 to 3154 before closing the week at 3140–a gain of just under 1% for the week. All news is good news (so says stock prices).

The 10 year treasury traded in a range of 1.73% to 1.80% with a close at 1.78%–essentially unchanged from the week before.

The FED balance sheet data was NOT released at noon Friday as is normal, because of the holiday business week. We should see it by noon on Monday.

As might be expected the number of new preferreds or baby bonds announced last week was muted.

Fortress Transportation and Infrastructure (FTAI) priced a previously announced fixed to floating rate preferred stock issue that carries a coupon of 8.00%. The issue is trading under the temporary OTC ticker of FTABP and last traded at $25.21. Details are here.

Banker First Republic (FRC) priced a new fixed rate at the rock bottom coupon of 4.70%. The issue is trading on the OTC Grey market under the temporary ticker of FRCJL. It last traded at $24.90.

Cruising Into the Weekend

We all know today will be pretty darned quiet as no one is doing much investment wise–except some of us that are addicted to some sort of market adrenalin fix.

Today we have to search a little harder for that ‘fix’. Maybe one of the most interesting items today is the B. Riley (RILY) baby bond ‘call’. The company is calling the RILYL 7.50% issue which is the only issue outstanding that is currently in the early redemption period.

B Riley has become a complicated company that operates in traditional financial markets as well as having ownership (or partial ownership) of various operating companies–sometimes to take advantage of operating losses. bebe Inc. , magicjack, themaven?? Do I smell an implosion if a recession ever comes??

We haven’t had the time to do a deep dive into B Rileys financials lately, but anytime I see a company that has debt of almost $800 million with total equity of $299 million I get highly suspicious – I am going to try to dissect this one sometime soon.

This weekend we will post the latest version of the Sortable Master Listing. Since we had originally posted an earlier version we have been tweaking some components and now will put out a version for readers to use if they so choose. This will require you make a copy for yourself–so you should have a google account if you want to use it.

I will then start working on the next version for everyone–I plan to post an updated version every month.

A Quick Look at Giant Cooperative CHS

Ag cooperative giant CHS (Cenex Harvest States) has now turned into a oil refining company masquerading as a ag company.

CHS was a darling of mine many years ago so I thought I should check in with them because of the 5 preferred issues they have outstanding.

CHS preferreds have always been good to investors–with coupons much higher than comparable corporations would offer.

Some may remember–and some may not know this–that the 1st issue from CHS was issued primarily to cooperative members way back in 2003–it was a whopping 8% coupon (CHSCP), which became redeemable in 2008. In 2013 the company changed the terms of the issue so that it would not be redeemable until 2023. During the years of 2003-2008 the company issued another 9 million (more or less) of these shares–even though they could have garnered a lower coupon–the ownership remained strongly in the hands of many of their members, thus it always remained a strongly traded issue and I have always surmised that the optional redemption period on this issue was extended simply as a bit of a concession to the members/owners.

After this initial issue (in 2013, 2015 and 2015) the company began to sell new issues of preferred stock–primarily to build a massive fertilizer plan in North Dakota. The new facility was never built and instead the company invested proceeds in giant fertilizer company CF Industries (CF)–quite honestly this investment has not provided much in the way of profits until recently.

So what is the company doing lately in this absolutely horrible ag economy? Actually they are making quite a bunch of money–but little of the profit comes from the ag end of the business.

The cooperative had net income of $819 million for the year ending 8/31/2019–$618 million was generated from the 2 refineries they own as well as 1,450 retail outlets. Ag contributed a measly $43 million of net income (off revenue of $24 billion), while the nitrogen investment in CF Industries kicked in $73 million. Investments in Ardent Mills (the nations largest flour miller–a venture with Cargill and and ConAgra) and Ventura Foods contributed $81 million.

So while the lions share of revenue comes from the ag segment it produces almost no profits right now.

The total revenues the company has produced during the last 3 years have all been in the $31-$32 billion area which actually is pretty respectable for operating in the ag segment of the economy. Of course, if you go further back you will see they had revenue of $44 billion at the peak for the year ending 8/31/2013. Energy has always been a pretty large chunk of earnings for the company–so right now the prime difference is the lack of contribution from the ag business.–now if this was a publicly owned company shareholders would be pounding the table to get rid of the ag business. Obviously this won’t happen.

So as a whole the company is performing well. Unfortunately energy at some point will perform poorly and one can only hope that the ag economy has straightened out by then. Looking further at the company’s debt situation–I always look closely at the debt–things look good. Most companies can perform relatively well–even in a recession, if their debt is under control. In this respect CHS runs a pretty tight ship. They have $1.8 billion in long term debt and $2.2 billion of notes outstanding–a total of $4 billion in debt against $16 billion in assets. Equity is around $8.6 billion. Interest rates on the debt run from 2.25% to 5.40%–the debt is all unsecured. So debt is really a small consideration for the coop.

The company’s 10-K filing for the year can be seen here.

Now going back to the preferred stock–

CHSCP, 8% perpetual is currently trading at $28.15 and is optionally redeemable starting 7/2023.

CHSCO, 7.875% perpetual is currently trading at $27.60 and is optionally redeemable starting 9/2023.

CHSCN 7.10% reset rate perpetual is currently trading at $27.83 and is optionally redeemable starting in 3/2024.

CHSCM 6.75% reset rate perpetual is currently trading at $26.40 and is optionally redeemable starting 9/2024.

CHSCL 7.50% perpetual is currently trading at $27.38 and is optionally redeemable staring 2/2025.

So as a new buyer (I haven’t had shares for a long time) these issues don’t look too attractive on a yield to worst basis. On the other hand knowing that the air won’t come out of the price until maybe 12 months before possible redemption and having 3.5 to 5 years before potential redemption maybe a tiny buy is in order?

Do I really like CHS enough to buy the CHSCL 7.50% issue at a current yield of 6.85%–and a yield to worst of 5-5.25%? I doubt it.

First Republic Prices Preferred Stock

The previously announced new preferred issue from private banker First Republic (FRC) has been priced.

The company will sell 14 million shares (with another 2 million available for overallotments) with a fixed rate coupon of 4.70%.

The issue will be non cumulative and qualified.

The issue is investment grade with a BBB- rating from Standand and Poors and Baa3 from Moodys.

The new issue will trade under permanent ticker FRC-J when it begins to trade on the permanent exchange.

The new issue will trade on the OTC Grey market starting immediately under the ticker FRCJL.

The company’s press release with the pricing can be found here.

Thanks to Jerry for having the coupon 1st–very early.

Private Banker First Republic to Sell Investment Grade Preferred

Private banker and investment firm First Republic (FRC) has announced the issuance of a new series of non cumulative preferred stock.

The coupon on this one will be low–5% or below–and will be qualified. The issue should be rated BBB- by Standard and Poors and Baa3 by Moodys

NOTE–for due diligence you should go to the company’s investor relations page here. Alternatively you can go to the FDIC website here and search for First Republic. The company is NOT under supervision of the SEC so filings will not be found there.

The preliminary paperwork can be found here.

Thanks to mcg for being on this one.