Innovative Income Investor | Innovative Income Investor

$25 Issues @ or Near Early Redemption-Replay

This is simply a replay of the note I posted on 11/23/2019 and previous to that in September.

The number of opportunities in the investment grade arena has fallen since that time–i.e. issues are trading TOO HIGH.

I will work on a new listing for the next week and will include non-investment grade issues as well.

This is from 11/23/2019

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.

Putting This Day to Rest

So stocks ‘partied on’ and interest rates spiked up to as high as 1.88% before settling a bit lower.

I though when I tallied the numbers today I might see a little give back in income issue prices–but NO. The average price of all preferreds and baby bonds moved 4 cents higher today.

The new MetLife 4.75% closed at $25.10–goes to show that investors are getting almost desperate to buy a little yield.

Even the Uhaul Investors Club has cut their short term coupon issue to 2.50% (2 year term). For the last year the 2 year term issues paid 3%.

For me I guess this all means that I am going to have to ‘reload’ on issues that are in the redemption period and are pegged to $25 because of the call risk. Right now it is the most reasonable place for my cash.

Ag Coop CHS Reports Softening Earnings

While personally I am not worried about the longer term performance of giant Ag Coop CHS (untraded), but the short term outlook remains dicey.

CHS has just filed their earnings for the quarter ending 11/30/2019 and there isn’t a sector that they operate in that is showing strength.

Obviously the agriculture sector has been hammered pretty good and to derive a hefty chunk of revenue from this area makes for dicey earnings. The coop reported a pretax loss in the ag segment of $13.9 million compared to the year ago report of a pretax profit of $80.3 million.

The coop has been propped up in recent quarters with stellar energy segment earnings, but these are now softening with pretax earnings of $162 compared to a year ago pretax profit of $232 million.

Earnings in their smaller segments of grain milling and nitrogen production also fell.

With all the above in mind I note that the company had a total net profit for the quarter of $177 million–which is a decent chunk of change, but it pales as compared to the year ago number of $347 million.

I like to look at depreciation (a non cash charge against earnings) to see what type of free cash they generate and they show $136 million in depreciation which when added to $177 million means they had free cash generation of $310 million (just a quicky look at cash generation and not meant to be a total look at cash flows).

As you all know CHS has 5 issues of perpetual preferreds outstanding which can be seen here. Quarterly dividends on the preferreds are about $42 million–so dividends are not now–and won’t likely be affected by the downward trend in earnings.

The preferred stock issue have not reacted whatsoever to the earnings which is no surprise as they seem to always trade strongly.

The earnings release from the company can be read here.

The SEC 10Q can be read here.

Thanks to Affinity4Investing for being right on top of this earnings release.

Midday “This and That”

The President gives a reasonably moderate talk to the nation and traders declare “party on”-seems kind of early to me to be celebrating, but what do I know?

With the S&P500 up about 7/10% interest rates have got on board and the 10 year treasury is up 3-4 basis point to 1.86%–probably heading to where we were a week ago before the middle east situation. The previous trading range on the 10 year was 1.87% to 1.94%.

Ptrader noted earlier today that Saratoga Investment (SAR) is calling the balance of their 6.75% baby bonds (SAB) on 2/7/2020. They had called most of the issue on 12/21 and now just 2 weeks later call the balance of just under 1 million shares (bonds). Looks like holders are going to take a 2% hit (more or less) on their holdings as shares last traded at $25.62.

The call notice is here.

Todays overnight repo by the Fed was a non event. Primary dealers submitted $47 billion in offers and the Fed accepted all of the securities offered.

The new METLIFE 4.75% perpetual is now trading and is pricing around $25.03 right now after opening the morning in the $24.96 area. The issue is trading OTC Grey market under ticker METFL.

I have noted some readers have bought some of the new issue of Southern Company 4.95% Jr Subordinated Notes. I assume they are buying off the bond desk as I see no OTC trading. This is a tricky one as there was a OTC Grey market ticker assigned, but later withdrawn. For those interested you might want to call the bond desk with the CUSIP.

Relative Calm Prevails in All Markets

It is strange how we can go from a fairly large drop in the futures markets overnight because of Iranian missile attacks to a market that is acting remarkably calm.

With the killing of the Iranian general last week I thought that we would see some short term market weakness, followed by a nervous flat market. With missiles flying last night from Iran I thought ‘oh no’ this could get much worse than I expected.

Last night I did take a peek at the futures markets and saw they were down a couple hundred down points–all things considered not a big deal-and by market opening today we were flat and interest rates remained flat in the 1.81% area.

So, for now, we are back to semi-normal conditions. Of course this will be hanging over our heads for another week and it will temper moves in stocks and interest rates.

We do have the employment report being released on Friday . The forecast is for a modest 160,000 new jobs being created–certainly if this number is close we won’t see interest rate reactions–but we shall see.