Innovative Income Investor | Innovative Income Investor

Interest Rates Totally Stable–Preferreds and Baby Bonds Follow Suit

While common stocks are off a bit, no doubt because of uncertainty in the middle east, interest rates and correspondingly preferred stocks and baby bonds are dead flat.

Income issues are so flat that for 3 days in a row (up until 11 a.m. central) today prices have moved only 1 penny from last Friday—1 penny!! I work with averages which can sometimes be a bit distorted because of ex-dividends, new issues etc., but with a large sample size the number is pretty good.

Part of the reason for no movement is that there has not been an income issue go ex-dividend since 1/2/20, but we will see 9 issues go ex on 1/9/2020.

I have added mREIT and Bank preferreds to my chart (below)–it will take a few weeks to get the data populated. I will add some other major categories soon.

MetLife To Sell New Perpetual Preferred

Large insurance company MetLife (MET) will be selling a new perpetual preferred issue.

This issue will have an early redemption in 2025.

The company has 2 other perpetual preferreds outstanding which can be seen here.

The new issue will be investment grade so I think we are looking at another low coupon issue–we shall see.

Thanks to mcg and EarlyBird for being right on this one 15 minutes ago on the Reader Alerts page.

The preliminary prospectus can be seen here.

Southern Company Prices Jr Subordinated Notes

Utility Southern Company (SO) has priced their new issue of baby bonds.

The issue priced at 4.95%, disappointing, but not surprising that it is under 5%.

The company will sell 40 millions shares (bonds) and they will carry a Baa3 from Moodys, BBB from S&P and BBB- from Fitch.

The issue has a early redemption available, at the company’s option in 2025 and a maturity date in 2080.

NOTE–mcg pointed out, and I have verfied, that OTC FINRA shows a OTC Grey Market ticker for this issue so we show it in the grid below. I did find trading on the OTC at $25.09 today. This is unusual, although not unheard of for a baby bond to trade OTC Grey Market so if you have an interest you should watch your broker for an active ticker as shown below.

Jerry Mac had the pricing hours ago on this new issue.

The pricing term sheet for the new issue is here.

High Yield Model Portfolio Performance Remains Solid

The Enhanced High Yield Model Portfolio continues to perform almost exactly as designed.

Remember this is simply an educational tool–one that demonstrates LONG TERM performance of a portfolio of relatively high yield preferred stocks and baby bonds. The intent is to not ‘trade’ the account–simply purchase and hold, unless substantial bad news is known or suspected about a issuing company.

This model was formed on 1/25/2018–so it will be 2 years old in a few weeks. To date the portfolio has a total return of 16.11% and holds a cash position of about 10%. We currently have goal of an annual return of 7.50%.

Initially the model had only about 10 issues, but we have worked to continue to expand holdings and now are up to 13 issues in a portfolio of $116,000 – I will be adding 2 more positions in the next 60 days and then will hold the portfolio in the 15 issue area – helping to spread the risk.

This model has the ability to hold a REIT or MLP, but with REITs running to sky high level we have not held other holdings for quite some time–likely this will only change if REITs set back in pricing.

The portfolio is here (page loads slow).

The Medium Duration Model Portfolio has NOT performed as well because of 1 disastrous holding–we will wright a bit on this soon.

Southern Company to Sell Subordinated Notes–Updated

UPDATE–as noted in the comments below the SEC Filing is now in. This is a very typical issue, with a early call date in 2025 and a maturity in 2080.

The preliminary prospectus can be read here.

Giant utility Southern Company (SO) will be selling a issue of $25 baby bonds.

No firm details are available (SEC filing is not in yet),

EarlyBird had some preliminary details very today showing a potential 5.125% coupon with an investment grade rating. If you Prefer posted “5% area” so it should come in the 5.0% to 5.125% area–I would be surprised if it were higher.

SO has 3 subordinated notes outstanding now and Georgia Power (a division of SO) has 1 issue outstanding.

You can see the outstanding issues on the “Baby Bond” page–and decide how a 5.00-5.125% issue would stack up.