Overnight the bond market has sustained a severe hammering with the 10 year Treasury now trading at 4.44% which is about 18 basis points higher than yesterday close. China raised tariffs last night in response to the U.S. increase bringing more inflation fears. Additionally the 3 year Treasury auction yesterday had weak demand and we have more auctions yet this week to come. We may have the Fed step in with a rate cut today– who knows.
Preferreds and baby bonds will get slammed hard today–and doesn’t matter whether it is a perpetual preferred or a term preferred. The baby goes out with the bath water in a big way.
I am going to sit back and take a deep breath for an hour or two of trading and then decide if it is time for a buy or two. I will be shopping off the ‘hiding place‘ list and the ‘quality low coupon issue list’, which have links posted on the top of the home page. Also I will be watching the CHS issues as they have already taken some hits and with more China tariffs are going to take hits again today.
Equity markets are soft this morning – all off 1.5% to 2%, but the bigger news is interest rates. We need to see rates stabilize–and quickly. The only way this is going to happen is for there to be good news with tariffs–in particular with China. I am not sure this will happen soon as there seems to be to much ‘testosterone’ in the room to get this done soon.
NEWT baby bonds on sale again. Anyone buying?
NEWTZ maturing in Feb2026 seems like a no brainer to me. Here are their most recent metrics.
SBA 7(a) Loans:
Originated 580 SBA 7(a) loans totaling $213 million in 1Q25 (compared to 489 loans totaling $212 million in 1Q24).
SBA 7(a) loans held for investment (HFI) at Newtek Bank, N.A. were approximately $407 million as of March 31, 2025.
Up 7% from $380 million on December 31, 2024.
Up 90% from $214 million on March 31, 2024.
Projected SBA 7(a) originations for 2025: $1 billion.
Commercial Real Estate (CRE) and Commercial & Industrial (C&I) Loans:
Newtek Bank originated $41 million in CRE loans and $23 million in C&I loans HFI in 1Q25.
CRE loans HFI totaled $231 million as of March 31, 2025, reflecting a 20% quarter-over-quarter (Q/Q) growth.
C&I loans HFI totaled $51 million as of March 31, 2025, with a 7% sequential net growth (after accounting for $20 million of C&I loans sold during Q1).
Expected 2025 growth in CRE and C&I combined: $225 million, implying a year-end portfolio of approximately $464 million (94% year-over-year growth).
Alternative Loan Program (ALP) Loans:
Originated $68.5 million in ALP loans in 1Q25.
Estimated ALP originations for 2025: $500 million (held on the Company’s balance sheet and in its two joint ventures).
Deposit Metrics:
Newtek Bank ended 1Q25 with approximately $1.06 billion in deposits as of March 31, 2025.
Sequential increase of 2% from $1.04 billion on December 31, 2024.
Year-over-year increase of 88% from $563 million on March 31, 2024.
Quarter-over-quarter changes:
Business deposits increased by 8.9%.
Core consumer deposit balances grew by 2.5%.
Wholesale deposits declined by 32%.
Projected deposit growth for 2025: $245 million.
All the metrics except for the asset coverage ratio….. Sure would be nice if they’d publish that as the 1940 Act BDC mandatory ratio remains in effect as long as Z remains outstanding.
ACR will likely be available in the next 10-Q filing they make, but the metrics they did provide aren’t terrible. I’ll wager their coverage is increasing or at least flat.
If ACR is made available in the next 10Q then that will be the first time it will have been published since they became a bank.
All the needed detail will be available when the 10-Q gets filed. Let me know if you need help figuring it out.
Howzabout using the 10k that was just issued on March 17, CW? Certainly if figuring out what’s supposed to be included and what’s not on both sides of the equation is easy for you, then I absolutely welcome your help….I readily admit it’s well beyond my pay grade…. https://www.sec.gov/Archives/edgar/data/1587987/000158798725000050/newt-20241231.htm
See p 60 for language, including, As a result, “we are subject to 150% asset coverage requirements under the 1940 Act even though we are not regulated as a BDC.”
p. 43 – Certain of our subsidiaries rely on Rule 3a-7 to exclude their securitization activities from the definition of an “investment company” under the 1940 Act. Additionally, the Company has determined that, after withdrawing its election to be treated as a business development company, it is not an “investment company” because it neither holds more than 40% of its assets in “investment securities,” nor is it primarily engaged in, or holding itself out as being primarily engaged in, the business of investing, reinvesting or trading in securities. As a part of its determination, the Company has determined that certain of the loans held by its subsidiaries are neither securities nor “investment securities” under the 1940 Act. However, the staff of the SEC may disagree with our conclusions that (i) loans held by us and our subsidiaries are not securities as defined in the Act and that (ii) the Company did not meet the definition of an investment company under section 3 of the 1940 Act subsequent to our withdrawal of the election to be regulated as a BDC.
p 70 describing what’s now considered subsidiaries and what’s not… and also this: “Prior to January 6, 2023, we operated as an internally managed non-diversified closed-end management investment company that elected to be regulated as a BDC under the 1940 Act. As a BDC under the 1940 Act we were not permitted to acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets, and we were not permitted to issue senior securities unless the ratio of our total assets (less total liabilities other than indebtedness represented by senior securities) to our total indebtedness represented by senior securities plus preferred stock, if any, was at least 150%. As of December 31 2022, our asset coverage was 169%. Although we are no longer regulated as a BDC, certain covenants in our outstanding 2026 Notes require us to maintain an asset coverage of at least 150% as long as the 2026 Notes are outstanding. See “Item 1A. Risk Factors – Risks Related to our Outstanding Indebtedness – We are subject to 150% asset coverage requirements due to covenants contained in certain of our outstanding debt.” NOTE AS PER USUAL they only quote what their asset coverage ratio was on Dec 31, 2022, purposely not providing current info… It does make me wonder why…
p 89 including “As a result, we are subject to 150% asset coverage requirements under the 1940 Act even though we are not regulated as a BDC.”
I bought CHSCN (7.10% coupon) at $24.50 at the open. I own a ton of it and feel comfortable, but not as comfortable when I previously bought it at an average $25.21. Everything’s relative.
I originally had almost 500 shares of CTA-B at one point at $68-ish and sold most in the 72-74 range. Been buying it back below $69.50 with the last tranche this morning at $68.70. Remember this guy got up to the low 80s not long ago – if we finally get lower rates, we could get there again.
This is turning into a real ****show.
Bought the MAIN 6.95% coupon 2029 at 100.20 this morning. CUSIP 56035LAH7…this had been almost 105 at one point. S&P BBB- but very strong company
I think I might buy main common stock if the yield gets over the bond yield. nice buy, I own it too at 101 ish
common is currently over 8.5% yield
I’m torn about whether to count the special, but you’re not wrong. A few bucks lower and I’ll be tempted. Want enb in the 30s again too…
MAIN has been a real success as an investment for me. I have owned it since July of 2018 and have a cost basis of $38.53. Tempting to add more at a 6% yield (I use just the monthly dividend) for sure. Even if that is still well below my yield on cost.
yeah, probably not a good idea to count the special, now after the price jump today, the regular yield is under 6%
I actually also sold the Jun $49.40 puts for $480/contract on the common. Worst case is I own the stock at $44.60 basis, which I’d be happy with but, other case is it recovers about that strike and I just keep the $480/contract premium – either way, I get a nice return. I would love to get put the stock at these levels. Only did 6 contracts.
I see it on the last trade on the option chain…I might see if I can get it to fill.
My average was $4.60-ish (I thought I got them all at $4.80 but had some lower), but I ended up doing 6 contracts – I covered them all at $2.00 at the EOD. Crazy times!
jb, I bought KLG too early but now I’m back to even.
Thank you for the heads up
Cooler heads will prevail! The dislocations are so pronounced. Apparently there is some unwinding of the ‘basis trade’ in the treasury markets. Its an arb situation between a treasury security and its future contract, and it can be highly levered. Couple that with nervousness around the 10-yr auction today, and 30-yr auction tomorrow. And the speculation of foreign buyers boycotting our auctions, or outright selling of our treasuries. And if a hedge fund or other big player was in trouble, banks may be selling treasuries to raise cash if they are capital-constrained. The big unknowns! But the treasury markets have temporarily lost their safe haven appeal for now. The VIX > 50, the fear/greed indicator at 3/100, bull/bear sentiment, and the put/call ratio all show extreme stress. And corporate bond spreads have started to inch higher.
Anyway, I have a small stable of 10 IG preferreds, and have recently added STT-G. Callable 3/15/26, ~6% yield for BBB/Baa1. I believe they called an older issue, so they may wind up calling these too. Do your own due diligence.
I am happy to have stumbled upon this site and hope to contribute more!
On 12-31-2024, the 10-year was trading slightly above 4.5%.
SteveA—and at that time the average preferred/baby bond was around 4% higher
Yes, and the SP500 was 15% higher (5,882 at year end). A roughly 15% drop.
As we know, preferred stocks will drop when the stock market corrects. So, what is driving the 4% drop in preferreds? The stock market drop or the increase in the 10 year?
It could be both at this point.
I’ve waded into ggn and wrb and agree they are reasonable places to be and the positions are not full yet. we haven’t even reached anywhere close to the distress level from october 2023, which is saying something about market memory, methinks. I sold going up into strength then, and bought going down into weakness, and it seems prudent to keep doing that…
Seems reasonable jb—of course every holding has the potential to drop more.
I’m underwater on some long duration positions, and view with equanimity that I was able to sell others at a gain on the way up and hide in shorter duration, and can buy these cheaper on the way down. dislocation of the CEF (high yield and preferred) and preferred markets is a feature not a bug. what’s going on with ebbnf btw?
All things Canadian?
OTC pink sheets- errk! Interesting that it’s 5yr US treasury reset (<6% coupon)