I bought an initial position in the new 8% baby bond (MFICL) from business development company (BDC) Midcap Financial Investment (MFIC). I paid $25.14
This meets my ‘hurdle’ in the high yield segment (being 8%).
MFIC has been around since 2008 and they have $2.8 billion in assets – a decent sized business development company. Earnings for the 1st 3 months of 2023 we up about 300% from last year. The issue is rated BBB- by Kroll.
All in all this buy will help me diversify my BDC bond holdings.
I have added this to the ‘laundry list’
As always thanks to NWGG and RandyK for noting the active trading in this issue–one can’t watch everything, but with 100’s of eyes on these things we can all benefit.
Still nothing at IBKR
Tim, as you look for opportunities, you may want to consider ET-I, which is currently trading at $9.71 and yielding 8.70%.
Energy Transfer recently acquired Crestwood and, as part of the deal, issued this preferred that was substituted for and nearly mirrors the terms of the outstanding Crestwood preferred. ET-I has unique features. No call date. No maturity. A bump up in yield should ET ever dare suspend cumulative payments.
ET-I pays $0.8444 annually. The “par” of $9.13 (9.25%) is pretty meaningless and a holdover from Crestwood. The price was expected to rise because of the superior financial strength of ET, and it has. It will rise more if interest rates fall, plus it should command a premium for being no-call, no maturity.
Energy Transfer is a very solid BBB with a lot of Buy ratings currently. I consider the risk rating extremely low and the solid 8.70% no-call yield a gift.
If I sound like a cheerleader, I apologize and don’t mean to. I own a lot of ET-I (originally bought from Crestwood). You and your site have helped me find a number of opportunities in the past, and I’m just trying to repay that. As usual, though, do your own DD. : )
Wilson–thanks for the reminder–I did get a starter position a month ago or so – I don’t see it on my laundry list – I’ll get it on. I’ll look at adding to my original position.
Wilson,
Can you explain if ET can still force a conversion of the preferreds?
“If the price of the common units exceeds $13.69095 divided by the then applicable Conversion Ratio for 20 of any 30 consecutive trading days, the general partner may, at their option, cause the preferred units to be converted into common units at the then prevailing conversion price (see prospectus for more details).”
Or is that no longer possible now that is no longer Crestwood and those terms are not in the new ET-I terms.
Thank you
Dave, I suggest you read the SEC filings and info on ET’s website. Here’s my understanding, however, which I believe is correct but don’t guarantee..
Crestwood’s preferred was considered a “ busted convertible,” so ET-I is, too. I don’t know the complexities of the conversion ratio but believe it is about 4.83 using either the ET-I “par” of about $9.13 or the ET common price of $13.69, depending on whether the conversion is for all the outstanding ET-I shares or only partial.
ET can convert ALL shares of ET-I when the common (currently trading at $13.87) is trading over $44. ET can convert PART or all of the shares when the common is over $66. Needless to say, champaign corks would be popping with either.
Dave, ET is a limited partnership. In my earlier reply to you, I incorrectly talked about its “common stock.” My bad.
wilson
the issue seems good but the ceo of ET has been around for some while and in the past he has taken several steps that were far from unit holder friendly. For you own instruction you should look closely at the history of ET. Just a suggestion. Kelcy is getting older so not sure how active he is in the management of the company but he is for me an issue. Good luck SC
Yes, founder Kelsey Warren has been a somewhat controversial figure and for years, in my opinion, impeded ET’s price by making free-wheeling acquisitions and stretching debt levels. It may have worked, though. He stepped down as CEO in 2020 but is still Chairman of the Board. ET’s financial condition today is solid, and I personally don’t consider him a factor in the decision to purchase preferreds . . . or ET units, for that matter.
wilson
I’ve not followed ET closely for the last couple years which is why I raised the question, I probably have to do more homework as ET overall gets high ratings. best sc
Interesting issue but I assume this will be a K-1?
Yes, but K-1’s for preferreds are not difficult.
Is the only way this can be called is if ET was bought for cash (or the super high conversion)? and in that cash buyout event would owners get back liquidation value of $9.13? Is that correct?
Thanks,
Z
Z, if conversion rights kick in due to the high price of ET common, then yes, the preferred units would be converted at par, $9.13. I believe there also may be a redemption right if ET is taken private and the surviving entity is not listed on a major exchange, but I don’t know the fine print on that and consider the risk remote.
thanks – so the risk is that say in 5 years they bet bought out for cash and you get $9.13 effectively reducing your YTM significantly on an 9.80 purchase price
just trying to understand that risk better
Hi Z – I have the vergiage on the security page here.
https://innovativeincomeinvestor.com/security/energy-transfer-lp-series-i-fixed-rate-perpetual-preferred/
thanks
so really only risk (to a call) is a cash merger where they can take you out at $9.13 it seems
Just bought 600 shares. That’s two nice 8 per centers in two days that appear to be pretty solid. I’m happy to hold on to these for a while!
ALso, Just did a donation to a wonderful website!!
dj–I certainly do appreciate your donation.
I am working on a list of BDCs with an eye toward buying at an as yet undetermined point in the capital structure. This name is high on my list (FWIW) so far because of the size, diversification and credit quality stability of the portfolio. Mostly, however, I like the way they are positioned in the capital structures of with 95% first lien loans. Also like the fact that they don’t have debt due in 2024.
I bought 300 just a few minutes ago at $25.13. Not nearly as enthused on this one as I was with FGN, and thus bought accordingly.
Agee Grid, a subsidiary of Apollo I had a preferred of theirs years ago. The market cap of MFIC is only because Apollo is combining 2 CEF subsidiaries with MFIC
I agree with a comment on SA that Apollo has been up and down in performance last 10 years
I may keep my FGN, but this one like the other recent IPOs I have bought was just meant to get a .50-$1 quick buck flip and move on. Its works until it doesnt as they say. Since its still working I will still play. What Im really ticked is some entity dumped 10k shares of PLDGP. It happened so fast all I could do was get 200 at $52 on the upswing. A true dump!
Ahhhh, nuts….. I’ve had PLDGP on my watchlist for a long time and never got in… Looks like I won’t again…. Another example of the power of having stink bids already in place. It makes catching these kinds of dumps possible when not keeping a close eye on every price move on everything out there…. don’t know how you do it, Grid…. ha
I pretty much gave up on watching PLDGP. Did not think at this stage it would get to 50-52ish again with actual meat on the bone (some years before call) but even if bought at 52.. knowing my luck it would start acting like a pinned to par preferred the moment I buy it never allowing that fat juicy flip. I would expect this to get called ASAP in 2026 so the price action never really made a lot of sense to me 99% of the time over the last several months.
It made a good flip a while back though. Pickings are becoming slimmer and slimmer compared to the recent “wunderbar” past.
Fc, the issues price action hasnt made a lot of sense for the better part of 10 years! Some times through the years it has had a negative YTC. On rare occassions it has offered a deal. Been fortunate to get in on a few over the years but they havent came often.
Before the Fed messed things up, buying OTC on new issues was usually quite profitable, in part because underwriters have to get rid of a lot of shares. But then it had the opposite problem. If rates start declining, or are firmly expected to decline, we may see more opportunities.
Tom–those were good time in the IPO market – would be surprised to see those times again anytime soon.