63 thoughts on “Carnage in Preferred Issues”

  1. First let me say the spreadsheet of bargains today linked on this page is a super useful sheet – thank you for making it available.

    Perhaps this spreadsheet deserves to be a link under ‘Prefereds’ menu so that one can get to it quickly.

    Also, it would be even better if one could sort it some of the key columns such as price now, rating, if IG etc (or just make it downloadable for own filters and sort)

    First let me say the Spreadsheet of bargains today is a super useful sheet – thank you for making it available.

    1. Despite the rumors that the cause was my wife’s ceasing to buy @ QVC (she hasn’t) apparently demand and revs are below expectations:

      ENGLEWOOD, Colo., January 28, 2022–(BUSINESS WIRE)–Qurate Retail, Inc. (“Qurate Retail” or “the Company”) (Nasdaq: QRTEA, QRTEB, QRTEP) is providing an update to its most recent public commentary regarding expected fourth quarter results. Qurate Retail experienced lower-than-anticipated demand in the fourth quarter, negatively impacting expected sales and adjusted OIBDA. Qurate Retail is reporting the following preliminary results for the fourth quarter ending December 31, 2021 compared to the prior year period:

      Qurate Retail revenue down 8% – 9% and adjusted OIBDA (excluding unallocated corporate costs) down 17% – 20%

      QxH revenue down 6.5% – 7.5% and adjusted OIBDA down 22% – 25%

      The aforementioned financial results are presented in constant currency. Additionally, as previously disclosed, there was a tragic fire at the Company’s QVC Rocky Mount fulfillment center (“Rocky Mount”) in North Carolina on December 18, 2021. The adjusted OIBDA growth rate above has not been adjusted for the impact of direct costs associated with the Rocky Mount fire, which will be reflected outside of adjusted OIBDA.

      “Revenue performance at QxH deteriorated throughout the fourth quarter, deviating from initial trends indicated on our third quarter earnings conference call. We are not pleased with these results and are actively taking steps to improve our long-term performance across business units. We are looking forward to a new leadership approach at QxH and Zulily and the ongoing development of our long-term strategy. We will share more details on our fourth quarter performance when we report earnings on February 25th,” said David Rawlinson, President and CEO of Qurate Retail. “Our hearts go out to our team members and the local community affected by the Rocky Mount fire, and we remain engaged in supporting the team members and residents. We are still assessing the impact of the tragic fire in coordination with our insurance carriers.”

      Qurate Retail maintains property and business interruption insurance coverage. The Company is still in the process of assessing damage to the property and inventory and submitting relevant insurance claims to determine the recovery of certain fire-related costs in connection with the Rocky Mount fire. Direct costs resulting from the fire and insurance recoveries will be excluded from reported adjusted OIBDA. In December, QVC received an advance of $100 million from its insurance provider related to initial fire-related costs. Following the fire, QVC diverted incoming fulfillment orders to its other fulfillment centers and will continue to leverage its existing fulfillment center footprint in the near-term to mitigate the impact to business operations.

      1. QRTEP went down like a constant drip all day long. QVCC and QVDD had a different profile. They were off somewhat, but then at ~2:00 NYSE time, the bottom fell out on both, but was worse on QVCC. It was like a large institution decided to hit the sell button. I counted ~ 30 block trades of >=1k shares on QVCC after 2:00, but there were a gazillion smaller trades also.

        If it was not one or two large institutions selling, it could have been an advisory service telling clients to get out NOW!

        My pure guess is that more holders will see this bad news tonight and over the weekend and enter sell orders for Monday morning. Would expect all three to drop more, at least on the open.

        We hold QRTEP in a few accounts and took NO action today. Even though it is lower in the credit stack than QVCC and QVCD, I am more confident QRTEA will survive until 2025 when QRTEP becomes callable and/or 2031 when it matures. I highly doubt QRTEA will be around to pay off QVCC/QVCD in 2068/2067. They both might be paid off before they mature. I would expect QRTEP to be paid off before QVCC/QVCD just based on the coupon rate differential. None of the three should in be in widows and orphans portfolios IMO.

        Holders of all three are counting on 2WR’s wife to lift this boat!

        1. “ , I am more confident QRTEA will survive until 2025 when QRTEP becomes callable and/or 2031 when it matures.”

          My thinking is the opposite. QVC’s structural issues with its business model and competition will either be solved within a few years via transformation or they will trigger debt covenants (max debt/EBITDA 3.5x) which leads to bankruptcy. In bankruptcy, secured debt should have a very high recovery if not 100%. Average recovery on secured debt is 78% and the median is higher. I’m not clear on whether that 3.5x covenant is based on all debt or just secured debt since the unsecured debt is held at the parent level, not QVC.

          “ I would expect QRTEP to be paid off before QVCC/QVCD just based on the coupon rate differential. ”

          The coupon differential is small compared to their difference in rank. If QVC is in danger kf breaching the 3.5x covenant, they’ll redirect all cash flow toward paying down secured debt / revolver, suspending preferreds if necessary.

          1. I wouldnt be surprised to see it be a good trade down here, especially with exD approaching in a month. Im personally just holding what I got and keeping modest. The company was in structural decline before Covid. Is this trend now back on track?
            It was easy to play this a year ago riding the covid online/tv buying wave. It doesnt appear their online strategy is a total replacement strategy to losing cable eyeballs from its own separate secular decline. Their strategy of squeezing every drop of milk out of the old cow before it dries up to commoners in form of special dividends isnt very exciting to me as a preferred holder either.
            So I dont have to become a balance sheet genius and know detailed fine print debt covent requirements, I generally stick to high yield issues that are raking in the cash or are currently in calm waters. The upcoming CC as Tex mentioned could help understanding here. That is why currently I have significantly more NSS than I do QRTEP. The higher leveraged MLPs such as NS are in a good spot presently. And NSS should benefit directly and immediately from the Fed increases with higher yield…. Who knows, we shall see, ya takes your chances, no risk it no biscuit, no guarantees, etc. etc… 🙂

          2. I appreciate the point/counter point discussion opened up here about QRTEP. Great to have this forum available for this kind of stuff and good minds at work on both sides… lots here to consider..

            LI – your concern seems to boil down to an opinion on QRTEA’s survivability prospects within the next 9 years while walking a thin line on how likely you feel that might actually be – other than feeling it to be more likely than Tex does. If one takes a mid to long term view (long meaning shorter than 9 years but longer than the next few quarters) on QRTEA and believe in their cash generation ability over that time, then doesn’t the cumulative nature of the dividends become very valuable in troubled times? In other words, when you say “If QVC is in danger kf breaching the 3.5x covenant, they’ll redirect all cash flow toward paying down secured debt / revolver, suspending preferreds if necessary,” if you believe in their survivability and you have “the mental or moral strength to resist opposition, danger, or hardship” (I was going to use “brass set” but decided to be PC), doesn’t that end up perversely being good news for QRTEP eventually because the temporary redirection of cash flow to get debt in compliance ultimately strengthens the coverage on QRTEP with shareholders eventually being made whole? But if you (the generic “you,” not you specifically) see it panning out differently/negatively in that same period, unquestionably QRTEP shareholders would get ripped pretty badly in BK when compared to note holders. So as is always the case, it boils down to identifying the risks as you have, then deciding whether the extra yield you get on QRTEP is worth that extra risk….. Based on the points you’re bringing up, though, wouldn’t you really rather be out of both QRTEA’s bonds and preferreds altogether?? Just wonderin…

            1. 2WR, one must really have the below addressed before they can decide if it fits their profile I believe. Any projections sited dont have the recent calamity factored in. That could change a few assumptions if there is no definitive one off to explain. And that sure wasnt implied here. “Lower than expected demand” doesnt strike me personally as a one off explanation. But that doesnt mean the pricing has already factored the worst in. I sure dont know.
              Qurate Retail (NASDAQ:QRTEA) reports its preliminary results for the fourth quarter that has been negative impacted due to lower-than-expected demand during the period.
              Qurate Retail revenue down 8% – 9% and adjusted OIBDA (excluding unallocated corporate costs) down 17% – 20%
              QxH revenue down 6.5% – 7.5% and adjusted OIBDA down 22% – 25% as the trends deviated from prior quarter.

            2. “ if you believe in their survivability ”

              This is what it all comes down to. I don’t have a strong opinion. I don’t know anyone who has ever bought anything from QVC and have a difficult time understanding the value proposition. I just look at the numbers and a modest decline can easily turn into a rapid decline if the business model is obsolete and/or Amazon/Youtube eat their lunch. We buy everything online — hundreds of Amazon orders a year — and QVC isn’t even on the radar. It’s such a niche business I have a hard time handicapping the survivability. What I do know is that management’s opinion of the strength of their business far exceeds reality and that’s dangerous.

              1. Landlord:

                QVC/HSN have 11+ million customers; QVC International has 5 million.

                I have two family members that are QVC addicts.

                I never underestimate the amount of crap that U.S. consumers will buy, and the QVC folks are extremely good marketers.

            3. “Based on the points you’re bringing up, though, wouldn’t you really rather be out of both QRTEA’s bonds and preferreds altogether?”

              Average recovery on secured debt in bankruptcy is 78%. Median is higher. Given QVCC is already below 90% of par, the downside in bankruptcy isn’t much and I still expect them to ultimately survive.

              “doesn’t the cumulative nature of the dividends become very valuable in troubled times?”

              Maybe but remember that if QVC dividends are suspended to the parent QRTEA (as likely in a covenant breach), QRTEA no longer has the money to make interest payments on their bonds and will have to declare bankruptcy. Remember, QRTEA’s debt is structurally subordinated to QVC debt in addition to being ranked lower.

              “I never underestimate the amount of crap that U.S. consumers will buy”

              What happens in a recession? What happens if Youtube/Amazon continue stealing market share and your family members become Youtube addicts instead of QVC addicts? I

                1. 2WR:

                  Definitely were some retail “market” sellers in QVCC at the open this morning, just like Tex the 2nd predicted. Retail owners definitely getting flushed out. At one point QVCC was down 14%. This is an enormous move down for a baby bond.

                  I was able to grab some at $19 I already sold out of at $21 in another account. So far, the stock price of QRTEA is up today and the preferred QRTEP is flat.

                  QVCC may become one of my favorite short-term trading vehicles for 2022!

                2. “QVCC down 10%”

                  Sellers are completely losing their mind. Remember, average recovery is 78% in bankruptcy and median is higher. If this company is headed for bk, then someone forgot to tell the common stock which is only marginally lower than the lows hit on 12/20 when news of the fire first hit. I’m just pissed that I wasn’t paying attention this morning to grab some below $20.

              1. I seen you responded to Cashflow on his article. He tried to minimize the sales downturn by excluding covid upswing and comping to 2019. Well, what he didnt know or mention is that is actually just as bad as QVC had been in mostly secular decline prior to 2020 covid sales. So that isnt actually a positive, unless a plan is coming to curb the previous trend which may possibly be back in full swing.

          3. Landlord:

            I wouldn’t bank on any “transformation” for QRTEA. They tried that with Zulily when they paid $2.3 Billion for the company back in 2015, and that division continues to generate very little NOI for the company. A complete disaster.

            QRTEA’s bread and butter will always be the selling of merchandise via cable and satellite channels to customers (and the websites). QVC, HSN, and QVC International more or less accounts for all of the company’s NOI every quarter. QVC has now been been around for 35+ years. They will live and die with those 2 brands.

            I’m hoping the fall in sales revenue causes them to change their ways on $500+ million in annual special dividends and spending hundreds of millions buying back common stock at horrible prices (in the 3rd quarter 2021 they bought back 11 million shares at average prices of $11.02 – stock now trades for $6.50).

            QRTEA still banks major cash flow all year (had $800 million as of 9/30/21), and maybe a massively deteriorating stock price will finally get them to focus on the balance sheet and their $8 billion in debt? With common sense from the executives running this company, the “blind dividend into bankruptcy” scenario should (hopefully!) be avoided.

    2. I missed all the move. QVCC hit 18.78. Gut check time. I feel like Patrick Mahomes!!

  2. Side stepped most of the carnage due to Tim’s past repeated suggestions to avoid low-yield perpetuals and high-yield low-quality companies because they will drop when interest rates increase and/or the market drops. Also followed his past repeated suggestions to wait for good prices on moderate-yield terms from decent companies. Thanks, Tim. I know you don’t make “recommendations”, but your suggestions have been solid, which resulted in a very good 2021 and a green (so far) 2022.

  3. Weird that it is hitting some floating rate issues like BML-L, which goes ex today, (though at this interest rate it is at the 4% floor)

    1. Those minimum floor low adjustment issues are as exposed to capital loss initially as much as low fixed ones are. As it takes too many Fed hikes to push it to the level where the yield finally (if ever) lifts off above the minimum floor. Personally I stay away from those of this ilk. Now if they crater, then Im interested.

      1. Exactly. Just look at a long term chart. You’ll see the zones where one should look to Buy easily, but these are about principal gains not income with rates still so far below the minimum floors.

      2. I can handle dividend floor as long as they keep paying. I’m more concerned about bankruptcy risk. Some of those with floors aren’t the most reliable issues.

    1. Is that the one that Malone owns a dump truck full of?
      well, the related common is down 20%….

  4. Anything under 5% seems to be getting killed. In the over 5% but under 6% the market is pretty uneven. Good time to take some profits but any issue I have over 6% i’m not selling no matter the price fluctuations (which seem irrational).

  5. Any reason why CNFR dropped so much?
    Conifer Holdings CNFRL 6.750% $22.19 -$2.57 7.60% $0.42 9/30/2021 9/30/2023 LD 3,6,9,12
    Thanks

    1. it looks like a single trade of 200 shares on CNFRL probably entered at the market instead of with a limit at a time when nobody was bothering to make a market. Sort of like what the “experts” get to bid… not much of an indicator of anything it seems

    2. Interesting…I had a GTC order for 50 shares CNFRL @ $24.00 that didn’t get triggered. Took it off after reading your comment, until things get sorted.

  6. Good example of yesterdays Carnage
    AHL/PRD Aspen Insurance 5.625% pref not callable till 2027
    A month ago was up over 27…blew all the way down to par on huge volume…seemed to be an overreaction?
    THATS the sort of bargain a lot of us have been waiting for…

  7. Ok. You’ve sold, now what are ya going to do with the cash?
    Age old question.
    The time to have sold is way past so that this would be an opp. to reallocate.
    The best teams have defence AND offence. It doesn’t hurt to have a great coach and a practiced playbook.
    Starboard left, port right.

    1. That is pretty much it in a nutshell. I have been doing some shopping but the selling was done a while ago for weak material. What I hold that is getting hit hard I already decided I wanted to keep for whatever reasons. Position was small. It is a very strong business. Etc… Seeing a preferred down 8% is a sale for a new buyer but not a reason to panic sell. Covid 2020… now that was panic! I still own some preferred from that mess to this day which are up 150%. We were questioning which businesses were actually going to survive to the next year let alone a decade from now.

      I was sitting there trying to decide if I sold this preferred I could buy this one and get an extra .5%ish but in almost all the cases I was giving up something in the exchange. So I did nothing. Still a lot of people looking for income. They will come in once things settle down. Preferred down 8% or more will slowly go back up. Plenty of time to think this through and rearrange things. Let some more news trickle in and a bit more patience.

  8. For instance, TDS-PV dropped from 25.50 to 24.42 on heavy volume. Volume was almost triple the 90 average.

    1. talkdollars: Yeah, I bought a few shares yesterday of TDS-V @24.65. I am retiring later this year and trying to build a portfolio with an income stream of 6% – 7% so that worked out well for me. I think it is up a bit today, but who cares, I look at it as part of my self-directed annuity 🙂 I also bought some ATLCL & RILYT right at $25.00, could have gotten it a bit cheaper but the kid in the candy store thing kicked in.

  9. Carnage? What carnage? Didn’t even notice. I don’t pay much attention to short term price fluctuations, especially on preferreds. I buy them for income so unless they stop paying dividends, or get closer to call, it really doesn’t matter to me how they bounce around

    1. Mav, I think it depends on what issues you own. I think I was down less than $200 yesterday. Not even a blip. But many of the higher quality low yielders got zapped. You have a compounded situation here if rates and or credit spreads go north from here. Call dates will be meaningless and carry no backstop. So one could have capital impaired long term.

      1. Grid: I agree, so about half of my holdings have maturity dates 5-8 years out, mostly BB’s. Like to have more but not a lot of those to pick from, or at least ones I feel comfortable to buy.

        1. Bill, I dont know what specific issues you own, but majority of my money is in term dated, floaters, and resets. And largely these have side stepped all this carnage, some actually going up this week. I do have 100 shares of term dated QRTEP I have ridden the elevator back down on, though. I will keep those as dang that thing made me a lot of money earlier last year, so given up a few hundo here is not a real concern for me.
          I do have a blind spot for perpetual fixed SR-A though. I bought 300 more at 25.88 this morning and will buy more if it heads further south down the road.

          1. Grid: Thanks for the idea about floaters, I will have to research some of those. My term dated issues are RILYT, PRIF-F,G,H, SCCD, ATLCL, TANNI and one wild hair pick FOSLL and not much of it.
            The only floater I am thinking about adding soon is GPMT-A, not sure about that one yet, need to research the company some more.
            At 73 I am hoping my term isn’t up before theirs 🙂

      2. Grid – you are probably correct given I don’t own any really low yielders. If a preferred is not paying me over 5.5% I typically don’t buy it

        I would rather buy REITS, Dividend Aristocrats, a couple high quality BDCs, etc all of which pay dividends if I buy something with a yield under 5% as there is the opportunity for yield and capital gains

        I will also say, I don’t flip and short term trade as much as you or some other people here. I will do a few short term trades but most issues I buy I typically buy to hold and generate income

    2. 1/27/2022. PFF HAD DOUBLE VOLUME TODAY- 10 MILLION SHARES TRADED VERSUS AN AVERAGE OF 5 MILLION SHARES DAILY TRADED. WHEN ONE LOOKS AT 1/27/22, THE PFF CHART, MIRRORS THE DECLINE OF MOST PREFERREDS. THE DECLINE CORRESPONDS EXACTLY TO THE INTRADAY CHART OF MOST PREFERREDS.
      MANY ILLIQUID PREFERREDS WERE DOWN 50 TO 80 CENTS AS PFF LIQUIDATED THEM.

      1. This is the time to buy some active CEFs that primarily hold preferreds instead of index based PFF.

        My favorites are FFC and FLC that are trading at or near discounts to NAV. This is in addition to picking a few good ones to suit your choices from the excellent list Tim has provided here…

      2. Why would PFF have to liquidate anything just because people are buying and selling PFF to each other on the exchange?

        1. Grid, not sure if you are joking or not. the shares outstanding for regular ETFs fluctuate as demand increases/decreases. Hence, underlying holdings have to be sold if there is an imbalance. There are designated market makers that do this.

          Closed end funds have a set amount of shares, hence they only have to liquidate if they go above their designated margin limit,.

            1. mcg:

              Maybe, but PFF has had 5+ million shares of outflows so far in January. Nearly $200 million. This is a $19+ Billion ETF. As we all know, preferreds can have very little liquidity when the selling starts to ramp up. Preferreds always remind me of the old investing adage:

              “Liquidity is never there when you need it most.”

              Somebody certainly carpet-bombed the preferred market mid-day yesterday and of course near the close. Expect this to continue.

          1. Maine, No thanks, I needed the education (or reeducation in case I knew and forgot, ha) there. I just track its chronic poor performance. . Definitely was thinking CEF types… I had been hanging in there real good this week wheeling and dealing a bit. But, today though modest, I have lost more in first 10 minutes than I have all week, ha.

            1. Ha, yeah can’t bat 1,000. even your beloved EIX down to 101.5.

              With corp spreads finally ticking up, worth sniffing around bonds. CEQP 5.75 4/1/2025 can be had for 100.65.

              1. Maine, Im resigned to fact it will sag with market too. Being that thing is over on bond market, I wont play the game of getting fleeced trying to trade around it. Only salvation is come 2026 if 10 year is 4%, at least I will get an upgrade in yield to 8.7% But 2026 is a long way away unfortunately. 🙁

      3. That is good to know. I didn’t realize that one of PFF’s investment objectives is to invest in il-liquid preferreds. On some of the down days of the il-liquids, i thought i was one of the few buyers of the few that were traded that day. I guess I am competing against PFF.

        1. Mr. C, I dont think the definition of illiquids is what you and I view as. On that scale, ours would be viewed as “dead” not illiquid. I will bet my life PFF has zero shares of CRLKP and IPWLG, ha.

        2. Mr. C, I didnt view this as carnage but availability at fair price. Illiquid 5.25% ute HAWLM popped up 1800 shares out of the blue at $21 which is the redemption price and 5.0% yield. I snagged some because I felt compelled and the rest were sopped up instantly and its gone now.
          Keep your eye on these types as sell imbalances here could get a good steal if patient.

        3. Mr. C:

          You aren’t competing against PFF.

          The only way PFF would invest in “illiquids” is if the ICE Exchange-Listed Preferred & Hybrid Securities Index they mimic also does – and it doesn’t. That index has certain size, listing, and trading requirements for all of its constituents.

    1. I have 22 shares of SLMNP. I don’t believe that I sold any, perhaps 1 or 2 at most. Reading comments by Gridbird here and on Silicon, I am not terribly concerned at my age. QRTEP down quite a bit following the drastic income reduction of the retail TV sellers. Probably no need to panic sell IMHO. PRIF-K gets smashed because the issuer delays declaration of dividend a few days or one week. The earlier preferred issues seem to hold. I have just read an article by ADS Analytics, SA Pro writer, which seem to suggest that CLF (the mother, not the baby bond or preferred) was shown as the worst investment in these weeks, even compared to BDC’s. I hold sizable amount of ARCC, not performing so bad. ADS Analytics article deals with the baby bonds vs. Preferreds.

      https://seekingalpha.com/article/4482735-preferreds-market-weekly-review-gauging-risk-reward-of-debt-vs-preferreds?app=1&mail_subject=weekend-summary-on-your-portfolio-portfolio-1&utm_campaign=nl-portfolio&utm_content=link-16&utm_medium=email&utm_source=seeking_alpha

  10. Treasuries rallied today so the selloff in Preferreds completely a function of spreads (economic/ default/liquidity) risk blowing out. I’d be a buyer of solid issuers.

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