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Checking Out AmTrust Financial

For whatever reason I decided to try to check out AmTrust Financial (private) a bit last night. As most of you know AmTrust is an insurance company that went private in late 2018 and then delisted their preferreds and baby bonds. All shares are now traded on the OTC markets. Dividends have been paid on the delisted securities consistently for the last 5 years and they just announced preferred dividends on Monday.

AmTrust management has always been viewed as a bit on the ‘shady’ side (Zyskind and Karfunkel), but what little data I can find on their financials seems to indicate they are doing quite well and AM Best (the insurance company ratings agency) has them at A- (excellent).

I am guessing we have some holders of these preferreds and baby bonds on this website and I am considering taking a tiny position in the baby bonds–current yield is around 12%–at $15.50/share it might present adequate risk reward for just a tiny position. Just a thought.

The 10 year treasury closed at 4.09% yesterday and today is trading at 4.12%–it seems like we will remain in this area for the time being. There simply has been no economic news recently to move rates too much and Fed yakkers have been out in force backing Fed chair Powell in his comments that rate cuts are NOT inevitable in March. Plenty of data is yet to come which may change the rate cut scenario. The balance of this week has no meaningful economic releases–next week we get the consumer price index (CPI) and the producer price index (PPI)–potential fireworks.

Equity markets are kind of quiet this morning–I expect that just like interest rates they are awaiting news. The movement in share prices thus far this week are very company specific as we continue to get earnings releases.

I continue to sit on my hands–maybe I taste the AmTrust Financial baby bonds–I’ll dig around a bit more on them–we’ll see.

25 thoughts on “Checking Out AmTrust Financial”

  1. I own some AFFS. I was aware of the company’s reputation but got it a huge discount as everyone was dumping prior to the expert market fiasco. I’ve been able to buy some more at Fido.

    Here’s an interesting story about the company harassing people that wrote about them negatively. Caution, the podcaster uses some rather non-family friendly language, so don’t go there if offended by that kind of language. https://quoththeraven.podbean.com/e/quoth-the-raven-165-sunday-stories-the-spy-who-didnt-shag-me/

  2. I owned a little Maiden Holdings preferred back in the day, but I luckily got out before the Zyskind/Karfunkel cabal plundered it.

    They are not people I would want to do business with again (after i did some digging).
    FWIW – I wrote quite a bit about this on silicon investor about 7-8 years ago (when Maiden got plundered and Amtrust went private).

    Here are a few things I recall:
    -Zyskind (the elder) was using Amtrust as a personal piggy bank. He apparently thought so little of shareholders (and apparently regulators) that he tried to “wallpaper over” some self dealing shenanigans by “disclosing” some stuff in an oddly worded footnote in a filing. He got caught, and (IIRC), the regulators spanked him (not nearly enough, IMHO).

    Remember that he was chairman of Amtrust, Maiden, and of National General. He shuffled around roles with other members of his family, but the companies were firmly in his control.

    -They pillaged Maiden by selling off the bulk of its productive assets to Enstar in what appeared to be a sweetheart deal, leaving Maiden shareholders with essentially nothing that could “pay the rent” and tanking their shares (but benefitting the family). Very poorly done. Where was the “fiduciary” responsibility of the family to the Maiden shareholders? Seems to have been overruled by the family’s desire to line their own pockets.

    -Not surprisingly, at about the same time, they took amtrust private and magically, Enstar got some of the go-private shares (I presume it was all part of the same deal, but there are no public records to prove it that I am aware of).

    So, pretty low scum, IMHO.

    1. Exactly. Thanks for summing that up. Like I posted earlier, Caveat Emptor.

  3. I personally own 500 shares of AFFT baby bond.
    I know a lot of people who work for this company and they all own a lot of preferred shared.
    AmTrust is safer that what you think.

    1. Do the AmTrust employees you know who own the preferred shares buy them before they were delisted, or afterwards?

  4. The people who run AmTrust are a bunch of crooks. I wouldn’t own anything they offer. They screwed the shareholders and the preferred owners a while back. Caveat Emptor.

    1. No, AFFS and AFFT have not missed any payments. There is a huge difference between delisted and default.

  5. “what little data I can find on their financials ”

    How were you able to find any info on their financials?

    On a separate but related note, if anyone knows how to get any financial info about South Jersey Industrials (SJI) beyond what is contained in the Fitch report, please let me know.

    1. and sold at $22.50…LOL…picked up two quarterly dividends in about 5 minutes so I am not looking a gift horse in the mouth.

  6. While I have no personal interest here, many who are may find them not purchasable from various brokerages being they are “expert market”. They dont trade on my brokerage accounts and OTC has them as double diamond “expert market”.

    1. Hadn’t given that much thought Grid so I just placed a low ball order on Fidelity to see if it ‘took’—it did, but maybe it will get kicked down–we’ll see. Etrade kicked the order out as ‘expert market’ with no opening trades.

      1. Has anyone else had their low ball GTC expert market buy actually execute at Fidelity?

        I have not had any execution unless my limit was the ask, even if there were trades going on well below that.

        (Of course Fidelity doesn’t show the bid and ask, for that you need an IB account and Trader Workstation.)

        1. I know a few of us have managed to buy SLMNP at Fido via outstanding bids and quite often the executions are far below where our standing bids are … We’ve also seen published trades happen far below our standing orders too without any execution whatsoever.. Although I have not tried to verify this, I suspect the only “expert market” trades that Fido allows are those that can be done internally, by crossing a Fido seller with a Fido buyer. That would make sense as an accommodation to their clients while also not crossing the “expert market” guidelines I guess… it would also explain why some trades happen in the marketplace far below standing orders at Fido.

          1. Fidelity routes OTC Expert Market (OTC-EM) limit orders to third-party market makers to handle, one of which is GTS Securities.

            Within the OTC-EM, there are two separate order/liquidity venues – the OTC Link ATS and the OTC Link ECN. IBKR displays bid/ask data only from the OTC Link ECN. From tests, we’ve determined that Fidelity limit orders are not being sent to the OTC Link ECN, as they do not appear as better bid/ask prices on IBKR’s feed. Thus presumably Fidelity (via GTS, etc) is routing limit orders solely to the OTC Link ATS. When you see trades executed at a price below a Fidelity bid limit order, it is likely b/c those trades were executed on the OTC Link ECN instead.

            “Expert Market guidelines” (Rule 15c2-11) precludes the public dissemination of dealer bid/ask quotes. Non-dealer (“unsolicited”) quotes can still be publicly disseminated, and that is what OTC Link ECN handles. Thus, the ‘true’ bid/ask quote for an OTC-EM security may be tighter than what is displayed at IBKR, since IBKR’s feed doesn’t include the OTC Link ATS/dealer quotes.

            There is no retail trading preclusion in Rule 15c2-11. Retail investors are freely able to transact in OTC-EM securities. Brokers other than Fidelity have either been misinterpreting the rule, or simply can’t be bothered to implement OTC-EM trading. Fidelity deserves a great deal of credit for being the only US retail broker to come to its senses.

            Fun fact – OTC Markets Group (which owns and operates the two OTC Link venues) requested the SEC to include an institutional-only trading limitation as part of Rule 15c2-11. Thankfully the SEC did not heed this request, else the ability for retail to trade these securities at Fidelity would not be possible. This might also explain why OTC Markets Group hasn’t made an effort to get more retail brokers onboard with trading OTC-EM securities, as OTC Markets Group themselves doesn’t actually want us to be able to trade these securities!

            1. Minor clarification – Rule 15c2-11 is not specific to the OTC-EM. As owner/operator of the OTC-EM and its related trading venues, OTC Markets Group (OTCM) sets their own guidelines for them (separately from but within compliance of Rule 15c2-11). If ‘no retail buy orders’ are part of OTCM’s own guidelines, then it may be possible that Fidelity requested and was granted a special exemption from that. This is purely speculation of course.

              There is also the NYSE’s Global OTC venue, but I haven’t seen delisted income securities trade there (even though they can as far as I’m aware). In terms of expert market securities generally, Global OTC seems to attract the more heavily traded ones – SIVBQ, SBNY, etc.

              I’m hoping that the NYSE makes Global OTC a more competitive venue for delisted income securities in the future. I don’t prefer OTCM being the sole gatekeeper of sorts, in light of the GMLPF scenario. GMLPF is eligible for OTC Pink Limited status given GMLP’s publicly-available audited financials, but OTCM won’t upgrade its status unless GMLP’s parent (NFE) registers with them and pays their gatekeeping fees.

            2. This great information deserves more than a “Like”! Thank you for sharing your research!

  7. Interesting post Tim. It would be interesting if some folks on here could do some research or put their informed opinions on this topic. A few years ago I thought I had come across some SEC filings that I don’t believe they are really required to file now showing there is still some relevant insider ownership of the preferred, which was the basis of a hypothesis on why it continues to get paid. Unfortunately I don’t have that source material handy now which is why I’m not committed about this statement.

    If anyone can corroborate or otherwise, especially in more recent times. I think it would be a worthy exercise since the preferred trade at a heavy expert market discount if you do believe the ratings that you can find out there.

    Obviously given the expert market dynamics and questionable management, the bonds are the better play.

  8. Oh boy. I still have a position or two in MHLA or is it MHLC. I think they are all connected. Can’t believe they are still making payments. Sometimes you get the feeling they aren’t trustable much less fiduciaries anymore. There’s another much larger ins co that reshored one of their pfds. Which resulted in a change in cost basis. A reminder of caution. What’s thats saying about selling their mother?

    1. Maiden is a company that you need to look at their holdings every quarter like a hawk and on time. Last year they announced a buy back program for a portion of the baby bonds. This was possibly one of the tailwinds for it last year but sellers have come in more recently.

      1. In Q2 2023, Maiden’s board granted them a $100m authorization for buybacks of their two baby bonds MHLA and MHNC. Thru Q3, they bought back a whopping 5,567 notes of MHNC ($95k worth).

        They also let a $14.4m capital loss carry-forward expire last year. If they had been more proactive, they could’ve taken advantage of both bonds’ massive discounts to par around the SVB crisis, and those discounts would’ve been recorded as entirely tax-free gains due to the carry-forward.

        Instead they passed on that opportunity, let the carry-forward expire, and spent 20x more in Q3 buying back their own stock vs what they spent on the MHNC buyback. Unbelievable..

      2. Maiden Holdings were the British distributor for selling MOSTLY AmTrust Insurance since the “beginning” when Amtrust’s founder was the CEO. Some or perhaps many in old Doug Le Du’s subscription website, took position in both Amtrust and Maiden. Even a quick look at the income statement of Maiden, most of its sales and income all came from Amtrust. Maiden was “lying’ that they were developing their own biz. Mr. Le Du thought that Maiden was taking the hit on behalf of Amtrust to save Zyskind and his mother in law who still holds substantial shares of Amtrust, along with Michael’s son, who was running another division of Amtrust selling mostly motor vehicle insurance. I still hold all shares of Amtrust except 30 some percent sold at a loss when I failed to sell when one well known Activist suing Amtrust for under valuing the stock price. I tried to buy a little more Amtrust baby bond from Schwab and Vanguard brokerages, at that time, I learned that they were unable to buy except to sell. Except for a few shares of Maiden preferreds given to my daughter, I sold all my shares taking the hit. From my past a few years of European biz, I have very little faith in a small British company like Maiden. I think that Amtrust continue to pay dividends and interest because it wish to maintain its insurance rating. As I recall it never went under A-. I quit trying to dig out the financial statements, not easy to dig it out.

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