Closed End Fund AllianzGI Convertible & Income II Sells a High Quality Preferred

Allianz Global Investors has sold a new super high quality preferred stock in its Convertible & Income Fund II (NYSE:NCZ) with a coupon of 5.5%.

These types of preferred stocks are likely to get knocked down quite a bit as interest rates move higher, but there are no higher quality preferreds in the marketplace–in our opinion.  So if one wants to lock in income and has less sensitivity to net asset values this one is for you.

This issue fits in with other preferreds from closed end funds (CEF) in that they must maintain an asset coverage ratio of 200%.  The issue fits in with many issues from the various Gabelli companies.

We maintain a list of similar issues which can be seen here.

Note that our list does NOT include issues from BDCs which are technically closed end funds–but very different from closed end funds that invest in stocks and bonds traded in public markets.  BDCs mostly invest in Level 3 assets–these are the investments that management values (just trust them type assets) while this fund and the Gabelli funds mostly invest in Level 1 assets which have daily observable values (traded on public markets).

This issue has the normal terms–quarterly dividends payments, an early redemption ability beginning 9/11/2023 and cumulative dividends.

The prospectus can be found here.

This issue has just begun trading on the OTC grey market this morning under the ticker NCZIP and last traded at $24.80.

Our thanks to Wedgehead for the heads up on the quick trading on this issue.

 

43 thoughts on “Closed End Fund AllianzGI Convertible & Income II Sells a High Quality Preferred”

  1. Looks like a very high quality preferred, although it could get dragged down in price if interest rates continue their current path. With the high asset coverage ratio, it is very difficult to see a situation where this issue would ever default. Glad that Wegdehead and other fixed income investors are sharing good ideas.

    1. Hi kaptain–I actually picked up a measly 100 shares this a.m. I have a number of similar issues in very small qualities.

      Of course I am aware of the reaction to higher interest rates in these shares, but the others I own after moving a bit lower with higher rates have crept back up to my buy price. I sleep very well at night with these and obviously know the capital risk–which is why they are very small positions.

      1. Tim, I do the exact same thing with some other preferreds that I want to keep on my “watch list” in case there is ever market weakness in the future. Sometimes I’ll even do 50 shares of a preferred due to the very reasonable prices on commissions now.

    2. There is some JBK shares hanging at 25.80 for the taking if someone is interested in Goldman Sachs subordinated 6.34% par debt. The actual 6.34% bond trades near $118 which is a considerably lower yield than this equivalent. A 3rd party just had a 26.50 tender for these JBK shares. I couldn’t help myself and bought 300 more.

        1. Does your trading platform show the order book and how many are available at $25.80 ? I would have to call fidelity and ask for the trade as they do not allow me to buy online. Needs to be at least 300 shares available for me to make that call.

          1. Retired, they sometimes hide the true order bill. It is presently showing 200, but 1600 have went by the board without changing ask price.

          2. JBK traded 2000 shares and traded down to $25.71. I just find it damn peculiar why these people selling at $25.71-80, didnt tender their shares a month ago and get $26.50 and have been done with it. Very odd unless they were oblivious to the tender.

      1. Grid, I had an open order for 200 shares of JBK at $25.80 which was filled a little earlier. Also picked up 200 shares of NCZIP at $24.79. Used proceeds from sale of RILYZ to pay for these purchases.

        1. I put in market bid at $25.80 but they were generous and sold to me for $25.78 for a 2 cent discount.

      2. I must be missing something about JBK because when I look at its price chart, it was trading substantially lower earlier this year so why the keen interest at $25.70ish when it just went ex-div recently? What am I not seeing? Thanks.

  2. This is not listed in QuantumOnline? Got 200 at 24.78 thru Fidelity which had bid and ask data, which they never used to show for grey-market issues.

    1. May I ask how you got that thru Fidelity ? Did you call them to place the order ? It is listed at QuantumOnline, by the way. I was just looking at it on that site. Looks like I’ll have to pass on that issue anyway. The funds available are in the wife’s IRA and I checked with her and she is too busy at work to make a call to Fidelity. If I were to press the issue I’d have a bad day from about 5 o’clock on…

      1. I have bought many grey-market new issues at Fidelity since about 2012, through the web site by typing in the ticker and using a limit order.

        Re: QOL – it isn’t in the Special Lists – IPOs of Preferred and Income Securities. That’s where I look for new issues. I see that it was on the FINRA Daily List on 9/5. I’ve gotten lax about checking that on a daily basis, as I haven’t had any dry powder available for new preferreds lately. As it is, I need to transfer some money over to Fidelity to cover this purchase.

        1. Sorry Larry, I was referring to the KTB issue this thread had migrated to. You are of course correct on the NCZIP issue. My Bad.

          1. Retired, You mean JBK? I have heard some war stories with Fidelity, especially with floaters. See JBK is billed as a floater in its title ( a synthetic one), but it has reverted back to the fixed rate coupon of the underlying bond almost 10 years ago. Fidelity doesn’t know this, I assume and its just screened out by them.

          2. Did my last comment disappear? Trying again.

            NCZIP isn’t on QOL anywhere. Not under new IPO’s, not nder NCZ as a related security. Did Wedgehead find it through the FINRA Daily List?

            Allianz has this press release which says it’s cumulative. I assume it’s QDI also but they don’t say. So I have bought this without doing the homework that I usually do, I’m not normally that careless.

            https://us.allianzgi.com/en-us/individual/products-solutions/closed-end-funds/product-press-releases/ncz-announces-offering-details

          3. Hi Larry–the press release was all there was until last night when the SEC documents were filed. I suspect Wedgehead got it off the finra daily list.

  3. Tim, I posted 2 comments to Retired’s comment of 09/06/2018 at 1:28 pm. But I can’t see either one. Are you moderating comments, or is there is a problem?

    1. Hi Larry—you need to use the same email each time then it will show up. The 1st post for anyone I have to approve–after that they slide right through.

      1. Hmm, I’m pretty sure I did use the same email each time but maybe I didn’t.

        1. Hi Larry–that is the only thing I know of–no one has been having an issue with it thus far.

  4. Are any of you eager beavers planning to hold NCZIP or are you looking to flip? Just curious.

    1. Hi Bob-in-DE—I only did a measly 100 shares and it goes in the sock drawer. For a flip I would do 400-500.

    2. If NCZIP goes up to about $25.10, I will certainly consider flipping. The next FOMC meeting is approaching, likely will result in a rate hike. That could put income issues under pressure, especially since September is end Q3; window dressing antics may well occur.

      The yield is simply too low to think it will not be affected by rate hikes.

    3. I bought 400 shares. I plan on holding unless the price settles substantially higher. I’m really looking for more of an income stream but everything has a price and depending on the alternatives, I’ll probably stick with most of it. USB priced a high quality preferred not long ago. Not that I’m an expert but I would say NCZIP is of the same quality and yet the USB issue is above $25.30 last I looked. I need some quality issues in my wife’s IRA to provide some balance. I would imagine if we hold on to it, we’ll transfer this out to our brokerage (IRA withdrawal) at some point in the future.

      1. Thanks Tim,
        The distributions will be a mixture of ordinary income and capital gain. I wasn’t expecting that. I need to compare the language they have used to the Gabelli CEF preferred (which I own a couple of), and to how Gabelli’s CEF preferred distributions were taxed last year, to better understand this.

        1. For those who may care,

          GAB-PJ’s prospectus says distributions consist of LT Cap Gains, QDI, and investment company taxable income. The latter being taxable as ordinary income which may qualify for taxation at the long term capital gain rate. Indeed, in 2017 GAB-PJ and GGT-PE both reported mostly capital gain income and a little QDI.

          Allianz says pretty much the same thing, but they omit the comment that the ordinary income portion might be taxable at the LT cap gains rate.

  5. You can tell the market is doing 2 things. Getting complacent/relaxed, and has a big thurst for fixed income. In all the trade blogs, everyone is very content. Usually a correction is sometimes in the works in the next 12 months. It was nice to have that reset in Feb. For me, I am going to be sitting in 30% cash. I know what happened to 5% yielders, high/safe rated, perpetual in nature, etc, and what happened to them. The definition when I looked it up in the dictionary at the times was the word “crushed”. What happens is that it then becomes a year in which I make 15% in returns. It helps though that 70% in fixed investment for me generates well into the 6 figures. I am thinking of future grandkids though in about 10 yrs. 🙂

    1. Mr. Lucky, I am generating 6 figures of income If I count my pension that does alot of the heavy lifting. Does that count? I bet my heirs would say no, lol. For me to maximum my returns it isnt picking the best stocks, but picking the best vegetables to eat so I can live long and maximize the payoff, ha. I told my daughter already if she wants a bigger inheritence she needs to root for me to live long, because I am saving more now in retirement than she is working. 🙂
      I certainly understand your investing concerns…But I hate sitting on the sidelines. That is why I like issues like AILLL and JBK at right price point for relative values. The JBK underlying trust bonds were issued in 2004 at 6.345% when 10 year was 4%. Since then duration risk is halved and you have a ~6.05% YTM with a 3% 10 year. So on a relative basis, this appears a better issue now than it was when issued 14 years ago. AILLL, same principle a 6.625% issue when 10 year was 5% and now its 6.2% with a 3%. The call risk is what keeps the relative value high here. Of course the call risk is an additional risk one must measure also when buying such issues. But having a third of my stash buried in AILLL now, I am accepting that risk. Of course that is the pensioner in me that allows such decisions to be willfully made though.

  6. Yes that’s correct guys, I got it (NCZIP) from the FINRA list – as you all know sometimes issues come on board with little fanfare, so I always look there first when looking for purchases of new issues.

  7. ALERT!

    LTS LTS.A LTSF

    Dr. Frost has been charged by the SEC.

    The Securities and Exchange Commission charged a group of 10 individuals and 10 associated entities on Friday for their participation in fraudulent stock sales schemes that ran from 2013 to 2018. A group of South Florida-based alleged microcap fraudsters led by Barry Honig manipulated the share price of the stock of three companies in classic pump-and-dump schemes that generated over $27 million from retail investors who were left holding virtually worthless stock. According to the SEC’s complaint, Honig allegedly orchestrated the acquisition of large quantities of the issuer’s stock at steep discounts, and after securing a substantial ownership interest in the companies, Honig and his associates engaged in illegal promotional activity and manipulative trading to artificially boost each issuer’s stock price and to give the stock the appearance of active trading volume. According to the SEC’s complaint, Honig and his associates then dumped their shares into the inflated market, reaping millions of dollars at the expense of unsuspecting investors. Miami biotech billionaire Phillip Frost allegedly participated in two of these three schemes. The SEC charged Honig, John Stetson, Michael Brauser, John R. O’Rourke III, Mark Groussman, Frost, Elliot Maza, Robert Ladd, Brian Keller, John H. Ford, Alpha Capital Anstalt, ATG Capital LLC, GRQ Consultants Inc., HS Contrarian Investments LLC, Grander Holdings Inc., Melechdavid Inc., OPKO Health Inc., Frost Gamma Investments Trust, Southern Biotech Inc., and Stetson Capital Investments Inc. in federal court with violating antifraud, beneficial ownership disclosure, and registration provisions of the federal securities laws and seeks monetary and equitable relief. Riot Blockchain RIOT, -14.52%in which Honig has an ownership stake, tumbled on the news.

    1. Well, I was close. I have always thought LTS was a dump…But it never got pumped. I have never trusted that outfit with its pitiful financials. I would invest in CDs before I would ever invest in LTS. But that is just a half emotional opinion admittedly.

    2. Looks like a buying opportunity as this news has literally nothing to do with Ladenburg Thalmann Financial Services.

      1. Very well could be…But I just wont invest in a company that brags about all their share buy backs. Only to look in SEC filings to see their share count has gone up every time they do buybacks. They pull a few out from the front door, and shovel an ass load back in the back door….Negative retained earnings, no GAAP earnings ever, back out the questionable “good will” on the books, and if liquidated the company couldnt even come close to paying the preferreds in whole, let alone the commons. Not my comfort zome at all.

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