As we noted earlier today Michigan utility CMS Energy (NYSE:CMS) has sold a new $25 baby bond issue today. The issue is rated Baa2 by Moodys and BBB- by Standard and Poors which makes it lower investment grade.
The CMS Energy Corporation 5.625% Junior Subordinated Notes due 2078 will be hitting the exchange in the next 5-10 days as the offering was effective today, March 5th. We will have to await the announcement of the ticker symbol as none has been specified. Very likely there will be no trading on the OTC Grey market since this is a debt issue.
Interest will be paid on the normal schedule of every 3 months starting on the 15th of June. Being interest the payment will not be qualified for preferential tax treatment.
This issue is 8,000,000 shares for gross proceeds of $200,000,000. The proceeds of this offering will be used to repay an outstanding term loan.
As pointed out earlier by “Gridbird” the issuer may “defer” payment of interest once of more for 40 consecutive quarters (10 years). Interest payments can’t be deferred past the maturity date and a new deferment can’t be declared while the company is already in a 10 year deferment. Additionally you will be required to pay income taxes on the interest that accrues to you even though you have received no payment.
Consequences of a deferment are quite severe, but the bottom line is that if a company declares a 10 year deferment you are basically screwed as an investor. This is not an usual feature in particular in the utility baby bonds.