Cruising Into the Weekend

We started the day off with employment numbers which again were very strong—it mattered to the stock market — “party on” (now up about 1%), but the interest rate complex just yawned and the 10 year treasury backed off a couple basis points in current yield.

Overall it has been another Goldilocks week for income investors–not too hot and not too cold. Preferred stocks and baby bonds generally moving just a few pennies here and there (although the usual suspects of shippers and some MLP preferred are swinging wider).

We are looking forward to the weekend as we have bunches of website work to do–as we have Chad add new information blocks on the security pages we have to popular the data on the pages–I am tired sometimes just thinking about it-but as Butch Winegar, who played for the Minnesota Twins, said 30 years ago “I love this job so much I would do it for free”–and I do (love it and work for free both).

40 thoughts on “Cruising Into the Weekend”

  1. Well, the weekend has come and gone and apparently, so has the “cruising”. Monday morning looking more like a submarine…Dive!…Dive!…Dive!

  2. Tim – Another grateful daily reader. Really appreciate all you voluntary efforts. My sincere thanks! Husker

  3. Thank you Tim for your website and your hard work. I’ve been retired for 3 years now and have moved a large portion of my portfolio into preferreds, so this site and the people on it is fantastic. I’ve traded the Spx for over 20 years and slowing down my trading in retirement. I want to warn everybody as we head to Spx 3000. My work following the Vix has me concerned. I believe we are headed to another large volatility event soon. I know momentum is strong and I don’t know what will trigger this event, but selling some low quality holdings or hedging is not a bad idea. You know the saying, pigs get slaughtered.

    1. Not sure where something like this should go or even if it belongs on the board at all but here goes. Recent discussion of the TOO prefereds mentioned the possibility of them being taken private and moved to the pink sheets with an accompanying 50% or so loss in price per share. I don’t understand why this price loss would happen but someone mentioned the Amtrust experience to make the point. So how do people feel about speculative buys of pink sheet paper? Those heavily discounted Amtrust shares like AFSIA are yielding about 15%. I’m sure there’s a reason or reasons for such a high yield possibly beyond the opacity of private financials that are not obvious to a newbie like me. Thoughts?

      1. JVinney, I will offer my anecdotal take on your concern based on my experiences and indirectly about TOO getting delisted. Its not the specter per se of going “pink sheets” in and of itself that truly means anything.
        If Exxon had a 6% preferred (they used to 30 years ago have true preferreds) and said they were delisting it to the pink sheets, it would be a market yawn. Many high quality investment grade utility preferreds from Fortune 500 companies have delisted preferreds on the pink sheets and many way above par.
        So its not “pink sheets” that is the problem. What one would have to analyze is what would potentially scare or drive price down…Financials? Lack of public disclosure? Trustworthiness of management not to screw over preferred holders to benefit of the common holders, etc. etc…
        Amtrust preferreds dropped not from word pink sheet per se, but from…No “trust” in Amtrust. They said they wouldnt delist then turned around and did a few months later. Accounting clouds, investigations, etc. etc. have plagued this company and that is the sources of the problems. Going private with no need for SEC filings exacerbates the tension.
        That being said, in those situations of going pink sheet many times the “pain trade” is right after the declaration of delistment. The shareholder composition sometimes needs to be rolled over from policy or initial fear. That is when the shares should be bought if one is interested. Usually once delistment occurs the shares will creep up. Amtrust shares are actually up quite a bit recently now on pink sheets (though still at distressed levels, which they were anyways prior to going private).
        On a more modest example still playing out, MBFIO was delisted by acquiring bank. Modest selloff immediately occurred of over a buck or so. But it was already creeping back towards par on day it was delisted. Its still in transitory stage but will have public financials from strong bank, so I suspect it will be above par again once it starts trading again.

      2. Jerseyvinny, first let me say this will only be my opinion and I highly suggest you do your own deep due diligence…
        (TOO) Teekay Offshore Partners LP is a very troubled and toxic LP:
        Holding shares of this partnership has been a disaster. YTD is down -49.25 YTD, 3 Year average -32.19% and 5 year average -31.36% OUCH
        Just sold $250MM 144 Notes due November 2022 with a whopping coupon of 9.25% to refund their 8.5% notes due in 2020. I believe they did this because they were against their covenants and it’s was sell higher yielding debt or be a going concern/BK filer. You should read their quarterly earnings report to see if they are under a going concern and what their plan is to become cash flow positive. Most companies will state very optimistic numbers or projections and then have a huge disclosure they cannot be sued. When I went to Law School one of my professors was of the lead attorneys for Texaco during their bankruptcy and the class was all about how they screwed their shareholders to exit BK pretty much stronger and intact (a road map for the students).
        Tiny $564 million of equity, trades at just $1.34 per LP unit
        Lost $-174.4 million last year -0.425 cents per share loss
        Terrible balance sheet of $183 million in cash and $3.18 billion of debt
        Negative (ROE) Return On Equity Of -9.23%
        As for the LP being taken private the main issue for a preferred shareholder is a suspension of the dividend during or after being taken private; these are cumulative but in a BK chances are that holders will get virtually nothing for their trouble and debt holders will get pennies on the dollar (depends on what type of BK they file).
        I own 2 preferred/notes of companies that are “private”. Phoenix (PFX) 7.45% due 1/15/2032 CUSIP 71902E208 but these are notes and the insurance company would have to file BK before stopping the quarterly distribution. The second “private” issue is a small $200 million preferred that is NON-CUMULATIVE (MBFIO) MB Financial, this preferred was just taken off the market with the merger of MB Financial and monster (FITB) Fifth Third Bancorp, it is not trading on any exchange yet but they still intend on paying the quarterly dividend and of course we have Fifth Third (market cap $18.8 billion) paying the quarterly dividends.
        I highly doubt why anyone would want it to take out (TOO) Teekay. The acquiring company would assume the enormous debt of over $3 billion (and growing) and an ongoing issue with all the losses from a poor operational legacy. It would be better to wait for them to file BK and then pick at the assets they want for a deeply discounted price through the BK courts or as Brookfield Business Partners LP has done offer to buy certain TOO assets on the elcheapo because the asset base of TOO LP is so stressed with toxic debt. For many shipping companies there is no end in sight to become cash flow positive because of their astronomical debt levels and I avoid all shippers.
        I hope that helped you in some way, Nomad

        1. Nomad, just to clarify….I was in no way advocating buying TOO myself. I was just talking about pink sheets in general. I know absolutely nothing about TOO or any other shippers. Everyone has “their own investing lane”, and so me its staying out of shippers and Mreits. Just a personal philosophy for my personal comfort.

        2. Gridbird and Nomad, thanks for taking the time to clarify the Operational issues here pertaining to TOO or any other company in this situation. I learned the hard way in the housing crash a bankruptcy will take out preferreds as well as common. To add to my pain, those shares ( a mortgage lender whose name I mercifully can’t recall) were in my wife’s IRA and I was forced to relive that unpleasantness for quite a while afterwood. Is this a great site or what?

          1. JerseyVinny, I was hard hit several years ago by the bankruptcy of a Subprime mortgage lender named Novastar ( NFI ). I am still writing off the annual $3K loss carryover, even after many years of capital gains.

            Unfortunately, the amount lost was significant enough that I expect to be writing off carryover losses for many more years to come. :-((

          2. Jerseyvinny, keep up with your belief in skepticism of preferreds being “safer” in terms of common. A very relative term that word safe. If a common stock exhibits financial distress, the preferred will too. I wont go so far to say personally I wont buy a preferred unless I felt comfortable owning the common. Mostly because I dont buy commons. But it isnt the worst philosophy in the world to consider, unless one is just wanting to exploit a flip trade.

        3. Nomad

          I respect your expertise in bankruptcy law, but I find your comment on TOO puzzling.

          You say it is doubtful that anyone would want to take out TOO. But hasn’t Brookfield essentially done that already? They own approximately 75% of the company’s equity, and approximately 63% of the company’s debt after the recent deal. When/if they get to 80% of the equity, as expected, they can take the company private. Why, then would they buy the company, and then take it into bankruptcy? In the case of Texaco, you say they did it to screw the shareholders, and I believe you. But in this case, Brookfield essentially is the shareholder. They’d be screwing themselves. Since they own only 63% of the debt, they would be surrendering 37% of the company to the other bondholders. Why would they do that?

          Now suspending the dividends on the preferred stock, and then buying it back on the cheap, I could see them doing, although at least in theory that could do some damage to their reputation. Do they care? I have no idea.

          What am I missing?

          1. donocash, thank you for your comment(s) and know that here there are no exact answers (read the quarterly reports for hints). My understanding is that Brookfield’s debt with TOO (I’m not too sure the %) is secured by assets that TOO owns. If the question is why companies do stupid transactions, it happens every day. I was just reading about Yahoo’s decision to buy Mark Cubans many years ago for billions and never making a dime with the dead technology (same for their purchase of AOL). The initial question was about the preferred and being taking private. IMHO Brookfield taking TOO private would just be the first step in a suspension of the preferred dividend; the 3 preferreds represent another $390 million face of liability and TOO cannot afford to service these issues because their balance sheet is a disaster with $3+ billion of debt that must be serviced before the preferreds get paid… Brookfield’s management team will definitely do with is in their best interests and taking TOO private would only be if it includes a concession to restructure the tremendous crushing $3+ billion of debt. I hope I am wrong for every TOO preferred and bond holders sake.
            I have no skin in the game as I do not invest in shippers…
            Stay Tuned, Nomad

            1. Nomad, thanks for your informed and insightful input, as always. I certainly agree shippers should be avoided like the plague by conservative investors. That’s my personal rule but I reserve a small amount of capital for mad money and this one landed there. I’ll also say I’m already in cheap and up nicely and holding awaiting clarity on where this goes. If concerns begin to come to fruition I’m out that instant. It’s far from the sock drawer but for the present I’m in for the exact reasons raised by donocash. I remember Alpha was all over PCG common (good call) while I was freaked holding senior bonds and sold them. Funny.

              1. P, that is the hardest thing with posting our individual posts, its difficult to assimilate all into ones total portfolio or risk level. If someone posts they just bought a million worth of CBL preferreds I would think they were crazy risky…But if I later found out they were worth $101 million and the other $100 million is in 3 year CDs and 2 year TBills, that paints an entirely different story, lol.

                1. Grid, it’s like the beer commercial……. I don’t always go crazy, but when I do go crazy it’s crazy. My crazy is somewhere 10%. Spices up life. Key lesson for me is dump timely when my thesis begins to fall apart.

              2. P, That PCG trade was mostly about dumb luck and watching the local politics. There’s a plethora of special interests tied up in the holdings, pensions and divvys of PCG and you can be sure Sacramento was hearing the bellows of thousands of retirees and a pension fund or two. Not to mention the campaign-finance deep pockets of the larger investors. Combined with that healthy amount of dumb luck and a few call options we doubled that flip. Alas, we’ll have to give it back to them or SCE over time in the form of utility bills.

                1. Alpha, legislatures are in a tough spot besides all the political stuff. Inversion Condemnation I strongly suspect will never be rescinded. Why? Because property and casualty insurers have also told them they will inject massive rate increases on the populace and or abandon the market areas of risk if they do. As they want to pay the claims and then have the utes pay them back.
                  As you know credit rating agencies are demanding legislation or more credit downgrades are coming for all utes. Oddly enough though Southern Ca. Gas is immune from the threats. Their credit ratings have remained unchanged and not under credit review either unlike the San Diego G&E, SCE, and PCGs of the area. SOCGM is presently the only ute issue I own of the bunch.

                  1. Grid, A friend’s dad, with little to no investing experience, started investing in utes 45 years ago with one criteria – they had to have low susceptibility to natural disasters.

                    While ignoring all other conventional metrics, it turned out to be quite prescient as he never experienced a loss, collected and reinvested his divvys the rest of his life. I recall a few were in the Nevada and New Mexico area. Ultimate sock drawer investor.

            2. Nomad,
              Regarding shippers, I understand the general risk, but do you consider the companies in niche markets equally unsafe? HMLP and GMLP appear a couple steps above TOO and SSW to me, but I I have been known to miss obvious warnings signs, so any insight appreciated!

              1. furcal, I have flipped/speculated on a few shippers, but I delineate between the vast majority (95+%) of my portfolio that is based on quality. I would NEVER hold any shipper for even a shorter period of time as the track record of this sector is horrid and I do not like their toxic debt. I am traveling today and am unable to look (timing issues) but I believe I flipped a few times HMLP.A and GMLPP when they had their IPO’s and before/leading up to EX a couple of times; so I am certainly not without “sin” investing.
                Because gold is honest money it is disliked by dishonest men, Nomad

        4. Nomad – you seem to be mixing up TOO (the offshore company that Brookfield took over a year ago), with TK (the parent GP, previous of TOO, and which still manages TNK, TGP, and some offshore assets directly). TK is the one that issued the new 9.25% debt, not TOO. TOO 2019 debt is trading at par and is not at all distressed, and they recently got low priced bank financing for new ships. The TOO preferreds are more risky than the debt, but unless Brookfield goes out of their way to screw them, they should be fine barring some big drop in the offshore market.

          1. Xerty you are right on the refinancing. Please note the noose is tightening…
            From their last Q:
            Liquidity Update
            As of March 31, 2019, the Partnership had total liquidity of $183 million, a decrease of $42 million compared to December 31, 2018. The decrease in liquidity is primarily due to a delay in the expected refinancing of the Partnership’s FPSO revolving credit facility. This FPSO revolving credit facility refinancing closed in late-April 2019 and added approximately $65 million of liquidity to the Partnership.
            Also, their assets went from $490MM to $409MM in the last quarter and liabilities are a whopping $3.77+ billion…
            In Latin we say quod fetet et turma eius terror
            Wishing you well, Nomad

            1. Quod fetet et turma eius terror (striking terror with his troop, and that he stinketh)

              Good one Nomad!

              1. mikeo, that is the literal translation (Latin and English phrases do not always translate well); it really is Latin slang for “this company stinks”…
                Smile, Nomad

          2. Xerty, to the extent I understand the finances you are correct on all counts. And yes it’s an offshore provider rather than a shipper, so for me no comparison there. The similarities stop at both are cyclical but it’s not linked.

        5. ‘Just sold $250MM 144 Notes due November 2022 with a whopping coupon of 9.25% to refund their 8.5% notes due in 2020.’

          Nomad, it was $TK and not $TOO that did the above. They did lower the amount from $500 to $250 million in the process.

          $TK has no part of $TOO going forward.

      3. Apart from the different company value judgements there is also cause and effect. Facts are Amtrust screwed the shareholders then took it private. Assuming Brookfield will take TOO private to then screw the shareholders is not the same. I don’t see the analogy. Different companies, different order of events, facts vs. speculation. In the end we make our own decisions, that’s part of what makes investing fun.

  4. As a relative new investor to preferreds and baby bonds, I would be lost without your site, Tim. Thanks for all the work you put into making it so useful!

  5. Tim
    Thanks for your efforts in maintaining this wonderful and informative web site. The site and site contributors are invaluable

  6. US bond yields are surely being held back by negative yields in much of Europe. The 5 year Germany Govt bond is yielding -0.4%. This mean you buy $1,000 of bonds and lose $4 per year. Makes the mid-2% yields in the U.S. unbelievable in comparison. Surely money is flowing from some of these sources, helping keep rates in the U.S. low regardless of events here.

  7. I would not want to be a retired investor without your website. It’s not just the wealth of information you provide, but really great postings from the like minded people you have attracted. Great job!

  8. This site is amazingly useful. No words can describe our gratitude. You are hitting them out of the park like Harmon Killebrew with Carew’s batting avg

  9. Yes. Thank you Tim as well as the more experienced preferred stock investors who gives us their insights. This board rocks.

  10. Yes, you have an awesome site, and many appreciate the efforts Tim. If I had any techno skills, I would lend them for free. But my offer would not benefit you in any way. 🙂

  11. Tim, as I reflect on another amazing and profitable week in the equity and debt markets. I want to thank you.from the bottom of my portfolio and give you my sincere appreciation for all you do for this community. I look forward to seeing everyone’s interesting and helpful financial posts each day. I truly owe you my gratitude and thanks for a great income site that we can all share and help it other through these volatile financial markets.
    Have a fantastic and memorable weekend, Nomad

    1. Tim, Gridbird, Nomad and all,
      I am grateful for all your efforts for great opinion and info. I have 6 bonds from TK Corp and was alerted yesterday by Vanguard Brokerage on a “voluntary” corporate action. There are 2 choices for the voluntary corp action: (1) TK Corp or Brookfield’s Unit will redeem the bond at current market value, some 3+% premium with acceptance by May 6, OR wait until May 10+ day, TK Corp will redeem at 0.975 (discount) for these bonds. Of course, there is a third option as opined by Vanguard bond trader, do not participate. Either hold or sell the bond paying some commission. I bought this bond years ago following Richard Lejeune at discount. I accept their offer readily. This should offset my same time frame years ago, buying bonds issued by JC Penney’s or was it Sears recommended by Mr. Lejeune.
      I do have 215 shares of TK-E bought 9/14/2018 paid way too much at $24.4
      I will hold.
      Went through almost 8 earnings call. AHT seems good EBITDA with loss on GAAP. SSW got huge investment from FairFax ($1 Billion) soft FFO. Supposedly decent report by CBL, pushed debts to 2013. Difficult to decipher PEI. Bought a small position on Iron Mountain (IRM) eREIT on “bargain” table. Added a little on KRG and PFE. PFE seems decent.
      Have a great weekend.

      1. $TK and $TOO are different. Actually $TK just sold out of their last remaining interests in $TOO. $TK does not have Preferreds, while $TOO has 3. $TKs daughter company $TGP also has 2 Preferreds. Disclosure, I like $TGP very much as an investment going forward.

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