Duke Energy Selling Baby Bonds

Giant utility Duke Energy is selling some subordinated debentures with a maturity date in 2078

These $25 baby bonds have not yet been priced but with a investment grade expected (S&P BBB) we would think these would price in the mid 5%’s.

The company currently has 1 other baby bond outstanding with a maturity in 2073 and a coupon of 5.125% (NYSE:DUKH)–and it is trading sharply lower on the new issue news.

Be aware that these issues contain the ability for interest payments to be deferred for up to 40 consecutive quarters (10 years).  This should be only a minor consideration for investors because if this occurs the economy and this company are in terrible straits.

The preliminary prospectus is here.

21 thoughts on “Duke Energy Selling Baby Bonds”

  1. Retired, your portfolio reads almost like mine !! I had thought only Grid & I were like peas in a pod with very similar holdings – and now you are also one of us!!

    I own AILLL, CNLPL, CNTHO, CKBLP, CHSCP, RNR-C, LANDP, HE-U, JBK, WFC-L, BAC-L , OSBCP, MTB- , AGO-B, KTH, KTBA , C-C and others of less stellar attribute.

    Nice to know that our strategies are so alike – here’s wishing success to all.

    1. Inspbudget, getting a bit senile in retirement? You left off our most prized preferred possession we both have….FIISO!

      1. You got me there!!! Yes, indeed, FIISO. Sure wish I could have bought more, but it was like finding a four leaf clover to uncover those that I have.

        I forgot to mention it as it was in my ROTH, so kinda out of sight.

        1. ASRVP has got to be my favorite trading preferred. Bought decent slug last month at 27.75, sold half at 28.40 this week , and bought that half back within 30 min at 28.05…Then today, I sold them all at 28.50….The hot money all went into NSS, at 25.71 today, so I will just collect the end of month interest payment from NSS instead of ASRVP. So now I am oversized in NSS all the sudden and will look to lighten in a month when the price has recovered and the redemption threat has subsided for another quarter.

  2. A junior subordinated 60-year note, with unlimited 10-year deferrals (with no penalty), and a 55-year call at the issuers option, for a BBB- issuer, all for 5.625! If one were to actually put a price on the optionality I think you’d find that Duke is issuing this note for barely more than treasury yields.

    The reason that this is a public issue is that no institutional investor would give them these terms.

    It’s still a sellers market.

    1. I agree, Bob, and presently I am successfully fighting to stay above 6% on decent quality issues. Personally, the 5.6% yield with duration risk bothers me, but the 10 year deferral really doesnt. There are so many that are issued this way and never had it exercized. Even JBK from Goldman Sachs has that deferral written into. We had the big financial crisis of 2008-09 and Goldman mever deferred the interest payment.

    2. I suppose your right but get me to $23.45 (6% yield) and I would probably buy some; draw the interest and let my children worry about the principal. I don’t expect to live to be 122 year old when it hits its mandatory call date. Amazing how reality sets in. A year ago my threshold was 7%, now it’s 6%. Next year it might well be 5%. The older I get the more conservative I get.

      1. Retired, Have I ever mentioned the Baa2 quality delisted baby bond IEH to you before?

      2. Retired if you “got some investing stones” maybe consider HE-U. I have about 1000 of these (trade it frequently though probably shouldnt and now I will hold these). If you can get in under $26.30 with exD this month, your not exposing yourself much and get to stay above 6% present yield and have a 2034 backstop maturity. Corporate island welfare (ie not redeeming to please the natives) runs ram-put there. Hell they have several 7.125% Baa3 QDI private placed preferreds redeemable since 1998 that havent been called (yes I tried to get some and investors relations said “too bad, they dont trade”.
        The present plus 6% solid quality debt, 2034 backstop makes a great own for me. Well worth the apparent miniscule call risk for my purposes.
        Fellow poster here Inspbudget, is a decent sized holder of HE-U also here.

        1. Hi Grid. I have a full position in HE-U. I believe my cost basis is $26.43 and I’ll be getting that divy. Have AGO-B, CBKLP, GLIBP, KBTA, OSBCP, MTB-C, VER-F and I was finally able to pick up a full position in AILLL for $26.67. I keep looking for those 6% yielded.

          1. Retired, your collection is getting closer to looking like my collection of rag tag oddball preferreds, lol.

          2. Yes Grid, if it’s odd, I’m probably interested in it. I have some other near 6% + yielders like the L preferred (at cost) from BAC and WFL., CHSCL, OAK-B, RNR-C and LANDP. I’ve also been picking up some of the lower yielding but higher quality issues recently. Still sitting on quite a bit of cash. Hopefully, the fed will help generate some higher quality 6% yielders in the coming months.

    1. Not interested unless it sells down to $23.45 which gives it a 6% yield. The 10 year deferral option is a big negative but I have a question regarding that option. Duke would have to cease all dividend payments on the common before deferring the interest payment on this debt issue, right ? As a retiree, I’m looking for income. Duke is a large quality utility and I can’t imagine them having to cease paying a dividend so maybe the chances of deferring the interest on its debt is almost non existent. Thoughts ?

      1. You might consider the case of Pacific Gas and Electric (PCG) in assessing risk. PCG hasn’t as yet restored dividends.

        1. PCG I believe is a special situation. Duke’s service area is not prone to the wildfire issue like PG&E is and they don’t have Californian politicians. Duke does have exposure to catastrophes like Hurricanes but I don’t think I’ve ever heard of a utility being held responsible for natural disasters… unless they operate in California.

    1. I would be grabbing as much as I can if it sells near par, at that rate.
      Tim, do let us know the temp symbol when you have it, thanks!!

      1. Hi Inspbudget–don’t think there will be a temp ticker as it is debt–once in a great while that occurs–but it is rare that they trade OTC. So we are all stuck watching for trading to occur.

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