Entergy Arkansas to Redeem All Old Perpetual Preferreds

It looks like Entergy Arkansas (a division of Entergy-ETR) is redeeming all of their old perpetual preferreds. These issues were originally sold back in the 1960’s and are all $100 issues.

These issues all have coupons between 4.32% and 4.72%. This seems a little unusual that they would redeem these low coupon issues, but they are small issues and likely the paperwork is more trouble than it is worth.

The company is selling 1st Mortgage Bonds ($1000 bonds) to do the redemption.

The prospectus showing the “use of proceeds” can be found here.

45 thoughts on “Entergy Arkansas to Redeem All Old Perpetual Preferreds”

  1. Thank you Tim, I have played this game before and it has been profitable before. I had 40k sitting with no home thanks mostly to my water utes being redeemed. The word hasnt gotten out yet, so I bought up some of these old preferreds that have a nice bit of meat on the bone. Their call price is not $100 but higher. Typical for ute preferreds issued back then. Plus they will be going exD next month, so full divi will probably be in play here.

      1. LOl, yes I did! My old brain couldnt remember the tickers, but it remembered the call prices were well above par price. So I hit your list to write them down and see which ones were trading below redemption price. One was $3 below it. I bought EGRKH, EGRKI, and EGRKM….
        Reminded me of the good old days a few years back when Baltimore Gas and Electric kept slowing calling their old 7% plus preferreds. Sellers would get confused on which ones were being called, and I made a nice haul, buying the screw ups several times.

          1. I definitely owe you a steak dinner, Tim…I doubt you make it to outback Missouri much…So if you charge for this site down the road, I will be a charter paying member I promise!

  2. The word got out and others jumped in. No meat left on the bone now. That was a helluva tip Tim! Much obliged. An excellent place to hide out and collect a decent profit waiting for the redemption. I love illiquids!

    1. I seldom read ute prospectuses and was quite surprised to find this call—especially using 1st mortgage bonds to call with. I suspect they were tired of messing around with the $31 million outstanding.

      1. Some of these old preferreds have some very penal and restrictive covenents unheard of today. They might want to be free of those shackles also.. I can only gleen partial insight into these as who has ever seen the actual prospectus from an extremely old issue? The Connecticut Light and Power for example have covenenat restrictions on how much short term borrowing they can issue. They tried a few years ago to borrow more but couldnt find enough of the owners to approve it. 71% did, but only about half the owners could be found so they couldnt do it… Ameren Illinois has maximum debt limit ratios imposed on them…Good stuff…But you dont see that much anymore.

  3. Might be that since the D and SCG merger is falling thru down South there, that the ute’s in that area know that D will go on the hunt again and well, Entergy could be a target or maybe already is. Might be totally unrelated, but plausible. You also have the same issue facing many in that it’s only going to get more expensive to ‘re’finance as rates rise, right? Bite the bullet now or bite it later, but one way or the other, it has to be bitten.

    Question is, which one of you two got to the Edgar filing first – Tim or Grid?

    1. I dont think Tim bothered to buy any as I got the info off of him. And none of the preferreds had traded before I bought. This was not a fortune building trade. Just picking up safe nickles off the sidewalk, lol…And most importantly it keeps me from buying something stupid! Speaking of stupid, I saw IPWLK had a rare block of shares offered at $101. I had about 5k leftover and wanted 100 shares so I sold off the silly 200 PCG-A shares I purchased a while back at breakeven today. I dont view this as a great trade but as a balancer to the 400 shares of CPE-A I have recently bought.
      There was still 800 available at $101. About 5.6% which is not high yield, but its price history is remarkably solid. It didnt break $70 during 08-09 crisis when most preferreds got pulverized.

  4. Nice post on IPWLK, I grabbed the last 200 at 101. Not super sexy, but a nice old maid to sleep at night peacefully. Thanks for the heads up on it

    1. Glad you got some George. Clearly you bought already with understanding of the role it will serve. I hesitate to mention issues like those because I dont know what peoples expectations are with these. It isnt a cap gain trade. But l like your analogy and it mirrors my though exactly!
      Well those Entergy Arkansas preferreds all quickly backed up to call price didnt they. I probably should sell, but I want that divi laying on the tee, so I will hold until redemption I suspect.

      1. Yes, I bought for a many year safe and sleepy 5.6% yield, to set it and forget it. I wouldn’t sell it unless of course it offered a stupid high bid one day perhaps .. Thanks again for your post as I would not have seen that otherwise, and I like to add bits and pieces of stuff like that to the portfolio. Love the illiquids !!

        1. George, the world of utility preferreds is shrinking slowly by the year. A few crank out some baby bonds but the pure QDI preferreds are becoming rare. I think Edison may be the only one to have issued any in the past few years. But a lot have been called. At 5.6% only CNTHP, CNLPL, and AILLL that trade yield more. But they are way over par so that is another risk one would have to assume. IPWLK has all ready accrued that buck in dividends, so its trading essentially at par. So it probably has the highest YTC yield that is left in ute preferred land. Useless fact…IPWLK went to market at 5.65% in 1998 when 10 year was 5.5%. Sounds strange doesnt it?

          1. That is strange. did credit rating materially deteriorate since then, doesn’t make sense but glad to own it, even a tiny piece…. The essentially at par today really clinched the deal for me. I would have bought even more if it was available at 101. Thanks for making my day. Sleeping sound tonight !
            Too bad more new ones aren’t issued like these, I love them.

          2. I doubt the credit changed much…It has been BBB- for years and years that I have tracked it. Its just the quirks…Take sister issue IPWLN a par $100, 4.80% par…Its last trade was $101.25. So higher price, lower yield, and same equal standing as IPWLK. Indianapolis Light and Power is a one company subsidiary of an essentially shell holding company IPALCO. IPALCO was acquired by AES after IPWLK was issued. They just left the issues outstanding. IPALCO is loosely but not entirely ring fenced from AES. But AES is on pretty strong footing now anyways.

  5. Thanks for the additional historical color. Happy to take advantage of the quirks, even at small amounts. Can’t do this at scale but bits and pieces do add up. I’ll bet you have quite an eclectic portfolio. I’m a newbie to the Pfd. world – been investing in stocks and muni’s for past 30 years, but do enjoy the safer side of the Pfd. universe, and starting to like it more and more. I can’t believe the bargains that came up in 2008-09 meltdown and is sobering to realize how much these all can fall in such environments and find your point about this particular one price behavior in that period to be important.

    1. I missed the 2008-09 era of collpased preferreds. Didnt know about them. Got in them about 2012. Read extensively and of course 80% of it was about that time period where many $25 preferreds went to $3-$8 a share. But after studying I found 2 exceptions where they didnt drop nearly like the rest…Those being utility preferrreds and illiquid high quality preferreds. So guess what George? The first couple years all I ever bought was illiquids and utility preferreds as I just knew I was going to get screwed by all the others, lol… I have learned over time to put the big boy pants on and find more liquid issues that suite my specific needs.
      My favorite own is an issue I dont own anymore but held it twice but had to flip them when offered almost $10 more than I bought. It is DMRRP. The Dayton and Michigan Railroad preferred stock, that CSX now guarantees. What a history…DMRRP was issued in 1863 and never missed a payment. It led to a court case. D&M (now defunct of course) swapped bonds with this preferred to owners. State of Onio sued. Back in 1863, preferred stock dividends were not taxed, but bonds were. State felt company was pulling a fast one on them allowing people to avoid paying taxes. State Supreme Court ruled against the state.

  6. Wow. What rich history. I look forward to learning a lot reading your posts here and SI
    I have money to put to work gradually as quirky opportunity appears. I’ll be watching your posts for ideas to research. TIA

  7. I recently read the book by Doug L CDX3 method. Kinda interesting and watching and studying it’s validity in real time. Approach seems to have some merit but being a born skeptic I watch and learn before believing any methodology and seems to work kind of randomly depending on rate movement and expectations mostly

    1. Doug is a good starting point. But he is a peddler. Anything he discloses on his paid thing, can be found for free elsewhere. Interest rates matter on preferreds but only loosely…Higher quality preferreds usually track 200-400 basis points above 10 year…But that is a huge swath of a path…Some $25 preferreds would have to drop $4 to move 100 basis points and they would still be considered in a normal historical range. Investor fear (or lack of) and future rate expectations can factor in more than yield itself…
      Take a look at IPL-D. In 2013 when 10 year hit 3% it sank to under $21. Today with 10 year back to 3%, it trades at $25. It is the same utility company and same investment grade quality. Why the big price difference? 2013 the fear was rates were going normal…Real historical normal…Today most people assume there is a new normal at lower rates and arent running out the door. That expectation could change quickly…or not. Who knows…Now one thing that has changed is IPL-D has went past call. This can sometimes anchor an issue closer to par, as people dont want to leave a cap gain on the table if its called. A 5% issue seems problematic for a refi call. But as seen with Entergy Arkansas it isnt always about that and issues can be called for various reasons.

  8. DMRRP is now gone ? I don’t see it anywhere listed, is it around in some other form now ?

    1. Its there…Quantum doesnt list it. You wont find a prospectus its probably on a stone tablet somewhere… It only trades a couple times a year. There are only about 16,000 shares outstanding…CSX owns about 16,500 and doesnt pay itself the dividend. But it owns them and didnt retire them. Beleive it or not there still are some common stock of Dayton and Michigan also. its ticker is DMRR. CSX controls the majority of the commons shares but a few thousand still exist and even pay a common stock dividend.
      Very interesting…Dayton and Michigan is just a piece of land anymore with a line running through it. Up until late 1990s, D&M had a board of directors. All CSX managment. They were unpaid and met once a year. They finally ended the farce, quit filing SEC Filings and rolled it into CSX. It is buried so deep in CSX I only found one sentence in their 200 page annual filing that even mentioned it.

      1. Added thought George…I had to dig into 1990s SEC filings to find out the details of DMRRP. The payments are “guaranteed and perpetual”. So it can never be called. It was a very interesting research!

        1. Now that is OBSCURE ! Guess I will never get a bite at that apple..
          I agree on the Doug L thing. I use Quantum online for the basic research as well and would never pay for a subscription being an investing geek, this is way too much fun to delegate away. There is something nostalgic about owning a Pfd that was issued many decades ago. The ones that come for sale may have been owned for a lifetime. I’m still on the learning curve for the detailed finer points of all this, but learning by the day, thanks to folks like you out there generously sharing insights. The big picture is of course like you say, driven by macro interest rate movements, credit conditions, and forward expectations.

          1. George there is the Holy Grail of preferreds I have not snagged yet…MBRRP…The Mobile and Birmingham Railroad preferred, now guaranteed by Norfolk & Southern RR. It hasnt traded since 1992…But it dutifully announces and declares publically its dividend every time….My life would be complete if I could snag 100 of those somehow….

  9. Just found DMRRP My broker shows 78.75 last for 78 shares in June of 2017 last trade and says No dividend

  10. My other broker says 8.00% cumulative divvy. Would love to snag some of those babies near par on a fire sale dump. Looking back for last several years there were some trades not too far above par. In 2014 it traded at 52.50

    1. Last trade was 78 shares at $80 on 12/27….I know as I sold them, lol.. Yes, it is $50 par, $4 dividend with $1 paid quarterly. Be prepared to be patient.

  11. GRID. Staring at the WFC-J and it has about 37 cents net call risk at 25.87 last trade. The next Q date is mid June, when would a company typically announce the call ? Is there a rule of thumb on the number of days warning or is it totally random
    TIA

    1. George, WFC typically announces divi declaration about 2 weeks to exD date. So in about a week…But they could slap a call notice with the divi declaration also here…I bought about 6 weeks ago at $25.67…I sold early last week at 26.04. I try not to get to greedy on these types. I got plus 35 cents holding a slug for a month. BAC just called their old 8% private placement issues last month and a slew of trust preferreds a week or two ago. The heat in the kitchen is to hot for me to reenter at current price. If it was down in $25.60s again, I would make one last gun slinging battle with it though.

      1. This call risk feature is hard to navigate. Why some get called and others don’t is a black box in some cases it seems. Some are high probability like this WFC-J but some of these UTE that have gone years past call dates and never call them is a tricky one. If one buys several dollars above it could be a nasty hit

        1. Some times you can gleen info to guide your guessing, George in SEC filings and conference call. The Entergy Arkansas preferreds being called an issuing debt is not a surprise, as they did the same exact thing with their 6.08% and 6.45% preferreds last year. …I dont make a point of buying past call $2 and above par issues unless its a quick in and out game like I did with MER-P.
          Im kind of odd. I like mixture in risk, yield, and quality. I got a little overexposed in higher risk as my low yielders I flipped to much and forgot to get back in them. Then when my water preferreds got called, I really had to face the facts I was drifting totally away from my strategy, so it was a wake up call….Tim got me over 40k in good safe timeout Entergy Ark preferreds so that helped near term…But I bought the IPWLK yesterday and 200 shares of MP-D today. No illusion of cap gains here, it may in fact drop, but its at its low end and has a strong price history even during the crisis. Vogtle is getting put behind it, and Moodys upgraded them to credit positive now, so the worst is behind it. I want to make one more of these type of purchases to balance myself out so I can go back to focus on flipping and buying the other crap, lol..

  12. MBRRP. I looked it up in several places and talk about OBSCURE. I can’t even find the DIVVY and yield info on this one. I won’t even hope to add that to my collection. Some holder should die one day and the estate will sell some. I can’t even believe it hasn’t traded in over 25 years . How is that even possible.

    1. It is a 4%, $100 par preferred. It pays $2 every 6 months…End of November and end of May it goes exD. Issued in the 1890s. If you google “MBRRP, TD Ameritrade, the TD Ameritrade will show its exD dates. I somehow found a couple years ago its last trade price in 1992. I emailed Norfolk Southern investor relations and they wouldnt even respond to my question about it. They might not even know, it exists, lol.

      1. Do you know the story on CTPPO Something funky I can’t figure out, and you seem to know every store out there !!

        1. Yes, I have owned it also…But when someone wanted to pay $10 more than I bought at I let them have it! High quality and uncallable…Had a voluntary way above call tender that most people accepted. There are about 2000 shares left drifting in the wind. Iberdrola the now parent holds the majority of the shares.
          See they do this for control…These old preferreds have tremendous power. If dividend was ever suspended for a couple of payments the preferreds get total control of subsidiary (Central Maine). So EAS (now Iberdrola) was not going to retire the preferreds they bought…They own and control the ones they bought out…It they retired them, that meant 2000 shares of an obscure preferred could in theory control an entire board of directors. So if I owned 1001 shares of CTPPO and EAS had retired the ones they retired, and a dividend was suspended….I could control a multi hundred million plus dollar company by owning a puny $100,000 worth of a preferred stock if they ever suspended the dividend….Amazing huh? So they aint letting that happen. So they own th majority of the preferreds themselves…This is normal with old float preferreds that were issued mon callable.

          1. WOW. What a story indeed and I somehow figured you would know the history. I guess this will never trade again. My broker screen had warnings about even buying the thing, something about potential SEC violations, etc.
            You could write a history book with Pfds as the characters, wild stuff…

          2. George it is about as safe as a preferred can ever be, CTPPO. The reason why they say that is because the company doesnt report SEC filings anymore. It became a subsidiary and then merged into another subsidiary. But Central Maine (the old name I still use) is a highly profitable company, a monopoly and regulated profits. The preferred payments are literally a blip on the screen. The finances of the company are merged into another and buried into the holding company. But the parent makes SEC filings though. CTPPO generally trades a couple times a year maybe 200 shares total…Market maker has one share currently available at $175 if you are interested, lol…

          3. Grid
            Feel free to contact me off board if you ever have an illiquid deal, or otherwise and you’re done buying and there are still leftovers. I plan to have an eclectic portfolio built someday as well, and I trend towards the safer stuff.
            Appreciate again the heads up on that IPWLK
            gam_65@yahoo.com

          4. Granted some of the preferreds you are talking about were created before I was born… in general, preferreds have no voting rights and little or no power. You would think that it would be impossible for people that own preferred stocks to control, regulate, and make decisions for a company. Usually the members of the board and the common stock holders have power in a company.

          5. Yes, Mr. Lucky, I doubt any preferred issued in the past 80 years have that authority. Know keep in mind when I said control, that didnt mean directly, it meant they got to vote in the Board of Directors, which is essentially the same thing. But as I mentioned it wont happen because any old non callable preferred I know, the parent has the majority of the preferreds themselves. And of course also no preferreds are issued non callable anymore. I own FIISO issued in 1998 as uncallable, but it is a special circumstance. Though some busted convertibles wind up appearing non callable as the strike price may be decades away.
            My CTWSO which was called a week ago, actually had voting rights along with the commons. It was issued in 1956. In studying the genesis of preferreds one would find they were considerbly more powerful many years ago..One can just see by the call prices…Generally 2% -10% higher than par which is the typical call price now. The trend over the past few decades is to make their protections weaker and weaker. At best anymore, a suspended dividend of a year might net you a vote to seat a token 2 additional people on a bloated BoD. Hardly any influence.

  13. Useless but interesting to me….Entergy called the 6.08% and 6.45% preferreds back in Sept. 2016 according to Quantum. Part of proceeds from that bond to redeem those preferreds were 40 year mortgage bonds. The final terms of that bond issued was Aug. 9 2016. Final terms of this new issued bond were issued this month to redeem the rest. So I suspect these will follow past protocal and redeem them by at least next divi payment date.

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