We have almost daily chaotic events in the government and interest rates which are pretty stubborn about coming down–YET equities are still near record highs. The S&P500 closed yesterday 6115–against a record close of 6128. Crazy strength given the uncertainties that surround us.
Today I will be buying a fixed rate reset preferred–one that is very likely to be called in July–thus only 2 dividend payments. The Wintrust Financial 6.875% issue (WTFCP) gets reset in July at the rate of they 5 year Treasury plus a spread of 6.507%–I don’t think there is any way that this strong banker lets the rate get reset to the 11% area–of course maybe one would be lucky and get an extra quarter of high yield. Of course this is a temporary play intended to get a slightly better return than CDs and money market.
I continue to debate with myself adding a nibble more of a fixed to floating rate mREIT preferred of which I already own numerous issues, BUT I always remain cautious about going over board on high yield–they are high yield for a reason. Earnings released from the mREIT issues have remained pretty darned good, but one knows how fast this can change. My understanding of all the moving parts of these companies is not the best–I can slice and dice the financials of General Motors, General Mills or equity REITS with the best of them, but not so with the mREITs.
I look at perpetuals and so badly want to buy some–but why? To buy more perpetuals at this time I have to be able to convince myself that there is a capital gains component–and I sure am not certain that now is the time–certainly a view that reflects my conservative nature.
Retail sales just came out and they were soft–not really a market moving number though although the 10 year Treasury is of a basis points or two at 4.49%–we’ll see if these rates can break out of the bottom at 4.40% or if we are stuck around 4.50% for the balance of the month.
Don’t forget that markets are closed on Monday for Presidents day.
SPNT-B is another short term alternative
Doubtful this resets at 5YT + 7.298 on 2/26/26
Trading just above par (ex dividend was 2/13) yielding almost 8%
BB+, QDI, Cumulative
WTFCM also looks like a short-term play for getting “better-than-CD” rates.
It floats beginning 7/15/2025 (same day as WTFCP resets or can be called) at a spread of 4.06% over 3mSOFR + 26.121 bps. I assume they replaced 3mL with 3mS but didn’t see any announcement from them.
If they do let it float, the floating coupon jumps from 6.5% to ~8.6% (based on yesterday’s 3mS rate of 4.32298%).
I get YTCs:
WTFCP = 6.30% (at 25.20 ask).
WTFCM = 6.63% (at 25.12 ask)
Bought some last year. Not now for 4 months, I already make enough trades for penny ante.
Martin, I think I understand Tim’s thoughts on this. If you go beyond just picking up pennies. You get 4% return on money in a Treasury fund or 100k for a Citi 60 day CD ( just checked for my area) in this case you’re getting a pretty safe 6% for 60 days before it’s called and it’s less investment of your capital. Then it’s also pretty much set it and forget strategy.
I don’t have 100k sitting around for that I put it into other things potentially more profitable then I have a smaller amount but I want to have it readily available for the next bargain that comes along.
Martin, same here. I’m not going to put a 100k into a CD even if I have it.
Risk wise, I could spread it out on 3 term preferred or BB paying 6%
I feel like the bank is robbing me and not even using a gun to do it.
FYI, from a technical chart perspective , if you look at a long term position chart of the SPY, say 5 years. The price is more than 2 standard deviations from the mean. Does not mean we are in a imminent danger but an extreme position price-wise as markets tend to revert back to the mean.
Even though exuberance markets can stay irrational longer than your liquidity time will tell.
Warren Buffet has a very large cash position. Something to think about.
In their Jan 22nd conference call’s Q&A, they shared their views on redeeming WTFCP and WTFCM.
Nathan Race is an analyst at Piper Sandler.
Dave Dykstra is WTFC’s Vice Chairman & COO.
Nathan Race
Right. That’s helpful. If I could just sneak one more question. I know we have some time until some of the preferred series reset or they’re callable, but would just be curious to get your updated thoughts on managing capital and just in light of potentially refinancing or redeeming some of those preferred series.
David Dykstra
Yeah. I mean they’ve — they come up for repricing in June. And given the spreads that are on those were very — if you would look today, we’ll either replace them with a new instrument that would have a tighter spread on them or just look to see what the other capital alternatives are in the market. We always do what’s most favorable on that to the shareholders.
And so we’ll look, and like you said, we have some time. Those aren’t until June, and five or six months seems like an eternity in the banking world these days. So we’ll see what happens with rates and what the markets do. But I think we like leverage in our capital stack. And so if the preferred market is open and favorable, we’d most likely would just replace them.
If CHSCL were to be called, would they need to replace those funds with another issue? At possibly a higher rate?
Richard; If CHSCL were to be called I think I can safely say it would be either a lower coupon than the 7.5% or maybe no replacement at all. On a side note CHS is expanding their grain facility in Warren, Minn. Actually going to double it in size. They are also expanding their St. Louis River Terminal.
Tim; Question for you or others. I own 11,700 shares of WTFCP. I have spoken to their CFO 3 times over the last 2 years. They do not have an I R Mgr. so he handles the calls. My question is I think its beyond obvious that they call this issue, so here’s my question–What are the chance’s they do a new issue at a lower coupon say maybe around 6 or a little higher??? I could call him but the “Pat Answer” is always the same “Well that will be up to our board”. Same answer I always get at CHSCL which now has gone well past their call date for their 7 1/2% with NO CALL. Does anyone else find it interesting that CHSCL is trading at $26.17 which to me is INSANE knowing that it can now be called at $25.
I first learned of Cenex from Lord Xot (yep that is his handle of Silicone Investor). He got in at or below par with initial issues. I subsequently read, I think from him, that since many of the investors were also the the coop’s (Cenex) owners, issues are less likely to be called. I offer fwiw.
ChuckP
At such a high price, and you seem convinced of a call, why not just sell?
Gary; I assume you are talking about CHSCL and not WTFCP which is only 18 cents over par. I will NEVER sell my CHSCL as I truly LOVE the company and everything they do. Great Company & Iam more than happy to hold it forever if they don’t call it. That 7 1/2% coupon is fantastic. Hard to find companies like this one at a decent price point. This market sucks for the fixed income investor trying to keep up with this nasty inflation.
I own a lot of CHSCN @ $25.32 and CHSCL @ $25.56. If I remember correctly, there is a much higher coupon issue that is outstanding. I would think they would call the higher issue before CHSCL. I guess they could call a bunch of them, but obviously haven’t done so to date. I’m with Chuck—I just hold them and don’t worry about them getting called.
The market never makes sense. It can keep going higher for longer even when you think it cannot.