Franklin Resources to Delist Legg Mason Baby Bonds

Pointed out by mcg this morning.

Legg Mason which is an investment grade financial firm has been bought by ‘A’ rated giant investment manager Franklin Resources (BEN). The deal was closed last Friday.

BEN has announced that they will be ‘delisting’ 2 issues of baby bonds that Legg Mason has outstanding. Investors are not fond of delisted securities. The last trading day will be 8/20/2020

While Legg Mason was split investment grade, Franklin Resources has been rated A+ by Standard and Poors until recently being lowered to A. Obviously a very strong company.

The 2 Legg Mason baby bonds outstanding can be see here.

I note that Legg Mason has an older 6.375% baby bond which tumbled on the delisting news–from $26.08 down to $24.88, but now at $25.25. This baby bond is callable beginning 3/15/2021–IT HIGHLY LIKELY WILL BE CALLED AT THAT TIME.

The other baby bond outstanding with a coupon of 5.45% may well be called when 9/15/2021 (1st call date) rolls around.

I purchased a small position in the 6.375% baby bonds and may add to the position in the next 2 weeks–depending on whether folks drive the price down with selling.

33 thoughts on “Franklin Resources to Delist Legg Mason Baby Bonds”

  1. If BEN’s senior unsecured debt is rated A, would it be safe to assume that a preferred stock/baby bond issued by BEN would be rated BBB+?

    1. This from Zacks:
      “Notably, Legg Mason’s legacy debts are outstanding and treated as obligations of the merger subsidiary but Franklin will not be the guarantor.”

      Anyone know what this means?

      1. This is typical. Franklin isn’t assuming repayment for the debt, it is stuck in the subsidiary, so any claims would be against the Legg Mason business.
        The Legg Mason bondholders can stop Franklin from wrecking the LM business

  2. I wouldn’t rush into buying them just yet… if they go OTC there is going to be a ton of selling by ETFs and mutual funds. I

    1. VJ, as an anecdotal footnote. I had a MB Financial 6% preferred a couple years ago buying around $24 on sell off news. Dragged a few others kicking and screaming with me on another site. It dropped a couple bucks and bottomed out within a few days of announcement. Then it was delisted and disappeared for around a month. People were ready to hang me as they didnt know what the hell was going on. I told them relax as 5th/3rd aint screwing anyone over. Anyways a month later first trade on OTC was right around $26 and it never looked back and distributed a dividend in the same time period also. Maybe hard to get a great deal with yield chase going on. Who knows. If it does drop a lot I may venture in myself also. But not presently looking though. Dang, I just talked about banks again…

      1. Gridbird, I hear you. In fact I owned few hundred shares of MBFI myself. I am just saying the selling pressure from big shareholders can drag these down couple dollars before they bounce back. I am going to keep an eye on these and wait for volume to kick in. PFF alone has 750K shares of LMHA and 1.5M shares of LMHB that they need to sell.

          1. Like clockwork. Surprised the price didn’t tank more, but the demand for this coupon in comparison to other income options made it easy to sell.
            LMICL
            8/31/2020
            Volume 1,616,448
            Avg. Volume 29,175
            LMIBL
            Volume 3,205,226
            Avg. Volume 122,900

            1. They sold some to me. LMICL for some short term money. And if it ends up being long term it’s much better than B.

    2. Where the heck was the sell off? Wasn’t today supposed to be the last day of trading?

      I bought some LMHB on 8/3 for right around par. Kicking myself for not getting more.

  3. Help, please. I have some LMHB. What kind of market is there for it after delisting on 8/20? Will I still be able to sell it, and if so, how? As you can tell, this is new to me. Thanks.

    1. Too early to tell. They delisted from the NYSE, but could re-list on a different exchange, like the OTC.
      If they don’t, you would need to call your broker and sell it through the bond desk. It depends on your time horizon.
      If it falls way below par, a lot of people won’t care about the delisting, as they will just hold it until it is redeemed.

    2. Wilson–with what we know today it will be called in March–otherwise Justin covered the possibilities.

      1. Unless it’s mentioned in the merger agreement, there is no “it will be called in March”, is there? Here is exactly what they said…

        For Immediate ReleaseContact:Alan Magleby410-454-5246afmagleby@leggmason.comLegg Mason, Inc. Announces Intent to Delist Junior Subordinated Notes from NYSEBaltimore, Maryland – July 31, 2020 – Legg Mason, Inc. (the “Company”) today announced that following the completion of its previously announced merger with Alpha Sub, Inc. (“Merger Sub”), a wholly owned subsidiary of Franklin Resources, Inc. (“Franklin Templeton”), the Company has notified the New York Stock Exchange (“NYSE”) of its intention to delist its 6.375% Junior Subordinated Notes due 2056 (NYSE: LMHA) and 5.45% Junior Subordinated Notes due 2056 (NYSE: LMHB) (collectively, the “Junior Notes”), as well as to deregister the Junior Notes from registration with the Securities and Exchange Commission (the “SEC”). The Company has not made, and does not intend to make, arrangements for the listing and/or registration of the Junior Notes on another national securities exchange or for quotation on another medium. These actions do not affect the terms of the Junior Notes. The last day of trading of the Junior Notes is expected to be August 20, 2020.As previously announced, on February 17, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Franklin Templeton and Merger Sub, pursuant to which Franklin Templeton acquired the Company on July 31, 2020. The Company has decided to delist the Junior Notes in connection with the closing of the transactions pursuant to the Merger Agreement.

        1. Affinity4Investing, people are just assuming it will be called based on the yields being above market for BEN. No one is implying that it’s guaranteed.

      2. Do they have the same obligations to the holders as they did when they were listed? Meaning paying the dividend on the same dates? While they are delisted are they held in the brokerage account where they were listed in. Finally could this be a special circumstance where they could defer payments?

        1. Yes, everything remains the same, and deferral of the interest payment would lead to other things like suspension of the common dividend, so it is EXTREMELY unlikely.

      3. Also, PFF publishes their holdings each Friday night, so we should know if PFF has started selling it this weekend. As of last week, they owned 1.5 million shares of one and 750,000 of the other.

            1. That was their portfolio as of fridays close, sometime tonight or tmrw am they’ll publish portfolio as of monday close

              1. Well it wasn’t them. the position is about identical as last Friday.
                but i did find out that the portfolio composition links are static for all their ETF’s, so If I ever wanted to code a little program that would look for changes, all you need are their fund code number and the ticker symbol.

  4. Thanks Tim! I just picked up some of the 5.45% at $24.8, yield to first call roughly 5.96%. (the higher coupon was too far over par right now). Hard to find that kind of yield at this quality these days.

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