High Quality Baby Bond From Affiliated Managers Now Trading

As noted by some participants on the website, the new baby bond issue from Affiliated Managers Group (NYSE:AMG) is now trading on the NYSE under ticker MGR.

This 5.875% issue is strongly investment grade–a couple notches higher in rating than the recent baby bonds issued by NextEra Energy and Duke Energy.

This issue is trading kind of soft for an issue with this particular coupon (5.875%) as it is now trading in the $24.80 area. Likely the weakness is because the issue is 12-13 million shares counting the over allotment. Given the coupon (for a strongly investment grade issue) we would think these shares should move higher when the shares get sopped up.

We have purchased a position in this issue (although we are not recommending folks do so since we never recommend).

Further details of this issue can be seen here.

Thanks to Jeff for noting this issue trading.

23 thoughts on “High Quality Baby Bond From Affiliated Managers Now Trading”

  1. I have a newbie question. What is the simplest method of obtaining a list of preferreds/etds that report on Schedule K-1?

    1. Mikeo, all exchange traded debt (ETD) by its very nature will no have a K-1 because it is a debt instrument. Even if issued by a MLP. Take NuStar (NS) as an example… Its preferreds such as NS-A will issue a K-1. Its baby bond, junior subordinate debt issue, NSS, is a debt instrument and no K-1 is issued.

      1. Thanks Grid. I realized after posting that debt issues would be a 1099. So is there a single source for preferreds that report on K-1? Mike

        1. Mike, I knew that question was coming, lol.. Because I cannot answer it! If one interests you and its an MLP it will be a K-1. Quantum will usually put in prospectus summary if its K-1. The link to prospectus on Quantum will disclose K-1 status. No C-Corp will issue a K-1.
          Sorry I cannot answer specific question.

          1. Some questions have no simple answer. πŸ˜‰

            Appreciate all you do for others here, Grid. You have been key in my development as an income investor. Mike

            1. mikeo–if it is a MLP or LP it will likely report on a K-1. Most of the ship owning MLPs have started being taxed as a C-corp (at the corporate level)–thus they report to you on a 1099 (this is an exception to other MLPs)

              A good rule of thumb it to watch for Master limited Partnerships (MLP) and limited partnerships (LP)

              But you gave me an idea for a new field on the security page–I will get something added soon in this regards.

        2. Mike,
          The most used joint to visit is taxpackagesupport.com

          Most who own MLP’s and get K-1’s – will go here to get their forms.

        3. I have seen this info in the body of info at QO oftentimes. QO also usually links to Prospectus, click it open and ControlF (find) “K-1”, enter. will highlight the desired search usually in yellow and scan the document, usually a quick method.
          The Home sites are usually good too. News headers regarding previous history of dividends declarations area.
          JA

  2. Even though MGR is high quality, won’t most if not all baby bonds with very long maturities fall in the next market pullback. Why not wait?

    1. Hi Alan—we haven’t normally bought long maturity stuff–it has a high degree of interest rate risk if rates move higher. The problem with waiting is you have no idea of how long the wait may be.

      We took a full position and likely will off load 1/2 if we get a good rise in price and then will hold the balance.

      1. Tim, I see someone else likes that little trick to. Is it in some investing book somewhere (the buy a lot and sell half of it at a hopeful profit trick) that I read and dont remember….Or is it some pseudo feel good made up strategy with no logic behind it at all? πŸ™‚

      2. Thanks for the explanation, Tim. I made my first purchase of baby bonds and preferreds in Nov-Dec so probably got a little spoiled. I’ll still wait awhile on the long maturities for now.

  3. Apparently the dividend can be deferred for up to 20 quarters. My guess is that’s why it’s trading under par. Thoughts?

    1. Standard language, doesn’t scare me in the least.

      I would think this should trade over $25 fairly quickly.

    2. Hi Franklin,
      Apparently this a common clause and past comments by others much more experienced than I seem to show limited concern about the clause if the fundamentals of the issuer are sound. As stated above by Tim, this is a huge issue of over 12 million shares which likely accounts for the subdued price at this point.

    3. Franklin–that is a factor, but that clause is in all the recently issued utility issues as well.

      1. Thanks Tim (and others). As always this site is a wealth of knowledge — and the people here are not only knowledgeable but also extremely helpful. Pretty rare these days, that’s for sure.

    4. Here’s the wording in the prospectus:
      “We may defer interest payments on the Notes on one or more occasions for up to 20 consecutive quarterly periods per deferral period as described in this prospectus supplement. Deferred interest payments will accrue additional interest at a rate equal to the interest rate then applicable to the Notes, compounded quarterly, to the extent permitted by applicable law.
      So…deferred indefinitely (one or more), cumulatively and compounded.
      Sounds like a workout provision. I think we will see more of this ‘provisioning’. Wall St is offering up fail-safes to their clients…gotta sell issues even if it packs the balance sheet.
      No other general commentary regarding over-leverage and discipline of management…Oooops….I commented, but not on this issue, just a part of the last cycle of gorge debt ruining great companies by inept board members.
      PS: I use the tactics spoken about above; buying large and selling part for a quick profit if possible. Luckily, I stepped up in Dec as I had cash and had desk time; self-directed is a chore sometimes. It’s hard to have a reliable sell limit trigger instead of a sell stop for protection with thin vol prefs, but I do like to put cash to work and hopefully have it back quickly. The 91 day holding period does impact in a taxable account.
      This last quarter has been a good time to do just that. The reconciliation with the newer, robust brokerage statements is a huge help at tax time!
      Nice crowd here! JA

      1. These issues are mostly issued by safer banks and utilities. This deferrable interest subordinated debt has been around a long long…AES-C was issued this way in 1999. AES almost went bankrupt with Enron about 4 years later and never missed a payment. It just doesnt have any impact on me.
        If things went bad anyways secured and bank debt would be piled on top anyways and crush it even if there was no deferral clause.
        I know you know this Joel, but many newbees from other sites somehow get worried about this clause, but give no concern to owning a preferred from same company.
        They dont understand the capital stack structure that ensures payment of a subordinate debt issue before a preferred can be paid, deferral clause or no deferral clause.

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