I Bought Fortress Transportation Preferred Today

Chomping at the bit to buy “something” I took a 400 share position in the new Fortress Transportation preferred @$25.15 today. I just checked and after hours it traded up to $25.80–closed the day earlier at $25.40. I like that–sometimes better lucky than good. Get it up to the $25.80 area and I likely am gone–am too conservative to hold it long–we’ll see.

The last flip I tried was the newer New Residential 7.125% preferred (NRZ-B)–a month later I have a profit of $1.05 on 300 shares–not even a cup of coffee–oh well I guess the easy money from the 1st 6-7 months of the year are gone–now we have to actually do some work.

47 thoughts on “I Bought Fortress Transportation Preferred Today”

  1. I was on a cruise ship while Mr. McPartland found this FRTRP. Vanguard brokerage refuse to let me Sell something for me to buy asking for iPhone verification, which surely would end up with at least $100 or more on cruise ship. So, I waited until today, Monday. Sold NEE-N and NI-B in my retirement account and use the proceeds to pick up FRTRP first at $25.70 and then at $25.66. This was exactly what I did with NRZ-A, still lots of meat on the bone, as Gridbird would say. I used the remaining money buying tiny partial fill on AY (renewable, UK with Spain being possible a risk factor IMHO), plus more BEP Brookfield renewable and TERP, renewable with Brookfield bought 45% of the company. I was too gun shy to buy more or back on IRA holdings on PEGI. There is no certainty that Brookfield’s intent to buy Pattern Energy with its sponsor a LP called Pattern Energy Partnership. Thank you so much Mr. Tim McPartland for your keen eyes and mind. It is perhaps late better than never, similar to NRZ-A. My NRZ-B bought too early and paid a little too much is above water. Should be okay. joh

    1. johnkcal–see what happens when you relax too much–instead of being glued to your computer–oh well I would rather be on a cruise ship.

  2. Tim – I bought huge lots of NRZ-B at par in multiple accounts to hold as my new “aggressive sweep account fund” in all my brokerage accounts. Given the large share issuance of NRZ-B, and the fact it came so soon after NRZ-A, my hunch was retail investors “filled up” on the A issue which left them little appetite for the B issue. So I expect the B issue to hold steady around par – at least for awhile.

    Maybe if the Fed stays on a rate cutting path this issue will bump up to a higher level.

    I did flip the A issue for a nice profit a while back and also own lots of NRZ itself BTW.

    1. A sweep account making 7+% is nice. Do you expect the price to hold up in an ugly market?

      1. Bob in DE,

        You would have to give me your definition of an “ugly market” in order to give you a difinitive answer. That said, in the current race to the bottom in rates by central banks everywhere, anything with yield talked about on this board will hold up well, price wise.

        Another “December to Remember” like in 2018? Definitely a temporary pullback for sure, but no chance of dividend being suspended in my view. That is key. If a preferred keeps paying, it will provide price support at some level.
        Just closed all my Vanguard money market accounts as yields will continue to drop with Fed rate cuts. $$ moving into NRZ-B. Keep in mind I am as aggressive as Lord Xot and use margin heavily, so proceed with caution on anything I post. Reader beware!

        1. Quick–I don’t think you have to worry about me following you into NRZ-B–way beyond my risk tolerance–but as always to each their own-whatever works for you. My minor NRZ-B position is plenty for me.

        2. Thanks for the reply. “Ugly”, to me, is at least the December, 2018 plunge, or just as low but longer.

          I like the concept of aggressive cash subs. I have several that I own and use as such. Would not have thought to use NRZ-B, but I will look at it.

          My concern with cash subs is that if we did get a repeat of late 2016, and all my cash subs tanked, I would have a hard time buying all the bargains that came available. I was flush with cash going into last December and benefited considerably from the ability to buy heavily.

          If you use margin, I know it’s not at Vanguard. Their margin rates are very high, clearly they are not encouraging it. IBK perhaps?

  3. Well done on FRTRP Tim !
    I got in at $24.96 thanks to you making all of us aware of the OTC possibility.
    I can understand a quick flip if this hits $26, nice 4%+ gain BUT I wonder if this one deserves a closer look as a HOLD. Given the 8.250% coupon and attractive LIBOR + 6.886% on 9/15/24 it would seem to carry high risk but
    I did a quick review and see a $1.3B market cap, an 8.9% common dividend that will protect the Preferred and their 2025 6.5% Bonds are trading above Par with a 5.7% YTM. Moody’s affirmed their B1 rating with a POSITIVE outlook on 2/1/19. Also, I use the Kamakura Risk Information Services (KRIS) system to evaluate company / bond risk as a supplement to Moody’s and S&P, KRIS rates FTAI as BB- and assigns a 1 year default probability of 0.32% and a 60 month (9/15/24 call date) cumulative default probability of 6.87%. for comparison PSEC (which you give a B rating) has a one year default value of 0.47% and a 60 month cumulative default value of 6.20%. Finally, I reviewed their last earnings call transcript (8/2/19) and they announced their 32nd consecutive dividend and the most profitable quarter in their history in terms of Net Income and adjusted EBITDA. They have a nice mix of businesses between Equipment Leasing and Infrastructure with Aviation Leasing providing the majority of EBITDA and Funds Available for Distribution. I intend to HOLD a slightly underweight position of 0.8750% of my Fixed Income Portfolio. FYI – 1.25% would be a full position for me. I hope this helps and as always I encourage others to perform their own due dilligence before buying.

    1. Good summary and analysis Gary. I agree with you, Fortress is a pretty solid and growing company and there is a measure of protection with the common dividend.

      I too bought a position just slightly below par yesterday and plan on holding. Unlikely to see many issues with 8.25% yields being issued when we are getting sorry 5% issues coming out. This Fortis issue quite frankly IMo was mis-priced given the company is not that well known. It reminds me of when GLP-a was issued

    2. 6.87 cumulative default probability sounds high, but maybe I don’t understand exactly what that means. What is the definition of that term?

        1. Mikeo,
          Kamakura competes with Moody’s and S&P to provide a more timely and data driven rating. Moody’s default numbers are calculated very differently.
          At the end of the day, everything is just another data point for us to try and figure out the risk level we are comfortable with.

      1. xwords59 – cumulative default probability is the sum of the annual default probabilities for the duration of the bond / preferred. Since there is no maturity date I used the call date which is 60 months away. Keeping in mind that this is a B1 rated company, 6.87% is a reasonable number. I think the best way to evaluate it is against other companies that perhaps you already hold or are more knowledgeable about. That’s why I used PSEC in the example as Tim gives that a B rating on his scale. Hope this helps.

        1. Mikeo – I took a quick look at it and I need to review it in more depth. While it looks very complicated, I think it basically is what we think it is — namely the expected default probablity of a bond or a preferred over a period of time is based on the previous default history of similar investments. I am surprised it is that high, but that is what it is. With that level of risk, is the 8.25% offered by Fortress enough? That is assuming the B1 rating quoted by Gary is accurate.

          1. Gary and xwords, You might find this a useful resource: http://www.spglobal.com/ratingsdirect

            see page 60. B1 equates to B+. 5-year default rate is 14.15%. Ignoring time value, a back-of-envelope risk-adjusted 8.25% yield equates to a non-compounded rate of 4.26%.

            It’s also probably worth factoring in that default rates have been lower than average over the last ten years or so due to the long economic expansion. This would have had the effect of lowering the posted 20-year average default rate. For that reason, the posted rates might be prove to be conservative going forward.

  4. Tim – think you’ve been hanging around gridbird too long. You used to be buy and hold. 🙂

    1. Its called “Daily Positioning”. I think I read about it somewhere, lol…Actually things have tightened up quite a lot lately. I got all of my flipping money sitting in VER-F and PPX, until some old illiquid drops a bit or until they get redeemed.
      Actually spending more time getting my NHL season point total investments planned out. My 2 NFL investments are off to a good start. Cowboys (8.5 ovr) and Titans (split on 7.5 over and 8 over plus odds) both won yesterday.

  5. Totally missed this one Tim. Didn’t hear about until after the close. If it corrects, I’ll be a buyer as well.

  6. I’m with you on NRZ-B. It’s a reasonable hold, I’m just not comfortable with the amount of it I’m holding. Sold some at 25.19 I happened to be watching when it blipped and also when it dipped to 24.82 so I have something to show for it.
    I understand the buying compulsion I bought COFOL to flip despite the ridiculous low yield. Pondered taking my .12 profit today then held out for more.

  7. Tim, I’m up a whopping $6.65 on my NRZ/B purchase. Maybe we can put our profits together and get a tuna sandwich or something.

    1. Ken–doesn’t look like we are going to even get a steak dinner out of it–maybe the tuna, but as long as I am green (or near green) I can be patient.

  8. So FTAI may look like Frankenstein but it has a UBS, Blackrock, Lehman, and Goldman Sachs alumnus brain. Ironically FTAI has the exact same brain that NRZ has.

        1. Fortress Investment Group is an asset manager. Fortress Transortation is an infrastructure operation. The only thing that is the same is the first name as they are two separate entities. Hope this helps.

          1. Fortress Transport is indirectly managed by Fortress Investments.

            To my eye, FT one of those conflict-filled companies run more for the benefit of the manager/general partner than the LP unit owners. Manager is well paid whether you make any money or not. As a rule, I don’t invest in such companies.

            I did read through the SEC materials.

            1. (right Bob in De… and then of course Softbank owns FIG now.. know what you own!! )

              About Fortress Transportation & Infrastructure LLC

              Fortress Transportation and Infrastructure LLC (NYSE : “FTAI” or the “Company”) is a Limited Liability Company in the FIG Private Equity business which focuses on purchasing assets that are essential to the transport of goods and people globally. FTAI’s strategy is to acquire assets and lease them to major operators of transportation and infrastructure networks. The fund will also focus on equity investments, acquisitions, and other investment opportunities. FTAI will invest across all sectors (aviation, energy, intermodal transport and rail.) and asset types with the goal of generating total returns of 15% to 25% using reasonable leverage. FTAI went public on the New York Stock Exchange and raised total proceeds of over $350 million with additional offerings over the last couple of years. The Company will seek additional follow-on equity offerings or long term financings to fund the Company’s growth strategy. The Company’s long-term plan is to grow the portfolio significantly over the coming years.

              1. Reading further …..

                Pursuant to a management agreement, we are externally managed and advised by our Manager, an affiliate of Fortress
                Investment Group LLC (“Fortress”). Fortress is a leading global investment management firm with approximately $70 billion of
                assets under management as of December 31, 2016, which has a dedicated team of experienced professionals focused on the
                acquisition of transportation and infrastructure assets since 2002.

  9. Congrats, Tim…. I keep wanting to join the frenzy on any and every new issue that comes to market no matter the price, but I find an excuse not to everytime… It’s just not my game I guess… was going to try on ETREP but forgot about it when I couldn’t enter a bid (any bid) premarket… Still only finding reasons to sell, not buy with last issue being HGH. I bot it about a year ago at 4.50% yield to call with assumption that it will be called on first call date in ’22 because of the huge premium to Libor associated with it (5.596 pts). I sold most of it this week at 1.75% YTC, figuring I had to be able to do better than that in a replacement and yet HGH is still a coupla pennies higher than I sold it…. I can’t understand under what basis people are buying it at this price – is it current yield with its 7 7/8% coupon and Baa2/BBB- ratings???

    1. Good for you! Better to keep rolling 90-day CDs, and wait for better days, than buy (or hold) 1.75 YTC.

      1. There are several really good CEF’s available that have paid a constant distribution for 20 -25 years and who’s NAV over that time period is positive. The name of this site is “Innovative Income”. Does that limit the possible investment options to Preferred and Baby Bond issues ?

        Example: many of the utility based CEF issues have long track records of steady distributions with solid yields and increasing NAV’s. UTG, GLU, DNP to name three. The plus side of these investments is they carry no call risk like a preferred does.

        1. Retired, I’ve been looking at CEFs and particularly those in the utility and real estate sectors. While several have impressive fundamentals and no call risk as you stated I find the funds expense ratios off-putting in most cases. For instance DNP has a Total Expense Ratio for 2018 of 2.31%. Should I pay more attention to total returns and less to expenses?

          1. Milko
            In looking at expense ratios do not forget to add both the management fee and any charges for leverage. Since we seem to be in a low for longer interest rate situation, leverage expenses will go down not up. Also when you look at total returns, these are after expenses. In my view what is important is what is in my pocket.
            FTAI and NRZ both were spinouts from Fortress and both have very smart ceos. I personally think NRZ’s ceo is the better of the two but the FTAI guy is not shabby and worked in aircraft leasing prior to starting FTAI. SC

          2. Looking at total expense ratio is not the way to go. FYI, that ratio is usually expressed at a percentage of net assets, which makes no sense. For an income oriented CEF one needs to separately calculate (all) management and administrative expenses and express that as a % of total assets.

            Then, calculate the cost of leverage as a % of total leverage expressed in $.

            You actually need to do a little spread sheet for each fund to see if the management is “paying for itself” or not. They pay for themselves 1) by superior investment selection, and 2) with leverage, gaining the spread between fund returns and leverage costs. Borrow at 3, invest at 5.

            If I have time this week I will post a link to an example. These are all numbers one has to get right from the funds accounts, not CEFDATA or other source.

            The proper analysis of CEFs is much more complex and time consuming than individual securities, but then one can own far fewer CEFs than individual issues to get a good, well-diversified portfolio.

            That said, DNP is a wonderful fund, at the right price. It’s nowhere near the right price now. It’s terribly overpriced, like all income investment these days. it’s trading near the top of its range.

            1. Many utilities are over priced and so are the CEF’s that invest in them, but it’s hard to argue with the consistent returns. It’s kind of like buying any of the busted preferred issues like WFC-L and BAC-L. Consistent returns but overpriced.

              As for the expense charges, I agree with SC. How much are they paying me? What’s going into my pocket?

              The example of DNP was sited. It’s paid out the same distribution for decades. Isn’t that all that matters if your a true income investor ? It doesn’t hurt that the NAV has also increased but that’s not the goal of a true income investor. Just keep paying me like a preferred issue would. Many comments here suggest that paying over par for a preferred issue is common place. Example: Grid’s AILLL. Solid issue from a solid issuer, over par, perceived that it won’t be called but has call risk nonetheless.

              I would personally overpay for DNP at this time rather than taking a position in AILLL if I had to choose. A DNP purchase at this price is more akin to choosing to take a position in busted noncallable WFC-L or BAC-L only you’ll get a better yield.

              Looking forward to Bob-in-DE analysis.

              1. Thanks SC, Bob, and Retired. I’m a noob with CEFs just like I was with preferreds 9 months ago. Bob, that spreadsheet could be a big help.

              2. Retired, I dont blame you for your reasoned response. Very logical. Of course nothing as you know is an all or nothing proposition as far as owning anything goes. Im not going to own 5000 shares of AILLL at this stage so I wont ever be over exposed. But I kind of have a strategy already set up that I believe to provide me a reasonable opportunity to get out of the door first without a huge call loss. Its worked before on a few issues like this, so I feel like I can use it again.
                I think funds are a very sound option. My preference is to eat my own cooking though. It has worked well so far. But tomorrow is always a new day and results may change.

          3. With DNP and the like, one would be doing themselves a favor to checkout the amount of those fat payments that are made-up with ROC. DNP frequently does ROC from what I’ve seen. Been awhile since I’ve been in this name, but if this is destructive ROC, your income is not what you think it is from this CEF.

            1. DNP invest mostly in investment grade public utilities but has the option to invest some funds in non public utilities including MLP structured companies.

              In reviewing the April 2019 Semi-Annual report and the list of fund investments, the fund held several Limited Partnerships investments. That’s likely your source of ROC. Not destructive.

              I own 1100 shares of DNP, 1000 of GLU, 500 of UTG. The share price fluctuates just like a preferred but the income is solid, dependable, noncallable and that’s what I’m interested in.

              1. Thanks Retired. The never ending game of ‘destructive ROC’ versus ‘non-destructive ROC’ is always present. I used to hold both DNP and UTG but exited both. Playing the game with UTF and ETY/ETO.

                1. Afinity
                  for what it is worth, agree that the standout is probably utf. selling slightly below nav and with a higher yield than UTG, UTF’s total return has been very strong though it far from covers it’s payout. Given that the underlying assets are probably likely to continue to appreciate, not sure that this is a major concern. Good luck SC

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