Illiquid Securities

On this page folks should comment and write about illiquid securities–preferreds and baby bonds. By Illiquid I am talking about those issues that seldom trade–or only trade in very small volumes.

We have a lot of discussion on the site about these types of securities–normally $50 and $100/shares issues and the commenting gets scattered about–by using this page we can keep this topic more centralized.

A caution to all investors, but in particular those will little experience in illiquid securities. Tight limits must be used on all of these securities–if you don’t use limits you will butchered. Also while some of these issues have been outstanding for more than 50 years they can still be called–it happens and if you overpay (pay more than liquidation price) you may be setting yourself up for a loss. Always do your own due diligence–always double check the facts–everyone makes errors (certainly I do) and you need to know the facts.

Investors should know that illiquid securities will drop like a rock if there is a large move higher in interest rates. One of my current and long time holdings has been a $50/share issue from CEF Tricontinental (TY-P or TY-) with a 5% coupon–very high quality. This issue is now trading around $56, but in its life (issued in 1963) it has traded as low at $18/share–so there should be no doubt they can move sharply.

571 thoughts on “Illiquid Securities”

  1. Question for Gridbird – do you have thoughts on SBNCM? I see the ask is $15 currently. Is it uncallable?

    1. Dick, just my thoughts only. Those shares have been sitting there for the taking for a couple weeks. Thats 6%, largely uncallable. The bank is very solid so payment isnt an issue. There are a lot of bank issues however near that mark or better so you really arent stealing yield there now. It was a convertible that long ago expired and is supposed to be uncallable. However they forced some shareholders into a redemption maybe 10 years ago or so to get the number of shareholders under the limit to go dark which they accomplished. However, they did treat shareholders well, giving them something near this price 10 years ago.

  2. The mystery concerning small trades in BACRP continues. Posts here collectively wondered why shares were trading at 2.5% yields. As background, this 7% nonredeemable B of A issue was trading in a range of about 130 to 180. Late last year, it bolted to the 200 to 280 range. Today there are trades at yields of 1.9%. In a call to B of A investor services, two reps knew nothing about the issue or price action. I have no shares left but remain curious about why this issue is trading at such high prices. The only theory I’ve read that makes a little sense is that B of A wants to retire the 7,000 shares outstanding (with voting rights!). But, it seems to me, they could have successfully advanced a tender at, say $200 per share. Any of you sluths have an idea what’s going on?

    1. Setting up a tender would probably cost more then just setting a bid of 280 and leaving it there for 12 months for 7000 shares. It has to be the bank doing it. Only thing that makes sense.

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