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.

658 thoughts on “Illiquid Securities”

  1. Some UEPEN shares have moved recently. I picked up a small number this week at $68. A nice 5.15% yield there.

  2. Anyone have any thoughts on how CKNQP is trading these days?
    Am I crazy to think this is a highly probable security to get called at $100 on 1/1/25 that effectively makes it over 10% YTC return for 1.5 years, or it doesn’t get called and the floating coupon goes over 9% again giving you a current yield near 10%? Considering CoBank recently retired two preferred securities with 6% handles, I’m struggling to figure out why anyone is selling this at these prices with such a short runway left. Thoughts appreciated.

    1. NC, exactly. CKNQP is 4% of my portfolio. I think its a case of a baby being thrown out with the bathwater: “bank = sell” in spite of Co-bank’s very “sticky” deposits, good balance sheet and operating performance. I have another stink bid in the 93’s.

      1. GR, They are very sticky because they really dont even have any, in the traditional sense. The biggest risk to this issue is largely LIBOR (SOFR) collapsing over time. But its adjustment plus being under par effectively makes it 4% which is a very good relative base.

          1. I won’t argue against any of your or GridBird’s points, but TBH I was hoping for someone to give me some pushback! 🙂 It’s not even a traditional bank with risk of deposit issues at all. In general it always seems like issues don’t react to the the YTC risk until about 12 months out, so perhaps that’s also the answer here and when the calendar turns it will start to reflect that. Thanks for your perspectives.

            1. Well on Quntum online it says non cumulative and perpetual so there is a 50/50 chance come 1/25 it falls below the 6.2 % return. Does Co-bank offer other series of preferred?

              1. They recently called in two other ones with 6+% coupons. That’s why I think this has such a high probably of getting called on 1/1/25. The FCS Reserve banks like CoBank and AgriBank are unique entities as well.
                Btw, I was able to buy some on the open at 94, but someone with size is jumping the balance now with a 94.65 bid.

              2. I don’t get your logic, Charles… How does being non-cumulative and perpetual make the odds of it falling below 6.20% return on 1/25 50/50? Wouldn’t that be entirely dependent on where 3 mo LIBOR or its equivalent is on 1/25?

                1. Nothing can be assumed. Certainly not a redemption on call date. Remember that one fixed rate CoBank issue that was plus 6% and hung around for several years before they called it. Even when banks were issuing preferreds considerably lower. We used that one as a call anchored issue for a long time.

            2. I probably pipe up on this too often (and Grid has heard it a dozen times), but if you are going to buy Cobank preferreds, make sure you have a “thorough” conversation with your broker.

              For many Cobank issues, Schwab will let you buy them, but won’t let you sell them. Sounds crazy, but it is true. I got caught up in it once, and almost got caught again (I had to really push to get a clear answer). Not a problem if you intend to hold until redemption (which may be years after first call date), but you should be aware.

              Basically, they say that if you want to sell, you have to go find an accredited investor who is willing to buy (on your own), then they will facilitate the sale to that person. Where in the hell am I supposed to find an individual investor to buy?

              Schwab doesn’t have the same restriction on all Cobank issues, or on other ag bank issues. Its just bizarre. I

              know other brokers don’t have the same silliness, so this may not affect you.

              1. Private—I got the same runaround from Schwab and just decided it wasn’t worth the hassle to buy this Cobank issue. Plus, the bond desk will not work very diligently to find any offerings.

              2. Private and Randy, Vanguard did that to me with a CoBank issue when they allowed OTC trading. They told me I had to sell it immediately. Well the bid ask spread was about $3 and I told them to pound sand and get their forks and knives out and eat this one at my purchase price since they allowed the trade. They accepted my terms so that ended that.

                1. GRJ – Schwab will let you buy, but won’t let you sell.
                  have you been able to sell at FIDO?

    2. I requested a copy of the prospectus for CKNQP. See below for an excerpt re LIBOR. Seems like this one should be a fixed to float that will actually float someday if not called.

      “If no such quotations are available or if CoBank determines there are no suitable banks that are prepared to provide such quotations, CoBank will determine 3-Month USD LIBOR for such Dividend Period in a manner that it deems commercially reasonable by reference to such additional resources as it deems appropriate.”

  3. 300 shares of GMLPF traded today at $13.61. I have a GTC buy order for 100 $16.05 that was not filled. Fidelity said my order is still open but the 300 share order was filled using a different “channel” and may have been an older trade. Seems like the Wild West.

    1. George, here is this morning’s tape for GMLPF (from IBKR) –

      IBKR uses the OTC Link ECN as their data source & execution venue for OTC Expert Market trades. The $13.61 trade appears to have executed on the OTC Link ECN, since it shows on the tape as the best bid at the time of trade execution.

      Wherever Fidelity sent your limit order, they did not send it to the OTC Link ECN (as your order does not appear as the best bid there).

      It’s possible Fidelity sent your limit order to the OTC Link ATS (which is a separate venue from the OTC Link ECN), or some other venue. If you speak with them again, ask them which OTC venue they’re sending your order to, and ask if they can redirect your order to the OTC Link ECN instead.

  4. Illiquid Connecticut Light 3.8%, $50 face, preferred (CNLTL) that IPO’ed in 1947 hit a ten year low = 32.00, down 8.00 (-20.0%) on the day. 449 shares traded @ 32.00. This gives a current yield= 5.94% which is the third highest amongst the 13 Connecticut preferreds that trade. Would seem to be a reasonable sock drawer candidate to me if you get pick up any more shares @ 32.00.

    We do not own it or have any open buy orders in any account

  5. I just received my LTSF interest for the baby bond maturing in 2028. It was lower than normal. Any comments appreciated.

  6. Thoughts on FIISO? Upstate New York financial holding company. (FISI is the common). Five Star Bank is the most visible holding. Liquidity ratio is about 10% (or at least it was at the end of January). This 8.48% non-callable preferred rarely trades. Most of the 171,000 shares are owned by insiders. It’s the type of issue where GTC orders MIGHT be filled a share or two at a time. My concern is financial stability (I own a few shares accumulated over time in very small trades). The Qs and Ks aren’t current and I’m wondering if anyone has an “informed” opinion about the company’s financial stability. given the events of the past month. Most of their investments are in real estate loans and the negative arbitrage associated with buying treasuries over the past few years doesn’t seem to apply. Anyone know more? Thanks.

      1. Thanks. Read it and most of the other Ks (and Qs) going back three years. They portray a robust regional bank and financial holding company with adequate liquidity and a portfolio comprised mostly of real estate loans (in the Northeast and the DC/Baltimore regions). But neither the Ks nor the Qs reveal if their liquidity is based on short-dated treasuries that were purchased more than nine (or so) months ago. If depositors attempted to make withdrawals, the most recent SEC filings reveal that up to about 10% of the banks balance sheet capital could be covered. But, how liquid is this? If the bank invested in 1 or 2 year treasures yielding 50 to 100 basis points, they’d need to sell these at substantial losses which, de facto, would reduce the liquidity ratio to something way below 10%. That is a potential problem for SOME regional banks. Unfortunately, the nature of short term investments often is not disclosed. That’s what I’m trying to learn more about in connection with FISI (and, particularly, their regional bank holdings).

  7. I was able to buy 100 shares of UEPCP today at $74 (5.8% yield). I’ll have to start saying nightly prayers that it gets called at $105 LOL

  8. Finished getting my fill of UEPEP I had an open order at 81.90 that filled a little bit at a time. Not much of a dividend but I can hold til its called and throw in the sock drawer and forget I own it.

    1. Thanks for the tip. After some thought I needed some ol reliable at that price. Picked up a 100. I will just deal with the call risk. Cannot be too bad a hit compared to some bank preferred lately 🙂

      1. Dont worry within next 10 days or so if CLP board of directors meeting is staying on calendar its been on for years, you will get the next public declared divi announcement.

  9. I am not sure if this was something good or bad, but I recently purchased a small amount of CNPWP. I already owned some CNTHP at a price above the call price so I thought I would try to get one of these below the call price to sort of balance things out. I placed a limit order to buy at $41/share and actually got them at $40/share. So now if every preferred is eventually called, I won’t lose any money. I won’t make much but I won’t lose either.

    I don’t know what kind of order the seller placed, but somehow, the shares were sold below my upper limit so good for me.

    1. I have no idea what this seller did.

      However, it’s not uncommon for a seller to do a market order. It is dumb to do so on something illiquid because it can catch a crazy price. I have sold a few shares for up to 10X “normal price” a couple of times – I think because someone put in a market order on a thinly traded stock.

      I keep a few of those “crazy price” GTC orders open on some illiquids, and a few hit every year (rarely at $200, but well above the price that I can repurchase a few days later).

    1. because CNTHP has been sold down and is a better buy :-).

      Also a few people selling a few hundred shares is no bigger than moles on a chigger. Could be the original buyers are passing away and the grandkids want to have some spending money on go to dairy queen or the like.

    2. bob, it’s not very liquid and has a tiny float of around $6.7,M so easy for a seller to swamp the issue for 30 minutes or so, but I asked no questions and instantly bought a few hundred more as a reinvestment risk hedge around $41.90, placed in back of the pantry and posted a Reader IA here for the rest – I think Mr C bought them but won’t admit it. With the current ask back at $175, wouldn’t expect to see any movement soon.

  10. Crlkp at 22.50, IRR of about 7% ytm seems like a good deal but there is so little information about them. Thoughts?

    1. Irish the issue was assumed by SP Plus ticker SP. So their financials are Central Parks.

      1. Very interesting. I take it since that merger happened now just over a decade, change of control, a cash/stock deal, etc. was still favorable enough that it’s not expert traded.

        Is change of control via merger not a factor here for CRLKP, similar to that El Paso preferred stock that can never actually convert because it’s so far out of the money vs. KMI trading price so will just redeem at maturity date?

        1. Theta, this company has been passed around a couple times since this was issued. KKR bought it and eventually SP bought it from them. Basically a good fit being this is what SP does. The original KKR buyout I believe was below conversion strike price so it ultimately wound up with the same “price put” SLMNP has today. CRLKP can be tendered anytime back to company at $19.18 if memory serves on exact price. Most were tendered long ago. Maybe 40,000 or so still exist. It does mature at par in 2028.

  11. Dont see this volume ask often with this issue. Somebody is partially through an over 3k dump of CNTHP at $53.25.

    1. Without a div baking in the oven ready to capture ASAP I think paying over 53 is not in my lane at this time.

      1. Cant fault you. I was only commenting on the volume availability and nothing else. You rarely see over 3k available with this. Started at around 3500 and is whittling down slowly.

        1. Went fast. I grabbed a quick 500 shares. Goes along into the drawer with some other tickers from them.

          1. Mr. C though not as pretty of yield, UEPEP had a quick dump of 3k also and swept up my minor hundred share order at 82. This was more a balancing trade than anything else.

            1. Grid, yup. Same thoughts, picked up a Paul Bunyan stack of the sister UEPEO right at 78.00 about month ago, in hindsight could have flipped and re-bought, but staying focused on the income add.

              1. I got some around $76-77 but it jumped a lot a month or so later so I let them go. With yields rising again, I hope to buy down there again. I did reenter a small amount of UEPEO the other day. That is why I like that ComEd trust preferred issue. I get my plus 6% and only a ten year duration exposure.

                1. Excellent trade Grid. Yes starting to see more opportunities pryed open. We may get another run at this. Not expecting new lows, but one never knows.

          2. Mr. C, Alpha is gonna to beat me up with a pillow again, but I goaded a seller late in the day to sell me 300 more of CNTHP at $52.90 today right before market close.

              1. Alpha, convincing me or Grid that CNTHO is a better buy is like pushing a wheelbarrow with rope handles. :-).

                1. Mr. C if you are willing to grab your best pillow and join the cause I think we can gang up and pillow whip Alpha pretty good 2 on 1. I believe we both are younger and may be able to get a few more swings in before we all need to sit down and take a break, ha.
                  Here is some interesting if not useless stats from 1968 when CNTHP was IPO’d. High point numbers from 1968… Fed Funds rate 5.66%, 3M TBill 5.34%, 10 year 5.68%, Baa IG bond ave. 6.94%, Prime Rate 6.31%, Inflation 4.19%.
                  …For me I love owning short duration HQ credit, CDs, and IBonds. But as Alpha and have discussed before, reinvestment risk is also a risk too. So buying some issues like these (or Alpha’s) is a pain trade for me to stay somewhat diversified and weaned off the the short duration teet a bit.

                  1. That’s exactly it Grid, stacked and laddered now with Treasuries and similar out to 12-months, but also recognizing the potential box-canyon reinvestment risk at 1 year so turning back to tried and true high IG payors, albeit at lower yields. Funny though, those now frowned-upon/so-called lower yields are still “stellar” compared to a year ago.

                    1. I share your same way of thinking but different venue when I can snag a few. Today a few of the 2033 trust preferreds from ute Commonwealth Edison (ComEd) became available today at 6.08% so I plucked them.

                  2. Lol, Grid.

                    We will go easy on you Alpha. Take it one round at a time. Make sure we have medical staff around, defibs, water, ice packs, routine heart checks, etc. We will only be allowed 1 hit per 5 seconds. So I was thinking of a nice heavy goose down pillow. The idea I’m going for is a 1 hit knock out. I will have CNTHP embroidered on the pillow case and will be the last thing that you see Alpha, before you wake up as we give you some ammonia salts. Lol.

                    1. Mr. C, Somebody is going to have to work hard to beat that post today! Alpha is currently too many zones west to see this until afternoon…Unless he sleeps as poorly as 2WR does, ha.

                    2. Mr C, I did lol, the good news is the coffee did not propel across the keyboard.

                      You are now in the CNTHP call-risk penalty box, but good news, the extra yield over CNTHO will neutralize the call risk in no time…only a few years or so!

                      Not wholeheartedly disagreeing with the CNTHP buy, we’re just operating parallel trades at different risk levels. I’ve become more averse to flips, potential calls or drama than ever so staying in the boring high IG, below redemption positions. Not knowing how long this door will stay open, focused on building the income for now.

                      If it gets any leaner may need to follow Azure into those excellent munis. On a relative basis after tax considerations, they are of late increasingly attractive in lieu of taxable bonds.

                2. hahaha. OK Mr. C.

                  You know I am rooting for you!

                  p.s. Do you know how to bookmark a comment here? hahaha. please no one answer that.

                  1. Grid, some of these illiquids can really take off or drop several dollars in one day. Not IG by any stretch of the imagination but I have bee accumulating SCG-PA looking forward to another summer backyard bbq.

                    1. my typo PCG-A standing standing buy at 20.08 picked up a whole 61 shares

      2. fc, CNTHP has been around since even Will Robinson didn’t have a Dick Tracy 2-way wristwatch, but with an exposed 6.56% coupon and under the never say never umbrella, agree redemption plus accrued at $51.73 makes the $53+ seem pricey and a bit exposed. Was able though to pick up a small but accretive handful of CNTHO yesterday at $48.50 with about $0.44 baked-in, being QDI, pushes the taxable-equivalent well into the 6%s.

        1. Alpha, where is your sense of call loss adventure at? Call loss butt kickers are getting as scarce as hens teeth. Though I guess it doesnt have anything on C-N or BANFP.

          1. Grid, haha I know right!? I’ve got an unnatural fear of heights and those call loss exposures are like an Indiana Jones rope and wood slat bridge across an alligator pit; if enough of those wood slats hold out or you can repel the rope you might make it without ending up as alligator kibbles and bits. One just never knows…even the Jungle cruise boat sank at Disney this week.

        2. Alpha,

          I already own CHTNP but under a 53 handle. I really like these types of preferred and have quite a few different ones we call ills. But there has been a trend over the last few years of these getting called for reasons I don’t fully understand. CHTHP would probably be at the top of the list for a sudden call by the corporation.

          And it would just be my luck for it to happen in 3 months if I added heavy to it.

            1. Ha, relax New, I own this all the time. In December I remember I was able to snag 200 at 53 while drinking frozen drinks at the Red Hook ferry taking me to St. John. Then a couple days later sold at $54 on Solomon Beach. At the right price I will buy or sell these at any time any place, no problemo.

              1. So we’re all watching credit ratings, YTCs, redemptions, evaluating munis and 2wr is running his Monroe and reading the 122 page manual again searching for IRR info and you’re on a booze cruise flipping issues between beaches. hahaha.

          1. fc, If you’re interested a CNTHO seller just showed up at $48.50. Picked up more but there are a few left. Last look 152 remain.

      1. NTT, It’s been around since 1968, so a Monday call is not likely and the issue may stay in place for many years to come. Just me, I’m less comfortable buying issues trading at over redemption plus accrued – especially when there are sister issues available under par with acceptable yield.

    2. Short term low risk of $1.50 vs. 50 years in the sock drawer paying 6.18%. I am in for a second and third helping. Sounds good to me!

      1. Once it dipped to $53.10, I was a player too for 500. But Im used to this one. I think it was my third preferred I ever bought over 10 years ago. Connecticut regulators (not the utility) has publicly stated in regulatory filings a few years ago the company told them they had no interest in redeeming the preferreds and prefer to keep them in their capital structure.

    3. Grid, how can you post this without a ticker??
      ” 2033 trust preferreds from ute Commonwealth Edison”…

      I searched high and low for this, and couldn’t find anything.

      1. I cant give you what doesnt exist, Justin, it doesnt have a ticker, ha. Its an old trust preferred issued in 2003 trading on the bond desk. Here is the info if you are interested.

        Here is the prospectus…Basically its ComEd’s version of KTH as that is what utes did back in the day for tax purposes that dont exist now.

  12. 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. Dick, I got a full position of SBNCM about 5 years ago at a bargain price and I just “tossed it in the sock drawer”. My yield on cost was over 7% (IIRC), so I just leave it there with some other things that I will probably just hold.

      I did a deep dive on the company when I purchased and they looked pretty solid – but nobody should rely on my meager research capabilities.

  13. 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.

      1. Interim epilogue to this one. For inexplicable reasons, shares in BACRP were trading over $300–hovering around a 2% yield (no YTC, not redeemable) for about a month recently. Only 7,100 shares are outstanding and it looks like about 500 traded between $250 and $350. That accumulation seems to have stopped. Over the past week, shares traded as low as $126 and up to a hair over $200, with the tighter range being about $170 to $190–still no bargain with a 4% or so yield. Whoever was buying shares at $300, in small volumes but many trades, still leaves me perplexed as to motive. These are cumulative, voting shares and, perhaps, B of A was trying to control the issue and keep it in the capital stack. That theory seems void though, because of the lower prices paid this week. Still no idea what was going on.

        1. Oldman, this has done crazy crap for over a year. Prior to that it would not trade for months on end or even have an ask. I bought 100 at around $115 a year or so ago and then sold a few weeks later at $170, basically did the same thing with 25 shares a bit later…And now I feel like I got ripped off ha.
          Anyhow, boredom and idle cash causes problems as I bought more today in the lower $130s. Horrible purchase but I want to see if I can dangle them deep some time down the road. I got over a hundred but wanted 200, but that was when the algo screwing came in (this thing is so bad with it, I really gave up long ago playing until I saw a semi serious $139 ask of 100 shares and goaded him down for them. But after that and a few drips later, shares would trade at my standing front line bid exact price (no tenths beating) but they never went to me.
          BOA annual filing will come out soon, and this is the quarterly that actually will show shares outstanding left. OTC is showing 5654 as the tradeable DTC float now (7076 outstanding) So over 10% rolled today. In case your curious here is the closest thing to a prospectus I ever found from a couple years ago.
          Its one page 1 and 2 as the then issued 7% cumulative Series B.

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