Insurance Company Enstar Group Prices Fixed-to-Floating Preferred Issue

Enstar Group Limited (NASDAQ:ESGR) has priced a new fixed-to-floating rate preferred tonight with an initial coupon of 7% which will remain in place until 2028 at which time the rate will float at 3 month Libor plus 4.015%.  While the spread in 10 years is a bit lite the 7% current coupon is darned tempting.

The issue is non-cumulative which is typical for an insurance company issue–and dividends will be qualified for preferential tax treatment.  They are selling 16 million shares with no overallotment shares.  NOTE that almost 12 million shares are reserved for specific institutions thus leaving only 4 million to sell on the OTC Grey market.  Shares should start trading tomorrow with the temporary ticker of ENSTF.

The permanent ticker when it moves to the NASDAQ should be ESGRP.

We were not familiar with Enstar and as such did a little bit of homework on the company. They were founded in 1993 in Bermuda (which is typical for many insurance company) and initially they purchased other legacy insurance portfolios–and in some cases entire companies–generally property/casualty companies which allowed the seller to refocus their capital on other business. In 2013 the company entered the “live insurance” business by purchasing a few other companies that are either specialty insurers or reinsurers.  This company seems to be a bit more complex than most insurers so potential investors should do some due diligence on the company website here.

The company now has assets of over $16 billion with equity of over $3 billion.

The company’s long term debt is investment grade (Standard and Poors BBB), while this particular new preferred issue is rated BB+–a notch lower than investment grade.  When we compare this issue to more recent insurance company issues from MetLife and WR Berkley which are both rated just 1 notch better and Unum which is rated the same the 7% on this issue is extremely tasty.

Pricing for this new issue can be found here.

11 thoughts on “Insurance Company Enstar Group Prices Fixed-to-Floating Preferred Issue”

  1. Looks tempting to me also. Their senior unsecured due 2022 has a 4.5% yield. so, the 7% initial rate on the new issue is quite a significant spread

    1. Hi Jacob–I think I will be in it–although whether it is a holder or a flipper for me is yet to be determined.

    1. Hi David–yes. Most all banks and insurance companies pay qualified dividends assuming they have income–any dividend paid at a time of no income would be return of capital.

  2. Well, I bit the bullet and bought 300 at $25.19. The 5-yr chart of ESGR and the fact that it will also be a qualified div sold me. I see volume is already 3.64M and if the cutoff is 4M, they will likely sell all 4M today, so demand seems quite strong.

      1. Tim – looking at my etrade window it says volume is 4.13 M already. Where did you read about the almost 12M being reserved for institutions? I don’t see anything yet on quantumonline so i’m glad you and others here find these new issues early enough that we can beat the crowd sometimes.

        1. Leonard, read the link Tim provided above…It clearly references this and about 4.4 million public shares…There could be some greenshoe also. But many times people will flip right out of the gate, too, so volume can always be higher than allotted shares.

          1. Thanks for input and it didn’t even occur to me that some flip right out the gate, but makes sense if they deal with enough shares to make it worth their while.

  3. I have an account with Morgan Stanley, one of the book runners on this, and I tried the Greenshoe approach this morning and was told there is no over-allotment available so no luck on that. I had to go to the Grey market and pick up some, which I’ve done.

    1. Their financials on SEC are ancient. Morningstar suggests somehow the numbers are mixed. Looks like recent numbers are not great. However, this offering with such large commitment from the institutional buyers should boost the financials. I quickly placed a limit order at Vanguard at $25.25 and then it was rejected. I quickly resubmit 400 shares at $25.26, It was filled. Then it started to go up more. and sometime down.
      I also sold some TWO-C and picked up only 162 shares of UNMA, duration risks but solid insurer with tons of reinsurance on their portfolio and decent financials with duration risks. I placed another 250 shares at $25 good till cancel.
      TIm, Thank you so much. You are way heads up before the likes of Doug Le Du in picking up the IPO’s.

      John or Jack

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