Looking Red Today

The big banks are reporting earnings this morning and are turning the equity indexes ‘red’–earnings are decent–above expectations, but forward guidance is more dicey.

I guess we won’t get an 8th day of gains in income issues–while interest rates are at 3.48% which is up 3 basis points from yesterday sharply red equities will likely drag preferreds and baby bonds lower—I guess on the bright side we are halfway through the month and thus closer to an end of month ‘payday’ in the form of dividends and interest–although January is not a huge month of payments.

As I mentioned I nibbled a CHS fixed to floating rate preferred yesterday. After their earnings report on Wednesday I felt emboldened to add to a current position–CHSCM 6.75% perpetual. I hold this issue because of the yield to worst and because it is trading just under $25. Investors should be very, very careful owning the CHSCP 8% issue with a -17% yield to call (annualized). I know from my research many, many years ago that this issue was owned heavily by cooperative members and thus got preferential treatment by management–BUT management was changed after their misguided nitrogen investments and with a potential call date in July (remember this issue was originally redeemable in 2008, but was amended to move the call date 15 years). This is a small issue of 3 million shares and could well get called–this should trade at $25.50 not $28.13.

Today we have no economic new of any magnitude—so markets should trade without these influences

Let’s go!!

26 thoughts on “Looking Red Today”

  1. Tim, why do you like CHSCM over CHSCN…just the Yield to Worst???
    I’m leaning towards buying CHSCN and if its called earlier than CHSCM so be it…

    Thanks KJN

    1. My CHSCP cost basis is exactly $25. Let’s play chicken.

      Sure others have good cost basis due to Covid crisis.

    2. Legend have you considered selling CHSCP and rolling into CHSCL? You lock in cap gains that could disappear, and would get a higher present yield on money, and better YTC. Is it tax reasons?

      1. At this point. No good reason. Does make sense to swap.

        Had bigger fish to fry before but market giving some relative calm now before the next storm.

        1. I remember someone here recently posting they read management wouldnt give the preferreds another 10 year call protection. Also, this is just conjecture, but if memory serves some of these preferreds were issued specifically to help build a massive fertilizer plant that ultimately got cancelled because costs were too prohibitive. So its not out of the question they view some of these preferreds as unneeded.

          1. Add thought. I just checked and they did cancel it, but instead equity invested almost $3 billion into a minority ownership in CF Industries, so the money was used for roughly the same purpose.

            1. Grid, can you please tell me what utility bond you were buying that you posted here. I keep thinking it was an electrical utility in Ohio. I was doing some deep due diligence on Algonquin and thought of your post. Thank you for the help and hope you are having an incredible football playoff weekend, A

              1. Hey Azure. I mentioned the other day I bought some 2025 New Mexico Public Service senior unsecured at around 5.3%. But maybe you are referencing the 2031 DPL Capital Trust Debt I mentioned a few weeks back? DPL is basically a single parent hold co of the subsidiary now named AES OHIO (used to be called Dayton Power and Light). That is of course out of Ohio.
                It was an original $300 million issuance, but only about $15 million remain outstanding as trust debt laws changed and there wasnt much left of it by 2011. So it wont trade with much frequency. Here is the cusip.
                https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C138510&symbol=AES3671691

          2. I have listened to two different years of YouTube video of the upper mgmt discussing yearly results. They allow questions from the audience. During this meeting someone asked about the preferred and mgmt stated they would not say anything one way or another. I think this was in the 2021 meeting.

            Also, using Google, I could never find any plans or intentions made public about the preferred. So the only fact I have is that they extended P by 10 years which was quite generous quite a few years ago.

            So what will happen to any of the preferred at this stage seems to be based on that one event long ago. Unless I am shown something concrete and more recent I think we are dealing with internet hearsay.

  2. Is 3 Mo LIBOR now set @ 4.7924% in regard to ALL-B’s 4/15/23 coupon rate? 4.7924 + 3.165 = 7.9574%?

    1. Yes, that is my interpretation of the prospectus as well, based on the LIBOR 3 month USD quote I see today.

      1. if there are no strings attached then I’m a buyer here, and I’ll see how long before this placeholder money is called.

    2. Isn’t the applicable 3ML the rate from yesterday?
      Prospectus, Page S-18:
      ” ‘LIBOR determination date’ means the second London banking day (as defined below) immediately preceding the first day of the relevant floating-rate interest period.”
      If the “first day of the relevant floating-rate interest period” (1/15/2023) is a Sunday, then isn’t “the second London banking day immediately preceding” that day the prior Thursday?
      That’s actually even a little better, no?

      1. nhc – I swear I went back and double checked the facts by reading the exact same p S-18 you point out to make sure I got it right because I knew you’d be there to correct me if I was wrong and I didn’t want to be… LOL….. But you know what I did???? ALL day today I thought today was THURSDAY not FRIDAY!!!!! Man, this getting old and senile stuff is wearing on me….. I think you’re absolutely right…. Like you said, a little +.0373 added making it 4.8297 + 3.165 = 7.9947%.

        1. 2wr, I was trying to think why you were trying to be so precise out 4 decimal points to the right when generalists like me have kept saying about 8% for several weeks running…. But it finally hit me! Your an old bond guy and that is how you made your living scalping off the tenths of bps and tossing them in your pocket every transaction. Old habits die hard, ha! 😂

          1. Ha… I only did the 4 digit thing because it was there… The ironic thing is in my old bond guy days, scalping tenths of a bps was what 90 to 95% of the other muni traders did, not me…. Early on I decided I didn’t want to compete with them by focusing on the 10% of the muni bond world that everyone else focused on…. I chose to focus on what the everybody else ignored. In particular, I tried to focus on “story” bonds and situations that didn’t necessarily go down hill into Losstown the instant you were wrong in your opinion of where direction interest rates were going.. And of course, if you uncovered a great story nobody else knew well then you didn’t have to worry about scalping mere tenths like everyone else was trying to do. Fewer trades, higher profits and not as sensitive to Mr. Market… And of course, my commission based salesforce loved what I was doing because the commissions I could generate for them per trade were multiples of what they usually got trying to sell the mundane..

          1. JDC – Do you use FIDO’s Active Trader Pro? If so where/how is the easiest way to see this on ATP? If I go to News&Research/Stocks/Stock Research Center, I see where they have ALL-B as 7.994% already as you say…. HOWEVER, didn’t USB-A also reconfigure on Thursday just as ALL-B did? Didn’t AGNCN also reconfigure then too? This path doesn’t seem to have caught up with those two as of yet, correct? And it doesn’t have any info on NSS floating rates at all… So if you’re using Active Trader Pro where have you found their most up to date info on accurate F/F rates quickly after they recalculate? My point most likely is that there may be opportunity if most relatively uninformed FIDO customers and others who might rely on what they’re told by their brokers instead of being aware how to calculate or even estimate the changes only react to the new rates after they’ see it in print… maybe? Do you see these other three updated anywhere else on FIDO’s site?

  3. I picked up some CHSCN under par yesterday and some CHSCL, maybe should of waited on that one. I may buy more if it goes lower. I don’t know if we will see it below par and I am willing to give up a quarter’s worth of dividends to buy it.

    1. I’ve been buying CHSCL today. I’m calculating a yield to first call of around 6.4% at a price of 25.47.

      It also appears to be lower on higher volume so someone could be dumping. I’m not sure if that’s what’s causing the price drop.

      Doesn’t seem like a bad bet!

      1. Dick,
        Thanks for the heads-up…
        Today, I added to my CSH positions with the L @ $25.45. I only got about 25% of the shares I wanted, but happy for now! I’ll eat one Q of div to get 7.5% QDI for at least a couple of years. Certainly looks like someone was dumping. We certainly have looked brilliant the past couple of weeks, but time will tell if the shine is an illusion.

        Have a good weekend!

        1. Rick, might of been me. I bought more to lower my cost basis. Not sure I wanted this much so if it goes up I may sell my first buy. On the other hand if it goes lower do I buy more and go deeper or just sit it out?

      1. Martin, depends on what people think of the quality and safety of CHSCN and what they decide to do with LIBOR or SOFOR and how that changes the yield. In a lower rate environment if it pays say 5% it should stay close to par.

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