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Maybe a Little Steel Partners Preferred to Add Some Diversification

As I look around at the minimal number of preferred issues I want to hold (or maybe buy) at this time virtually all of them fall within either the CLO closed end funds or in the BDC (business development companies) area.

One that I have looked at for a long time–but not closely, is a 6% preferred from (SPLP-A). This issue has a mandatory redemption on 2/7/2026 at $25 plus accrued dividends. These shares were originally issued during an acquisition in 2017.

Currently there are around 6.4 million shares outstanding (they have an active buyback on the shares so likely there are a few less outstanding).

As one might guess the company is in the steel business–but they also own 100% of WebBank which is a state chartered bank with assets of just over $2 billion.

Obviously this is a different sort of company than I would normally invest in, but with a yield to maturity of about 8% I am thinking about a small taste. More due diligence to do before I commit.

The company is an MLP so any owners will receive a K-1.

16 thoughts on “Maybe a Little Steel Partners Preferred to Add Some Diversification”

  1. I would rather add to an existing MLP I hold before getting another K-1. It would also bump up my cost per share which if you bought during covid lows could mean deferred distributions will end a lot sooner then you think. Am I incorrect that when your distributions exceed your cost basis you run into problems?

  2. I owned this from when it tanked during the COVID crash, and sold about a year ago (or maybe a bit more than that) after the SPLP announced a reverse stock split on the common which would have squeezed out smaller shareholders and taken the company dark (delisted). Not a good look, not friendly to outside shareholders, and would have subjected the preferred to the expert market. Also as alluded to, this preferred issue can be settled in common units upon maturity. They have been buying back the common units but only a tiny preferred units, as far as I know. So if they settle the preferred issue by giving you common, you now own a very illiquid common that is 80% controlled by a couple of guys. There is a lot of cash but its at Webbank (not the holding company where the preferred is), and they did have a lot of cash after selling the rocket jet company, but pushed $200 mm of cash to a subsidiary (which was looking to acquire BOOM for several hundred million). Tough to predict what they will do, given they are opportunistic investors and want to reinvest all excess cash. For me, the preferred is worth owning at the right price, but I wouldn’t consider it a no brainer, there is some hair on this.

    1. JD
      I was on a similar path. Bought initially in 2018-19. bought a lot more in 2020, but was flipping it pretty regularly. it has a lot of volatility, so can be good for flips (or for getting caught out – not for the faint of heart).

      Gridbird had talked about it a few times, which may be where I first got interested.

      I bailed out completely last year. the management actions you mentioned made me decide that there were better places to play.

      probably made about $20/unit on flips and divis over the years, so no complaints.

      I have stayed out since then.

  3. I’ve held over 1,000 shares for about 2 years. I have few worries about them making it to the maturity date in 1 year. I plan to sell in about 1 year at $25.30+ just before they mature.

    1. All the doom and gloom here on poor little SPLP-A. In the last 2 years, this has been the most boring and predictable stock in my portfolio. It has gone up about $1.30 (about $0.65/yr = 2.8%/yr) from when I bought at $23.15 when it was yielding about 6.5% for an average combined annual gain above 9%. It was much more stable than most preferred stocks in 2023, and it has kicked the stuffing out of nearly every IG preferred. Changes in interest rates have little effect on it. I’ve paid about $200/yr in unrelated business taxes because of it, but I’ve made well over $6k on it.

      The ownership could be untrustworthy, but that description applies to a large percent of the corporate bosses and the billionaire class, including the DOW company where I worked. I have no intention of holding it (or any other term) to maturity because of the delays in receiving my capital back, so I don’t worry about getting paid in company stock. I see little chance of SPLP calling a 6% stock.

      SPLP-A has been a very nice investment for the last 2 years. I have no idea what the future holds, so DYOD. If I find an investment that I like better, then I’ll bail in a heartbeat on the little-steel-engine-that-could and never look back. And, I’m sure there are many SPLP-A holders on III.

  4. I used to own this but got scared away as the management is a little sketchy here (think the were trying to squeeze out common holders or something) and I also can’t remember but seemed like a few odd provisions in prospectus, like they can pay it off it stock or something so was worried about them taking this dark

    this was awhile back so may not be a concern anymore… I have not followed closely… I do think insiders own this security though

      1. Grid used to play with this issue, but it was only to flip I think, not a long term hold. Because I prefer to be a long term holder I had looked at it but don’t remember exactly why I stayed away.

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