Mid Day Action

The action today in the preferreds is primarily in the various REITs-like yesterday. Stag 6.875% (STAG-C) has traded 13 times normal volume and is off 18 cents. Urstadt Biddle 6.25% (UBP-H) has traded 2 times average volume and Site Centers 6.375% (SITC-A) has traded 2 times average daily volume. Volume is also high in the Digital Realty issues as well as PS Business Parks issues.

Shares price movement have also been in REIT preferreds as well as some of the shippers.  Braemer Hotels 8.25% (BHR-D) has been on a wild ride but is now off just 69 cents after being off more than $1.50 earlier.  Washington Prime Group 7.50% (WPG-H) is off 58 cents.  A couple of the Costamare issues are off 61 and 57 cents.  Shipper Hoegh LNG 8.75% (HMLP-A) and Golar LNG 8.75% (GMLPP), both of which had escaped the downdrafts earlier in the week are off 50 and 30 cents respectively after being much lower earlier in the day.

The afternoon will be interesting – we will see who gets taken out and shot-or maybe a bounce (not likely).

 

35 thoughts on “Mid Day Action”

  1. With the cost of equity capital for the public LNG shippers, i.e. Dynagas, Gaslog, Teekay LNG being so high as of today’s close, and can they afford to raise new money down the line to purchase new ships or to pay increased interest costs to funds to refinance existing debt coming due?
    TNP has preferred with FTR clauses. For example TNP-B has a FTR clause effective next July. If the market rate is greater than the stepped up rate that would be paid if not redeemed (8% *1.25 = 10.0%) where is the incentive to redeem the Series B? As the price of preferred stock declines for TNP, the chances of Series B redemption in 2019 declines.
    Unless the market prices recover, the LNG shippers may have to rely more on internal financing and less on external financing to stay in business.

    1. A callable 10% coupon sounds attractive to me Dave, but you raise a good point about internal financing. TNP may leave the B shares uncalled due to tight credit conditions, although they have raised a ton of cash via their last preferred offering. My guess is they’ll call the B-shares before the penalty rate kicks in, but only if the Fed stops tightening.

  2. I don’t believe we are seeing tax loss selling. Nor do I believe this is the retail investor(s). The bank loan mutual funds hold loan pools that are non-investment grade and can only be traded by institutions. They also are getting hammered this quarter. To me they are a canary in the coal mine. All of a sudden the market is very worried about the overall level of corporate debt (not sure about government debt). I call this a “corporate debt panic”. What to do? Panic buying and selling probably does not help but maybe a sign of a bottom. The fed needs to take a vacation and come back in 2020 assuming no inflation. Today on CNBC we have an article that hot housing markets have cooled off a lot.

  3. Certainly cant complain about today. Sold off the last of my SBNCM today at $14.95…Sold some a few weeks back at 15.00. Bought them all about a month ago at $11 and $11.50. Snagged the divi also…I got some short term cap gain taxes, ugh. Oh well, locked in to good a profit on this one to pass up when standing bid was there….Sold off half my KTH at around $29.70 a week or so ago after buying at 29.22. Bought them all back today at 29.17 as a seller was out. I like the 2028 maturity and 6.3% YTM. Especially since the underlying bond is at $115.

    1. Hi Grid–I can complain–but it is what it is and I can handle the reality. Even the term preferreds getting hit now–KYN-F trading at 24.91–wish they would push it down to 24–what a gift that would be.

      1. I also sold 300 shares of CNIGO at 26.50 for a quick buck today also, on last purchase. Still have plenty of it though…Funny you mention KYN-F, Tim. I bought 400 shares of it at 24.91 today, just to put it in timeout…No expectations other than it keeps me from having too much cash to buy something dumb with. Still got $15k to figure out what to do with Monday…Will need to look at my list and yours to pick out the next potential victim, lol. It really needs to be QDI though.

      2. Tim, thanks for that post. I have not been following KYN-F, but now that it seems to have fallen below par, I will likely try to get some tomorrow.

        A great place to hold cash while waiting for this crap market to exhaust itself out.

        1. Grid and Tim, a question – does KYN-F issue a 1099 or a K-1?

          Grid, I am guessing you have this in your HSA, so you are not concerned with K-1 issues, eh?

            1. Gotcha, thanks. I did confirm that by going to the QuantumOnline site, and checking the prospectus.

    2. Gridbird, Other than the bonds being institutional level, what causes the 1.5% yield differential between KTH 29.15/6.78% and the underlying 115.601/5.242%? You could drive a truck through that.

      1. Alpha, it happened this way…The actual 30 year bond was issued in 1998, 8% par. Smith Barney in late 2000 (when interest rates were higher than 1998) bought $25 million of them at about $92 (8% below par) and repackaged them into 8% certificates with a $2.10 built in capital gain at 2028 maturiity, redemption. This is why the redemption price is $27.10, not $25 when these uncallable bonds mature.

        1. Grid, Thank to your excellent explanation I now understand the origin of the cap gain and was able to recreate from the prospectus. The $2.10 cap gain adds about 0.6% onto the KTH YTM based on today’s close. But KTH YTM is about 1.5% higher than the underlying bond. So the other almost 1% in the KTH yield over the underlying – is that just market inefficiency?

          1. Alpha, that would be my guess. And based on present market skittishness it probably is the actual bond that is relatively overpriced. As you noticed the bond itself doesnt really have trading access liquidity. Maybe a couple times a month. But a 6.3% YTM for 9 year “term dated” subordinated utility debt is a very fair purchase in my world.

              1. Oops, Alpha, I suspect you figured it out as the math didnt add up but just to make sure as I miss typed… Peco issued 7 3/8% yield debt in 1998, not 8%. The KTH yield is 8% because the underlying debt was bought well under par that made effective yeild 8%. That is how you get 8% yield from a 7 3/8% bond…. Buy it a few years later under par. And as you know the bond that was purchased at ~$92, will be redeemed at par in 2028 at $100 so the $27.10 call price factors in that cap gain at redemption.
                It is amazing you figured out what I meant being I worded it so poorly the first time. Hopefully I improved on it.

                1. Haha, yes Gridbird, intrigued by the depth of detail in your note realized it must have been from the prospectus, so yes found the .9225, and figured the conversion and then the yield differentials with the underlying (with and without 2.10 cap gain). Honestly I was marveling at the 8% (at .9225) and day dreaming about what it would have been like to simply throw it all-in on this issue back then. lol. Every note from you is accretive…thank you Grid!

  4. Junky high yield getting crushed on risk. Pristine IG getting slammed on low yield. Those between 7% is the new 6%. I think this has been a over a year in the making and making up for lost time now. All that said, I’m betting we are near bottom for the time being. I’m a buyer.

  5. Well, I added another 100 shares of GLOP-C at $21.25 (10% yield) today. Sold a few others (T, EPD, GLIBP) for rather skimpy profits but thought it a good idea to take a profit while I can and raise some cash too for the many bargains (?) out there. Hope our preferreds, etc., turn around soon.

    1. Leonard–my plan is to probably add a bit next week–I have plenty of dry powder but would like to see this waterfall down move come to an end.

  6. I own a very small position in GLOP-C and will wait it out until next week to see which way the wind blows on price volatility.

  7. ECCA is a good one to look at. Below par, 7.75% pfd with a penalty for failing to meet coverage ratio. It’s past call, but below par and with a 3.5yr maturity date coming.

    Hmmm…

    Question is, do you step in front of this Fed meeting next week or not. So many falling knives in this kitchen.

    1. Hi G–I just noticed that one on the high volume page–4 times average daily volume.

      1. People bailing after the recent ex-date – is part of the explanation (possibly). I tried to add some late today, but I’m not chasing it. The Fed will bring it down to me next week.

        I think that’s key right now, don’t chase anything…

  8. The action must be related to the ex-dates on some of these big names. The STAG and DLR’s went ex-date yesterday.

    The 1yr chart of DLR-H is downright depressing.

    I own the STAG-C but no others of this group.

    1. Hi G–lots of ex dividends yesterday–some like the Braemar issue was a pure ‘dump’.

      1. I picked up some GLOP-A today and see you own the B and C issues, do you still like them? Is this crazy sell off in the preferreds just end off the year tax loss selling?

        1. Hi 35spline–I have just the GLOP-C issue and have taken a beating so far. I believe this is just end of year ‘dumping’ going on and would think it would let up soon–I sure hope. As LNG shippers go the balance sheet is strong for GLOP and they have decent contracts in place for all their ships.

          1. GLOP-C. Barely a month since being listed and it has been straight down ever since. 12/14 down a whopping 4.10% while the common is unchanged. No news to speak of.

            I bought a starter position on OTC prior to its listing, with intent to buy several more later on. Looks like waiting longer is paying off on a daily basis.
            Pure panic dumping in my view.

        2. 35spline,
          The cratering of nearly all things energy is due to a number of factors that I see: China growth and output slowing, Europe being in a de-facto recession, the price of oil cratering $25 bucks in roughly a month, growth estimates slashed in the US for next year, etc. Tax loss selling is a component, sure, but when that subsides, there are major headwinds from my view point.

          1. G–there are about 2 million more daily barrels waiting for pipelines in west Texas in the Permian–not sure we will see 80 again in a long time.

    2. Downright depressing can be applied to most of the Preferred and ETD sector – since Oct 1st.

      Selling is so relentless and sometimes akin to panic and/or desperation to get out of issues yielding 6-7%.

      I don’t understand it – selling 6.5% investment grade issues, to hold cash at 2-3%?

      Yet, it is happening. Ugh.

      1. Agree Inspbudget. One understands the funds moving big volumes but what drives me crazy are the 100 and 200 share holders bailing in fear–we have been here before so folks should just cool their jets a bit.

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