Monday Morning Kickoff

Another week is upon us and another bit of mystery as to how markets will trade presents itself.

We have some potentially ominous developments, which we all knew were coming, at hand and no one—no one, knows what 20 million folks having their paychecks cut by $600/week will do to the economy and the equity markets. Additionally eviction notices are starting to be issued to those who have not paid rent for months and soon foreclosures will begin to occur on some of the homeowners who are now part of the 5 million or so mortgages now in forbearance.

Of course we all know that congress will create new programs for aid to these folks, but I am guessing with somewhat less generous terms–just the same ramp up the printing press once again. The time between now and when a new stimulus is hammered out could be rocky, but on the other hand could it be that the ostriches will simply bury their collective heads in the sand and ignore the obvious?

Last week the S&P500 opened the week at 3224 and closed it out on Friday at 3215–for the tiniest of losses. The index is just 5-6% off a 52 week high.

The 10 year treasury yield fell a bit last week–opening the week at .61% and closing the week at .59%

Last week there was a small amount of growth in Federal Reserve balance sheet as assets grew by $6 billion. The week before the balance sheet grew by $38 billion as QE started to ramp back up. This after the balance sheet fell by $248 billion the previous 6 weeks as longer dated repurchase agreements were closed out.

Last week the average $25 preferred stock and baby bond rose in price by 20 cents. Utility issues remain strong rising by 25 cents–banks by 18 cents and investment grade by 20 cents. The only losing sector was the lodging sector (not in the chart below) which was off by 19 cents.

We had one new preferred issue come to market last week as junky Nexpoint Real Estate Finance (NREF) brought a 8.50% issue to market. The shares were priced at below liquidation preference at $24/share.

Shares are now trading on the OTC Grey market under temporary ticker NREFP. After trading as low as $22.92 shares closed at $23.05 on Friday.

40 thoughts on “Monday Morning Kickoff”

  1. Help!!

    I have some serious coin that I have to put to work right away. Preferreds only.

    Please give me your top five ideas. Thanks

    1. If You Prefer….Your choices presently as a general rule, are chase the higher quality ones that are at nose bleed, or hope some disfavored market stressed issues pull through this phase and recover….You also have a 3rd option…Punt on 3rd down and collect coin on NGHCO and NGHCP until redeemed next year. AllState has already said this….page 56 of acquisition filing…
      At Parent’s sole expense and subject to Parent’s reasonable cooperation therewith, the Company shall, as reasonably requested by Parent in writing, take all actions necessary to effect the redemption of any or all series of the Company Preferred Stock as of or immediately prior to the Effective Time to the extent redeemable by the Company on its terms at such time, including preparing and delivering all notices of conditional optional redemption in form and substance reasonably acceptable to Parent to effect the redemption pursuant to the requisite provisions of the applicable Certificate of Designations; provided, however, any notice of redemption shall be irrevocably conditional on the Closing occurring immediately following such redemption and the date of redemption shall be no earlier than the Closing Date; provided, further, that Parent shall provide, or cause to be provided, all funds required to effect such redemption or shall confirm the use of cash on hand at the Company to effect such redemption.

      AllState said early next year regulatory process would be complete. This may give you up to 3 more dividends and these can be had at $25.25-27 range. This gives you chance to collect some coin and stall out time to see if another dip of some sort occurs. These issues will be anchored and creep up come exD , retreat and rinse and repeat until redeemed. But they wont be redeemed until the process has been completed or very close to it. I would have thought I would have never thought I would say that these two issues and LXP-C are my biggest two issues, but its what the market is giving me so I am taking it. The NGH issues are way to keep on keeping on, but flexible to sell for something else if opportunity presents itself.

      1. Thanks grid bird….. I do have positions in one of their preferreds. Wish I had more.

        I went thru all preferreds and 25 dollar baby bonds et all today and found enough for half of what I need. Did not eyeball ALL its ytc must be under 4. I’ll look closer tomorrow thanks.


        1. IYP, Dont be afraid and buy more unless, you are max comfort position already. I bought several hundy more today. I rake in profits on some sells and then move it over into my NGH piggy bank. I have enough here I dont need to buy anymore. But as liquid as this issue is, it will be about as predictable through a quarterly dividend cycle as one can be with the call noose already wrapped around its neck.

      2. OK, Grid, I’ll bite – what’s the story on LXP-C? The appeal = non-callability or is there more to it?

        1. 2WR, well the appeal was better at my entry point as its gone up…But…It does go exD in a couple days and present yield is still over 6% and its Baa3 Moodys.. But yes, its nice to know if drumbeat of quality yield sags even lower nice to have that yield and quality over 6%. Being an IR at 85% heading for 100% it is even one of the safest reit segments around (Not sure the word safe is an appropriate word for in any perpetual investment, but you know how to translate it, ha). Its a small thin cap stack of now around only $95 million, and LXP has never shown a desire to issue any preferreds. In fact many IR dont issue them.
          The March madness collapse actually showed them well, only briefly going to $36 which fares well better than most liquid utes even did. It does have a 2.2 updated conversion factor which is way out still. But who knows it could serve a purpose for long long term holders. The reason why LXP-C got busted was the 08-09 crisis as (it was issued around 2004 I think) and LXP was an “Office Reit”. One doesnt want to hold office reits in a great recession. So they had to dilute the hell out of common shareholders and that has kept the lid on the common ever since. But LXP-C always paid even during that problem. I would have no interest in this if it was an Office Reit still.

          1. OK, got you… not comparable to an NGHCO type story which I know you know is right up my alley…. But do you mean Baa3 quality, not Baa3 rated though? Moody’s does not rate these as far as I can tell but has senior unsecured at Baa2…

            1. No its definitely Baa3 through reverse engineering..The Senior unsecureds have been unmolested Baa2 since 2014. 2014 was the last time the preferreds were mentioned in Moodys reports and they had them Baa3. If you go into Moodys check out 2014 and you will find them. So if senior unsecured has never changed (and they have been reviewed recently) then the preferred certainly hasnt changed either.

              1. If you go to Moody’s and search Lexington Realty Trust, nothing comes up for preferreds, just the senior unsecured…. If you search via Cusip # as shown on QOL, still nothing. Maybe LXP had to pay for rating preferred and stopped????

                1. That is what I am referring too. You wasnt able to locate the article? It was rated 2014 Baa3…Senior has remained the same, so preferred also has too. Maybe not paying is why its not mentioned anymore, but it hasnt been referenced since 2014..
                  9 Jun 2019
                  New York, June 19, 2019 — Moody’s (“Moody’s Investors Service”) affirmed today the Baa2 senior unsecured rating of Lexington Realty Trust (“Lexington”). The outlook is stable.
                  The following ratings were affirmed:
                  Lexington Realty Trust — Issuer rating at Baa2; senior unsecured debt at Baa2
                  New York, May 12, 2014 —
                  Moody’s Investors Service assigned a (P)Baa2 rating to Lexington Realty Trust’s senior unsecured debt shelf. Moody’s also affirmed Lexington Realty Trust’s senior unsecured debt and issuer ratings.
                  The following rating was assigned with a stable outlook:
                  Lexington Realty Trust — senior unsecured debt shelf at (P)Baa2; subordinated shelf at (P)Baa3; preferred stock shelf at (P)Baa3.
                  The following rating was affirmed with a stable outlook:
                  Lexington Realty Trust — senior unsecured debt at Baa2; issuer rating at Baa2

                  1. Grid – To me it’s an academic discussion because there’s no reason to think the credit quality is anything but Baa3 whether or not it’s actually rated or not…. However, in the interest of right fighting, (hehe) the original prospectus did say,
                    “SERIES C PREFERRED SHARES HAVE NOT BEEN RATED AND ARE SUBORDINATED TO EXISTING AND FUTURE DEBT; NO RESTRICTIONS ON ISSUANCE OF PARITY PREFERRED SECURITIES. The Series C Preferred Shares have not been rated by any nationally recognized statistical rating organization.”

                    But then again, that’s what was said in the other 2 preferred prospectuses as well, so who knows? They were all issued before 2014. Yes, I do see the 2014 comment but what it says is what’s rated or to be rated Baa3 is a “preferred stock shelf,” so maybe that was a rating to be applied for the first time to an LXP preferred but never was because none was ever issued after the 2014 comment and, therefore, preferreds have never actually been rated?

                    1. No, you got it correct, it wont be specifically mentioned because they never got paid to underwrite it. But the reverse engineering as I stated clearly shows it Baa3 by them if preferred shelf is that rating, as they would be on equal standing. Its more typical but not always to notch 2 pegs down. That is why I originally stated Baa3/Ba1 (personally I am more comfortable with2 pegs down and assume so even with LXP-C) Our two worlds collide and meet in the exact same spot…The academic and theoretical versus the reality of what is, is…ha.
                      If I was a company with rated bonds, I will tell agencies to pound sand when prostituting themselves out for rating services. As they truly are not rated anyways, they are slotted…They have admitted that. Its a waste of money.

          2. Fidelity has deemed this security “too risky” and won’t let me trade it (after a 15 minute hold). They can’t seem to offer a reason why it’s too risky. What am i missing here?

            1. Franklin, probably because its an old busted convertible. Fidelity has all sorts of quirks. I would suggest its safer in terms of payments made than vast majority of preferreds. Price keeps rising that $53 price point was a lot more palatable.

              1. Thanks Grid, i used TD and bought a small starter position. Price is high but i couldn’t pass up the 5.9% current yield. Hope it goes down and i’ll add a little more to even it out. 🙂

      3. Grid, How concerned are you about the risk of the deal between Allstate and NGHC falling through?

        1. Based on how the 3 preferreds are trading, especially the ones that may be callable, investors do not seem to think much risk. Is there some news / rumor on why the deal may not close? Allstate is IG rated and has lots of cash and NGHC is too small a buy to raise regulatory concerns.

          I did load up on all 3 and have been shedding the NGHCO and NGHCP > $25.44 as I expect them to be called the next cycle.

          Likely will hold the NGHCN not callable till 7/15/2021 till above $26.2x ie about 4 dividends worth

          1. Msquare they wont be called next cycle. I posted the pertainent info somewhere here. They are not being redeemed until acquisition closes which will be in early 2021.

        2. Last I checked, the YTC on NGHCO (assuming a call in six months) was higher than the discount on NGHC common vs. the buyout price. So, not only is your upside greater with NGHCO on the merger arbitrage but your downside is also less. I’d expect NGHCO to only fall to 24.50 stripped if the merger was called off. NGHC common would likely fall to below 25. The possible risk of the merger falling through (although small) is one of the reasons I like NGHCO better than NGHCN….less downside risk.

          1. Agreed, I created a spreadsheet to calc the annualized returns of the 4 preferreds, assuming the different number of dividends received. If you assume 3 more left on all of them except nghcn (which I assumed 4), then the best return is NGHCO, which is currently sitting at 6.1% annualized.

        3. Kapil not as much as if it falls through because they uncovered fraud on the books, ha. These were $24 preferreds before announcement so its not like Allstate deal is propping up a $10 preferred. And dang have you seen the pop in secondary quality preferreds past week? My land all of mine are popping. So it may be a $25 prederred now anyways. Everything Im flipping seems to pop 50 cents in a few days. These regional banks are really doing nicely.

          1. I’m selling but having nothing to replace. I’m now out of NI-B at these prices. I remember several folks here saying it was a sell at 26.50 just last month.

            1. Retired I have just been full pedal to metal with liquidity sloshing around. Heck I bought a 100 of CTA-B at 102.10 this morning and a bid of 103.50 or so is already chasing. Its just been crazy good.

              1. I almost sold to you. I bought it at 98.76 on 7/2 and was thinking about dumping it this morning after the run up. But the 3 year chart implies it could run some more. We’ll see…..

                1. Eoz, The chart got me back in. I last bought a couple hundy in 98 range and flipped after divi capture. Dang if it didnt jump more today, crazy! Basically I bought back at flip price but I used the cash to make a quick buck off part of my KTBA shares which spiked to $30. My strategy lately has been Ag, Industrial Reits, and Utes. Though I did double down on AUBAP a few days ago after a good earnings. It is finally jumping. Heartland Bank issue is doing well too. Basically everything I own or following is popping now.

  2. Apropos nothing…the National Hockey League playoffs start August 1st in Canada. Since the Sharks didn’t qualify this year, I’ll be rooting for Vegas.

    1. CW, Your cheating hand pass Sharks almost cost me my $10000 Blues cup winning bet last year..

      1. I remember watching Game 1 of that series from the lounge of the Silver Legacy Reno sports book. A table full of ladies in front of us were buying a round of shots every time the Sharks scored. Final score was Sharks 6 Blues 3, and just about everyone in the place was holding a winning bet slip. After the game reminded me of the house party scene in that movie Trading Places…it was a stone groove, my man!

        1. Citadel, Reno will always have a soft spot for me as that was where I made my $200 50-1 bet for Blues to win the cup. I bought it at Grand Sierra.

  3. American Electric Power (AEP) is getting dragged under this morning, on news it was funding dark money pools linked to the criminal investigation of Ohio’s Speaker of the House. Down 7-8% so far.

    1. What is it with AEP, FE, and ED? Amateur hour with rookies? I expect my utes to respect time honored traditions of greasing politicians and regulators to ensure timely payments of my dividends. But I expect it to be done in a slight of hand manner that doesnt get exposed. Hopefully my utes have more seasoned experienced greasers who respect the anonymous untraceable process.

        1. Dave,
          I don’t know anything about this story, but when was the last time a company just came out and admitted to wrongdoing? The game plan is always to deny.

            1. Of course, Dave! :)….Seriously I have no clue what to believe. These are companies that I pay no attention too because they offer no preferreds or tradeable baby bonds. But usually there is a over selloff then modest bounceback and wait. Preferreds usually sleep through this type of drama. I saw FE slide under $25 and wanted so bad to buy 1000 shares. But I dallied not ever researching the company and then it bounced up a couple more bucks and I gave up the thought.

  4. SOMERSET, N.J., July 27, 2020 (GLOBE NEWSWIRE) — MTBC, Inc. (Nasdaq: MTBC) (Nasdaq: MTBCP), a leading provider of cloud-based healthcare IT solutions and services, today provided preliminary comments regarding its year-to-date milestones, including doubling its scale and netting more than $25 million in its most recent offering to invest in acquisitions and organic growth. The company also discussed its full-year outlook, including expanded growth opportunities and its recently increased revenue guidance, representing approximately 65% year-over-year growth.
    “In January, we acquired CareCloud, our largest acquisition up to that point, which was later eclipsed in June, when we acquired an even larger target, Meridian Medical Management,” said Stephen Snyder, MTBC Chief Executive Officer. “These acquisitions helped to double our run-rate revenues, while adding new, highly rated technology solutions and experienced team members. Our expanded capabilities are already playing a key role in driving additional growth as we signed more new business during the first half of 2020 than we signed in all of 2019. As we begin the second half of the year, we do so with doubled scale, newly added talent and solutions, and with more capital on hand than ever to invest in advancing our acquisitive and organic growth objectives during the second half of the year and beyond.”
    “During the first half of 2020, we’ve been reminded of the extraordinary privilege we have to support U.S. healthcare providers who are playing a unique and heroic role during the pandemic,” said A. Hadi Chaudhry, MTBC President. “As we’ve strived to provide critical clinical and back-office support to health systems and independent practices, we’ve been grateful to see our company grow and become even better positioned to address market opportunities. From contactless patient check-in applications, to electronic health records, revenue cycle and practice management, business analytics, robotic processing automation, telehealth, and more, our cloud-based tools and global team are helping our clients meet today’s and tomorrow’s challenges.”
    “We believe that we are on track to generate $130 to 135 million in revenue and $24 to 25 million in adjusted EBITDA, on an annualized basis, during the second half of 2020,” said Bill Korn, MTBC Chief Financial Officer. “Based on our expectations regarding the second half of the year, we were pleased to have recently increased our full-year 2020 revenue guidance to $105 to 107 million, which represents year-over-year growth of approximately 65% — almost twice as high as our 6-year CAGR through 2019 of 35%.”

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