BDC Newtek Business Services (NEWT) has priced their previously announced baby bond with a coupon of 5.50%.
The issue will trade under ticker NEWTZ (note this ticker has been used before). There will be no OTC grey market trading so if an investor wants the issue prior to exchange trading they will need to call their broker.
The company may redeem their 6.25% NEWTI baby bond issue (per ‘use of proceeds’ statement) which is currently redeemable. Personally I believe these will be redeemed given the high coupon and the fact that they are selling twice as many of the new baby bonds compared to those outstanding of the NEWTI issue.
The issue is rated BBB+ by Egan Jones.
The pricing term sheet can be read here.
Ahhhhhhh nuts…. I never have any luck in “call your broker” situations……
2white, you obviously know much more about bonds than I do. So can you educate me as to why you find the 5.50% attractive? Even considering the call feature, the 5.75% bond appears to be priced competitively. Also, how does a BBB+ from Egan Jones compare to other rating agencies?
af, although inquiry was addressed to 2WR, I can tell you from other comments I have seen here, there is much skepticism (to put it charitably) on Egan Jones’ ratings. It’s my impression that they rate just about everything BBB+.
af – Well, I think you know more than you might think you know because I share your opinion on NEWTL. Not to get too much in the weeds, but it’s kind of tough to get an exact handle on what NEWTL’s accurately worth right now, because it’s just passed x-div date so buying today means you don’t start accruing interest on your purchase until 2/1, so that penalizes you a tad in calculating accurate YTC or YTM. To get close, in a calculator I phony up the maturity to 7/15/24 instead of 8/1 and leave the call date the same… Using 25.26 I come up with a 3.76%/5.42% YTC/YTM. Given I can’t buy the new issue yet and given the new issue is going to be callable in 2022 or not that much longer than this 8/1/21 call AND given the new issue is maturity 2026 vs NEWTL being a shorter maturity of 2024, I think YOU’RE RIGHT. It falls in line as being attractive vs the new issue…. I tried to buy at 25.25 all day but never got hit, so ended up getting a partial at 25.26 late in the day… The world always focuses on the new issue and tends to overlook the older ones outstanding and that’s what I was doing, comparing NEWT’s 5.50% solely to LANPP’s 5% and feeling NEWT was not that much worse than LAND. For the record, since you’re new, Bob-in-De seems to be pretty expert in noting when some outstanding issues far surpass the new ones just being priced, so keep an eye out.. It’s a great community here on the III.
The question I am asking myself with respect to NEWTZ is existential in nature. The 5.50% is nice, especially when compared to CDs and Money Markets. However, is the 5.50% worth the risk of a potential drawdown?
My only real experience with “income investing” is opportunistic purchases of high quality securities at discounts when the market has become what appears to be irrationally fearful. I realize one does not get that chance very often — and in the meantime, I’m stuck with very little return on cash equivalents. I am comfortable with conceptually trading discounted preferred stocks and baby bonds with the hope of capital gains, but efficiently managing and comparing yield to maturity is not within my skill set. I look for activity and volatility.