Banker Newtek One (NEWT) has announced they will be selling a new issue of baby bonds with a maturity in 2029.
NEWT has many different baby bonds outstanding which can be seen here. It is highly unlikely that the company would call any issue as any callable issues are at very low coupons.
The preliminary prospectus is here.
J announced this in the ‘reader alerts’ a bit ago.
Priced $75 million at 8.625%.
https://investor.newtekbusinessservices.com/static-files/c47258b1-8655-4f7a-b137-5708d441fc3b
Looks like it’s going to have a long first payment – 1/15/25. Can’t wait to see how the bot info suppliers will screw that up as they seem to normally do
Long first payments are at the top of my list for possible dividend capture. If they don’t declare it too early.
Be careful here! This is a micro-cap company with just under $300M in capitalization. This is pocket change to a $Billionaire$..Short interest over 5%, debt to assets ratio crossing the 80% level. Balance sheets can change over-night!
And yet note the addition of Morgan Stanley as first listed Joint Book Running Manager…… This is new and imho significant as a plus
So you are thinking that Morgan Stanley represents an upgrade from B. Riley? KBW typically prioritizes Stifel’s retail clients as lead underwriter. By way of contrast, Morgan Stanley appears to favor their institutional clients. This suggests that a good amount of this deal will go institutional — I put in an indication for some.
That deal was wide open to all comers, no institutional only order flow
Perhaps the 80% D/A level is not at all bad for a bank holding company- at least per Investopedia which states that BAC is 1.10 (110%) and 150% or lower is desirable. There price has suffered since converting from BDC to bank holding co., with the drop in div- but still respectable 6+% on the common- giving protection for the notes.
What seems concerning about the 80% ?
https://www.investopedia.com/ask/answers/052515/what-debt-equity-ratio-common-bank.asp
Payday & 2WR-
Not sure of the source of the 80% D/A, but doesn’t this certainly violate the 150% rule 2WR mentions as last reported at 169% for the older note(s) issued as a BDC ?
It would if it’s figured the same way… but good luck trying to get any straight answers from the company.
I am referring to debt to assets, not equity ratio for a on-going concern. Way back when companies like Coca-cola had pristine debt levels like 0% more efficiency allowed for greater use of debt to equity….then the smart MBA people came out and noted Optimum Debt Theory and made use of low cost debt to finance operations to maximize return on assets…The industry made the 80% threshold of debt to assets as a standard. Anything above was costing too much, anything below was not efficient.
Oh well step forward today and corporations have blasted through the 80% threshold….heck look at our own debt to GNP @ 130%, Japans is worst…Risky living on borrowed time if you ask me.
These small cap on-going concerns can have a burden borrowing from the debt markets when times are tuff…( Rily is lucky lots of $$ still washing around from the pandemic) I like low debt to assets baby bonds as we live on the debt side of capital.
That’s what I was trying to imply only I did it too vaguely… Thnks for the clarification…. Still I dare you or anyone to get NEWT to tell you what their present day asset coverage ratio is as it pertains to NEWTZ still…… Just the fact that they won’t certainly implies they believe they’ve found a way around direct compliance… Not saying they’re not in compliance, only why not state where the ratio stands if you know you’re in compliance?
I use Newtek as one of my 2 merchant accounts.
So, now they’ll be charging me more. 😮
Newtek costs us $5000 in fees per year
We could hit our clients with a 3% surcharge (if legal) or say the fee is a cash or check fee.
Good Luck all
I am Newman
A reason not to be their customer. But if you’re an investor then price gouging and being a shark can work in your favor. Moral Dilemma?
The indication is 8.625%. 2wr can arb it against NEWTI.
Don’t own NEWTI but it sure seems difficult to figure out why it’s trading at a premium when NEWTG is now at a discount in response to this new issue… Good idea if you own it..
Do you think the price discrepancy may be related to the covenant issue that you raise? Once the Z disappears, is it possible that the G and new H will not
be pari passu with the I?
Absolutely not…. pari passu is pari passu…. even if Z has more theoretical strength/protection than the others