NextEra Energy Prices Baby Bonds

Giant utility NextEra Energy (NYSE:NEE) has priced a new issue of baby bonds with a fixed coupon of 5.65%. The issue matures 3/1/2079 and there will be an optional redemption period beginning 6/15/2024.

This is substantially higher than would appear to be necessary and is much higher than our guesstimated coupon.

The company has 3 other baby bonds outstanding with coupons of 5%, 5.125% and 5.25%. The 5.25% issue was trading at $25.50 earlier this week before this new issue was announced at which point it tumbled–as now it will compete against a nearly perfectly matched issue.

The new issue be 24 million shares with another 3.6 available for over allotment. Interest will be paid quarterly and the interest payments will NOT be qualified income.

As we noted yesterday this utility issue will have the ability to defer interest payments numerous times for periods of up to 10 years without it being in default.

The issue will not trade on the OTC Grey Market since it is a debt issue.

The ticker has not been announced as of now.

The pricing term sheet can be read here.

21 thoughts on “NextEra Energy Prices Baby Bonds”

  1. @gridbird @joela As I do not reside or know much about the SL area, I am curious about AEE and AILLL. I reside in TN where the TVA defines lock down. As a quasi govt. entity TVA can export power but not other utilities can import. Talk about a monopoly. Horrible decision on nuclear, etc. Ratepayers will always suffer the consequence. Therefore, the risk is nothing which equates to the returns. Do the ratepayers in your area carry the risk of poor decision making? The legacy cost of these nuclear plants and decommissioning are astronomical. In my area the rate payers will be stuck with the cost. Appreciate your thoughts.

  2. Vanguard just told me the NEETP quote is 25.00-25.10, but the $25.10 minimum is 40,000 shares. I was putting in for 2500-3000 shares and the quote is $25.20… I have a feeling this will jump, but that’s just a guess on my part. Wishing you profitable investing, Nomad

    1. Schwab just filled 800 shares for me at 25.10.

      I went back for 1,200 more, and they have the limit order set for 25.14…..or better.

  3. I believe the Grey Sheet symbol is NEETP (please done post anywhere else). I do not see it on Vanguard or Merrill Edge yet though. Let everyone here know by post if you see it trading at the firm you do business with. Have a great weekend everyone, Nomad

    1. Nomad- It is not yet available at Fidelity. I check often and will post when I see it. Grid advises to stay in my lane … NextEra/FPL is square I my lane.

      1. NEETP is in my lane as well. I hope to pick up some at or below par. Do we know if the dividends are QDI or not ?

        1. Tim stated above that “the interest payments will not be qualified.”

          It’s a BB, not a pfd.

    2. I just called Schwab and their trading desk “called eight different brokers” and nobody has “seen it yet.” But then about 20 minutes later the trading desk said that they had “gotten for some for someone earlier today for $25.07.”

      They are “working on it.”

      1. I just bought some in my new IRA at Schwab. The symbol was not available (and still isn’t). An e-chat person got a quote for me almost immediately of 24.88, but said that I needed to call the Fixed Income department to make the trade. I called them and was told I’d get a call back with an updated quote in 20 minutes (which actually took about an hour). That quote was 25.10. And they were calling it a preferred, the security name is “NEXTERA ENERGY 5.65%PFD DUE 03/01/79SUBJ TO XTRO REDEMPTION”. But whatever.

        They said the trade wouldn’t settle until 3/15 which I see is the “settlement date” listed in the SEC filing. More hassle than I expected, given my experience with buying new-issue preferreds in the grey market through Fidelity (I realize this is neither a preferred nor a grey market issue, and the NEETP symbol isn’t available yet on either Schwab or Fidelity).

        1. Larry, there was a day when “Preferred Stock” meant capital. Clearly this is no longer so. Here is a separate example on the Finra bond site…The old delisted PFX…Even though its listed as a senior unsecured note, it is labeled as a “preferred security”.
          http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C134867&symbol=PNX3814338
          Another example from utility Intergys…A delisted baby bond, IEH.
          http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C598421&symbol=WEC4040194

            1. Larry if you look on my above link to the Intergys delisted baby bond you would also see it is also a junior subordinated debenture… All that means is it is the absolute butt end of the bond capital stack…Lower than a snakes bond belly. The very next thing below it in stack is the equity preferred stock if a company has any issued.

              1. Grid, it’s retail vernacular they translate as gold. Somebody at Schwab must like Amy and Larry. Got a $1+ upside till it starts bumping heads with their other issues. Couldn’t get it today but I hope to get a bit next week.

                1. P, to me anyways, subordinated debt simply means….It will pay until it doesnt. And in bankruptcy you will get nothing or pennies on the dollar…As the senior secured and bank loans come rolling in, in times of trouble. And they will play the trump card in the liquidation process. But if ones buys quality issues such as decent utes like this, it probably will not ever be a concern.

                  1. The prospectus says that they can suspend payments for up to 10 years (but the payments are cumulative). It also says that they do not foresee that this would ever happen. I would not have known what to make of that provision, if not for Tim’s previous article mentioning it as “typical of baby bonds from utilities”.

                    1. Yes that is very typical, if I have owned one of these I have owned a dozen of them. First, utilities generally dont commit financial fruad, and generally treat shareholders as well as anyone. Secondly if they did suspend they would also have to suspend the capital stock preferreds (if any) and all common stock dividends too. This provision is put in place to essentially turn this debt issue into a true preferred stock. As you know preferred stock can have their dividend suspended also.
                      So instead of a non payment causing a possible bankruptcy triggering, it just becomes a normal business decision of deferral until company gets over the short term problem.

                    2. Gbird, EXACTLY a good description and a cautionary guide to decision making. That’s where any of us can get lost in the ‘chase’ which may end up been recognized as a topping indicator. We are late in the cycle. Just sayin’…”thimpk it thru!”
                      BK judges have proven to be brutal to low capital. I hacked on “safely positioned ‘low’ bonds for a long time and also had declining interest rates on my side. I have had no better than a 50% success picking lower-grade ‘winners’ which caught up on the principal loss over years by at least continuing coupon …that is patience by experience. Some may remember the meaning of ‘bula-bula’ payments. It’s a tough discipline to endure, eventually meeting a cumulative break-even.
                      Seems there is a whimsy-factor in this debt flood. Good Skills , Experience and Learning to All! JA
                      PS: Sunday thought: Consider the idea of IG: I like the concept of ‘retail utes’, but there are ‘wholesale utes’ with long term contracts to supply retail utes whose contracts can be swept by BK judges. They have popped in and out of existence with the same functioning generating facilities because they are not worn out but need to be refinanced OR re-contracted to a retail-ute. I will deliver no speculation on this topic, but I have seen it strand wholesale utes historically, especially when it is convenient. It’s a common American rotation game. So, get paid for your risk. time and buy right! History reference IE: DUK is not GenOn. IE: NEE has under 500,000 retail customers the rest is wholesale vs. AEE here in STL area has 3.3 million retail customers. I’ll take some more AILLL and wait for NEE bonds/prefs to become old news.
                      Love the interaction and challenges here on Inov Inv. JA HAppy Sunday!

                    3. Joel, I agree, I dont care what the bond ratings say about AEE (and they are fine) they are in lock down mode on their area. The only game in town. Total sleep at night in terms of payments…But the two subsidiares are different though. The Ameren Ill is just T&D and no power. Union Electric (Ameren Mo) is in total control power and T&D in service area.
                      Many utes have quietly gotten out of power production all together and are just T&D. Those are probably the most safest as a general rule provided there is no inverse comdemnation to worry about.

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