NiSource Prices New Fixed-Rate Reset Preferred Shares

Utility NiSource (NYSE:NI) has priced their new Fixed-Rate Reset preferred shares with an initial coupon of 6.50%.

The issue is rated low investment grade by S&P at BBB- and is rated high junk by Moodys and Fitch at Ba1 and BB+ respectively.

The issue will carry the 6.50% fixed rate until 3/15/2024.  After this time it will float at the 5 year U.S. Treasury plus a spread of 3.632% until 3/15/2044 after which it will be reset at the 5 year U.S. Treasury plus a spread of 3.632% plus 1% (total of 4.632%).

These terms are somewhat better than I had expected and a 6.50% coupon for a few years from a utility is tempting–in spite of their troubles I mention below.  Given the size of this issue we will watch trading on the OTC Grey market for a few days before deciding if we want a piece of this one.

This will be a large issue of 20 million shares.

The issue will trade OTC Grey market on Thursday under the temporary ticker of NISOP.  The permanent ticker will be NI-B when it begins to trade on the NYSE.

The pricing term sheet can be found here.

CAUTION–Columbia Gas (a division of NI) was the owner of the natural gas service which exploded in Massachusetts in September.  This event has cost the company near $1 billion to date, although insurance is likely to cover much of this cost.  We make this notation for potential investors.

29 thoughts on “NiSource Prices New Fixed-Rate Reset Preferred Shares”

  1. I misunderstood also. Yes – agree this is tempting. Good idea to see where it trades given the size of offering. 3.632% plus the 5 year TBILL would be close to 6.5% right now.

    1. Throw me in with you Steve…NiSource issued a private placed preferred this summer and terms here including the yield and kicker are considerably better (5 yr treasury was used in both placements) than that one was. Im a bit interested I must confess…Throw in fact its a largely nat gas ute in salt of the earth midwest country, and I will be watching.

      1. Debt to equity is a bit high here. I wonder if this issuance of a half billion is designed to draw that down a bit.

  2. Tim and Grid, this NiSource IPO fixed to floater is a very good deal in my opinion. Even the US 30 year Treasury is “only” currently 3.34% and this utility bond is with a 316 basis point higher yield. A bit of NiSource background:
    The company serves approximately 3.5 million natural gas customers and 469,000 electricity customers in Ohio, Pennsylvania, Virginia, Kentucky, Maryland, Indiana, and Massachusetts. It also owns and operates three coal-fired electric generating stations with a net capability of 2,540 megawatts (MW), three gas-fired generating units with a net capability of 196 MW, and two hydroelectric generating plants with a net capability of 10 MW, as well as a combined cycle gas turbine plant with a net capability of 535 MW. The company was formerly known as NIPSCO Industries, Inc. and changed its name to NiSource Inc. in April 1999. NiSource Inc. was founded in 1912 and is headquartered in Merrillville, Indiana.
    Wishing you profitable investing, Nomad

    1. Nomad, I admit I am interested but kind of surprised the company doesnt stack up debt to equity wise. About 2/3 debt 1/3 equity. The solid ones like Ameren are 50/50. Market cap of company is under $10 billion and this preferred raise is $500 million…. A huge issuance. This issue mimics many Canadian ute preferred issuances. A rare QDI ute issuance. These dont happen much anymore as utes prefer debt nowadays. But maybe the fact capitalization is already 2/3 debt is reason why they are going the preferred route for more capital.

      1. Gridbird,
        The best way to evaluate this is to find appropriate comparison.
        Lets try. I have found one somewhat similar issue from ENB (Enbridge) EBBNF (OTC) or ENB.PF.U (TSX)
        At current price 19.35 it has yield 6.5%
        It resets every five years to 5 year U.S. Treasury + 3.15% (next one is on September 1, 2023) which gives 6% as of now and yield will skyrocket to 7.7% at 19.35 current price
        If NISOP opens trading anywhere above 23, EBBNF(ENB.PF.U) is a better choice.

        1. Limit, I dont think this is an apples to apples comparison. Enbridge is more of a pipeline company, while NiSource is a true regulated gas and electric utility. Regulated utilities will always get more of a pass in the market than an Pipeline preferred. Im not suggesting Enbridge preferreds are not a good buy, they just wont compare well. That being said EBBNF would be interesting but it trades total grey market and that can be trying to find a needle in the haystack. It doesnt trade much and ones brokerage may not have access to any shares. EBBNF has only traded 5 times this month and without a bid and ask it will be blind luck snagging any.
          The closest comparison I would have made were the SCE preferreds that havent went adjustable yet. They were hugging par before the fires put them under duress….You have a high quality Baa2 baby bond IEH (Intergys, owned by WEC now) that trades right at par $25 with a 6% yield. It goes Libor plus 3.22% in 2023. For a true ute preferred this issue seems fairly priced. NiSource just issued a private placement preferred this summer well under 6% and a lower kicker with the 5 yr treasury also.

        2. Limit Your Risk, hey this is totally on you and your fault….I started studying that EBBNF OTC transfer of the ENB.PF.U preferred from Enbridge…Started warming up to it. Sent off a 300 share bid into the netherlands of the grey market and it hit at $19.50… I will hold these and see how it goes. Thanks for the tip!

          1. Grid,
            Enbridge is a very large cap and quite diversified pipeline/utility. I have no problem holding its preferreds long term. For whatever reason EBBNF became the most undervalued compared to others in ENB universe.

      2. Grid, I did look at the financials and they are certainly not stellar or steady. As a regulated monopoly utility they are not supposed to lose money and their balance sheet should be of better quality. I’m sure the terms of this deal were hashed over extensively with the underwriters because of the immense size of the offering. I’m going to take a crack at a position and am curious to see just where it opens. I believe it’s probably best to establish a small position and then add on any real weakness. I’m also hoping this will be a nice flipping security… haha.
        Time flies over us but leaves it’s shadow behind, Nomad

  3. Fido isn’t allowing premarket or regular market trade orders on this issue this morning but it shows around 900,000 shares having traded at BID/ASK pricing of $24.70/$24.90

  4. QOL is not listing this yet. Nothing on the company’s web site.
    Where (and how) are you guys finding the info?

    1. FINRA has it posted….But Tim does such a great job, I let him carry the water for me. A guy named Jerry on Silicon Income Investor also stays abreast and posts too.

    2. Larry–while QOL has been a great site for years and a great resource they almost always lag the near real time stuff the readers on this site now supply us. If I am out of the office you can be certain that folks here will cover new issues etc right away in comments.

      1. Tim – understood, but I like to do my own homework to at least verify what others have found. Yes, FINRA listed this earlier in the week. QOL isn’t always timely about new issues, but it has a link to NI’s SEC filings where initial notice of the issuance, and the follow-up notice that announced the rate, were both posted on 11/28. The only thing I can’t verify is that it’s QDI which someone has claimed that it is.

        1. It has to be QDI, Larry. Its equity C-Corp. This was issued to help reduce their debt to equity ratio. They paid off some bonds prematurely.

        2. It’s in the prospectus, in “tax consequence”, but you won’t see the words QDI.

          But as grid says, if it’s a C corp paying a dividend (not interest) it’s QDI.

      2. And regarding ” If I am out of the office you can be certain that folks here will cover new issues etc right away in comments.”

        I think I have asked before, is there any way you can set up a chat page for random unrelated but potentially actionable comments? I don’t have time to track every single comment on every single article. I’m grateful that you include an RSS feed for this site, which updates me when you publish new articles.

        1. Hi Larry–I am going to check that out. I will print this now because with my slow “real work” I am meeting with the tech folks late next week.

          I would envision a ‘tab’ for reader announcement prominent in the header for only ‘announcements’ –as you suggest then one wouldn’t have to search so damned hard through comments.

          Thanks for keeping the topic alive.

  5. Unfortunately having a “chat page” that is NOT moderated will likely turn out ugly. You quickly see “I made $9,000 last week working . . . ” spam messages with web links. Even if you require people to register, they will take the time to register just to post a few spams. Sad but true. . .

    Unless you have the infinite resources of a Facebook or Google to automatically filter out spam, I do not know a way around having a human moderator.

    1. Hi Tex—we hope to keep that from happening here. We are about 10 months into chat without issues (excepting 1 individual) and we have the ability to control things relatively well.

    2. Tex, if there has been any spam in the articles, Tim has done a good job of controlling it because I’ve never seen any.

      I would hope that having a separate area for any announcements of new issues, their daily trading activity, etc. will keep the comments in the articles much more on-topic and therefore much more useful. A lot of what the habitually off-topic posters post is just as spammy as actual spam. Tim has been very generous in what he allows in the comments but I feel that having a dedicated place for off-topic posts will improve the quality of the site for all of us.

  6. Better than expected, by me anyway. I will look closely to make sure I’m not missing the obvious but this looks like a big buy. Pretty much nothing in the utility space with the characteristics of this issue.

    Most of the Canadian issues with similar structure have sucker yields so turn into low yield perps. NISOP has a flat reset rate. Refreshing.

    1. Bob, I am pretty sure this is the first utility QDI preferred to come to market with a 6 handle on it in over a dozen years. The last one was a Southern California Edison in 2006 and it was retired over 5 years ago. One just doesnt get a bit at the apple much on a newly issued Ute QDI preferred anymore. Alabama Power issued a 5% one in 2017. SCE has had a few in past couple years in 5% range, and previous to that was IPL-D 5.1% perpetual in 2013.

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