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Below readers can post in the comments section items they believe are important to seen right away by all other readers.

For instance if we are not at our computer and a reader spots a new issue being issued they can post it below where others can come for ‘breaking news’ from other readers.

We want to keep this page ‘fresh’ so we will slick it off every 50 days so the items below remain only newer items.

We only ask that comments beyond the breaking news be kept to other pages or this page will be ‘out of control’ and not fulfilling what I hope is a handy alert page.


1,149 thoughts on “READER INITIATED ALERTS”

  1. AQNA – One More Time: CALLABLE @ any time or only on interest payment dates????

    You know there used to be a time when I thought I was pretty good at reading and interpreting prospectuses. However, in this day and age where everybody’s parsing every single word of a every prospectus looking for hidden meaning, ala the ongoing debates about transition to SOFR from LIBOR language concerning PMT, CIM, et al, I just don’t know anymore…..

    AQN’s IR is now saying that AQNA is CALLABLE AT ANY TIME on 30 days’ notice on or after 10/17, NOT on any interest payment date only. The word for word language in the prospectus might mean they are right because there is a differentiation made in the wording that I don’t ever remember seeing before……

    What it says on p S-24 and probably in 2 other areas of the document as well is
    “On or after October 17, 2023, the Issuer may, at its option, on giving not more than 60 nor less than 30 days’ notice to the holders of the Notes, redeem the Notes, IN WHOLE AT ANY TIME OR IN PART FROM TIME TO TIME ON ANY INTEREST PAYMENT DATE.” Who makes that distinction??? I don’t remember ever reading that before in any other prospectus. So they are saying that only if they called a partial amount of the outstanding would it have to be done only on an interest payment date…… Call in whole and they can call at any time.

    So I give up…….I don’t know what’s right or what will happen on this one in particular. They are sticking to their guns that they will call it in 2023, but to date they have made no announcement so it’s at least 30 days away….. As added confusion, that means that if they give a 30 day notice at any time between now and Oct 17, the accrued amount due on call date will be split between 6.875% up until 10/14 and what’s an unknowable floating rate that they cannot even determine until approx 10/17 (assuming they determine they have to go to floating rate). So I’d guess they will not announce a call until after 10/17, but after all of this who am I to guess anything right anyway??? Due your own diliwhat?

    Enough of this one…. It’s time for me to quote Doris Day and move on (google her you youngn’s): “Que Sera Sera” – https://www.youtube.com/watch?v=CcWbZUgymkw&ab_channel=BuciuDeCuluFilm. I’ll hold what I own and see what actually happens..

    1. Lawyers are trained to be able to look the same wording and be able to argue both sides. So should we should be surprised by their ability to write something that can have either meaning?

      For those who defend companies saying “it was in the prospectus”, they must love to be in the right. Guess what? Another set of lawyers will fing reasons it is not. And just because they put it in a prospectus (i.e. frustration of purpose) does not mean it will not be found void or illegal.

      In some respects I love what AQN is doing. I do not know of other companies telling yoh their redemption plans ahead of time via annual or quarterly reports. Excellent. The nonsense of AQNA is not defensible. Thanks 2whiteroses for all the hard work here.

    2. What a strange provision. Kinda hard to imagine there was a business purpose for putting that in, and was probably just some sloppy drafting by the lawyers. Or maybe it’s a Canadian thing lol

    3. I don’t know that I have seen this, but I would also suspect that I have simply glossed over it in the past.

      What I see when I read this is:
      1)The company is long and shareholders are short an American style call option which can only be triggered for 100% of the outstanding shares.
      2)The company is long and shareholders are short a Bermuda style call option which can be triggered for less than 100% of outstanding shares.

      Of course American style options are generally worth more than Bermuda style options as they give the long party more flexibility and the short party less protection. (Long will pay more and Short will demand more premium).

      I suspect this is material for large holders only. The split double option leg provision does in some way devalue the American style option leg because it does make it harder for them to exercise the American style call option. If you have a large enough position I can see how this might matter.

      For a shareholder dealing in the size that I deal in, I think the difference is immaterial and it is best to consider the American style option as the worst case scenario.

    1. Yes the issue got swamped on a half billion share dump today. I saw it myself and indulged for a very modest position at $13.63. Didn’t own a bank issue. Nearly 9% and going exD next week.

  2. Unexpected development – OCESP

    Fidelity would like to inform you of an event that will occur on one of the securities which you hold in your portfolio.

    The below security was affected by a Full Call.

    CUSIP: 675022206
    Redemption Price: 25.00
    Call Date: 2023-10-17

      1. Dave,

        I imagine a person has to have it in their account to get notified. I would assume it would also be called. It rarely ever traded and thus not many of us here ever had a chance to buy it. Super small float compared to OCESP.

        I cannot even find it on otcmarkets.com anymore. Perhaps already called?

        1. Thanks. Got the call notice this morning. Haha. I thought I was smart unloading most of this stuff right before it became untradable.

    1. They are calling a 4% perpetual preferred??? I assume this is a de minimus part of their balance sheet, but why now? Do they even publish financial statements? Maybe an insider needed liquidity lol.

      1. 730, I know they got a new CFO this year. Perhaps that new CFO decided to start pulling up the couch cushions and looking for loose change. But I also had the thought in the back of my mind that a farmer could have looked to sell some shares and finally understood what the expert market meant. Then proceeded to get upset. Ocean Spray just said eh.. called.


    2. I had to arm wrestle my broker for these but I got them for around $14 a few years back so I am pretty pleased.

      I haven’t gotten a notification from RBC yet though.

  3. AQNA CALLED????? OK what do you to find out more when IR tells you AQNA will be called on 10/17 and apparently nobody else in the universe has heard anything about it????? Today I got the following response from AQN when asking them to confirm what they were going to do regarding transitioning from LIBOR to SOFR. I now have a call in to speak with her directly.

    Thank you for your inquiry.

    We have not appointed a calculation agent to determine what the substitute to 3M LIBOR is and our plan is to still redeem on October 17th as we’ve previously indicated publicly.

    Kind regards,
    Alison Holditch, CPIR | Algonquin Power & Utilities Corp. | Manager, Investor Relations
    P: 905-465-6748 | C: 365-292-3657 | E:Alison.Holditch@libertyutilities.com
    354 Davis Road, Suite 100, Oakville, Ontario L6J 2X1

    1. Divi is $.43 with ex-date Oct 2 (payable 10/17), so at current price (~$25.25) there are still a few cents there.

      I would love to see the call notice. I am assuming they will pay the %25.43 on 10/17 and that will be it.

      I have a tiny bit in a small account, so I will hold until Oct. 2, then try to sell above $25.


      1. Not getting burned at present price if called for 10/17. Also, AQNB at present price, I see as at least a good replacement.

      2. At this price it just pays for me to hold and force them to show their actual hand and see that call.

      1. Still awaiting a callback from Alison @ AQN – I own AQNA at Fidelity and they’re normally good at letting me know on calls. Call to Corp Actions this morning says they have no information on a 10/17 call announcement… Rereading what Alison write, it’s vague – as if maybe they were not aware of the 30 day advanced notice requirement and could have possibly missed it. Their expecting to call certainly implies they think it will have to float not revert to fixed if outstanding beyond 10/17…. Hopefully I’ll get a callback..

          1. Good catch, ken… at least that’s proof that they have said something somewhere some time previously about expecting to redeem … I hadn’t even been able to prove that no less that a call notice has been issued… could it really be possible that they unintentionally missed their window to call for 10/17?

            1. Interesting, the note is on page 43. The 2079 issue is interesting. That would be AQNB. It is callable in 2024. The way I read this note, plans are to call it in 2029. Typo?

              1. Same notes in the August 2023 update including the 2079 issue. So. it does not appear to be a typo in the annual report.

          2. Good find. Another footnote indicates they have a fixed/variable swap in place for AQNB through 2029, so it appears they currently intend to leave it outstanding for the duration of the swap.

          3. Interestingly, in a follow-up email from IR they quote the same footnotes as to their intentions….. HOWEVER, although I’ve not talked directly yet, another follow-up email from Alison makes this all even more strange – if I read this correctly I think she’s implying that they think they do not have to give 30 days notice for a call specifically on 10/17…… That’s absolutely nuts since it says, “ON or after…..” so I’m asking again for further clarification –

            “To address the October 17, 2023 date confusion – the Prospectus states that the Company has the right to call it on 30 days’ notice, but no more than 60 days’ notice, once we get past the October 17, 2023 date.

            From page S-10 of the Prospectus:

            Redemption Right: . . . . . . . . . . . . . . . . . . . .On or after October 17, 2023 , the Corporation may, at its option, on giving not more than 60 nor less than 30 days’ notice to the holders of the Notes, redeem the Notes, in whole at any time or in part from time to time on any Interest Payment Date. The redemption price per $25 principal amount of Notes redeemed on any Interest Payment Date will be 100.00% of the principal amount thereof, together with accrued and unpaid interest to, but excluding, the date fixed for redemption. Notes that are redeemed shall be cancelled and shall not be reissued. See ‘‘Description of the Notes—Redemption Right.’’

            Kind regards,


            1. So the footnote says the 2079 issue (which I interpet to be AQNB – if others disagree please post) is not planned to be called until 2029.

              That would still be a good opportunity.

            2. More on AQNA – NOT CALLED!

              From Alison:

              Good morning,

              Appreciate the continued patience while I got the correct information for you.

              The initial response to you regarding the October 17th date was in error.

              You are correct – the notice must be provided no less than 30 days before calling it, and the Company will abide by the terms of the Prospectus.

              As per our public disclosures, our intent is to call in 2023, but no date has been communicated at this time.”

              So the information they are provided is STILL WRONG, but they now admit that a call will not happen on 10/17. They apparently still think they can call in 2023 but they can’t… They can only call on next interest payment date which is 1/17/24. This should also mean that there will be 1 quarter’s worth of floating rate payment assuming they don’t claim they can go to fixed. If it began floating today, the rate would be 9.33% approx.

              1. 2WR, while you have their attention you should ask them about AQNB too. Supposedly they have projected its call for 2029, but that is the date the float rate goes from LIBOR plus 4.01 to LIBOR plus 4.26. Whereas the first call date is in 2024.

                Is it possible they mixed up the reset date and the call date? Because otherwise, they are going to let it float for 5 yrs. If they meant the first call date then the YTC would be very nice here.

              2. Given the language on prospectus page S-32, I don’t see how they could plausibly claim that AQNA can go to fixed.
                Your efforts here are much appreciated.

                1. Don’t misunderstand, nhc…… My belief is that they would not have been expecting to call on 10/17 if they thought they were going to go to fixed and not float. So I don’t think they expect to fix the rate… However, they are obviously behind the curve and just plain screwed up by not paying attention to it in a timely manner thereby missing the ability to call on 10/17. As another factor proving they’re behind the curve is that they admit to not yet even appointing a calculation agent…. So I made them aware they got to git ‘er done before 10/17 because they have to set the new rate on that date if not sooner…. Looking quickly I missed the 2 day before language for setting the new rate, but it’s probably there somewhere.

                  And Scott – obviously once they get a calculation agent assigned then everything on B ought to come into place quickly afterwards as well…

                  1. 2WR you should volunteer your services as calculation agent.

                    They sound disogranized enough they would probably hire you and then forget about it so you would effectively be on a pension with them!

    2. I opened a position in AQNB. The floating rate on AQNB in July will be higher than AQNA is now (assuming it actually floats). But my guess is they called AQNA to avoid the floating rate. If they were going to try and get away with a fixed only, I would have thought now was the time.

      So, if they are going to call AQNA, I would imagine they will also call AQNB on 7-1-2024. Especially, if they sell off their renewals business currently under strategic review. I have calculated a 9% yield if called in 7-1-2024 for holding this for 9 months and 10 days. A nice return. The current yield at $24 is 6.46%

      1. I calculate 11,6% if called. 4% Capital Gain for 9+ months would add 5+% to the div yield. No guarantee it will be called a lot can happen in 9 months.

        1. Yes, but if not called at current SOFR rates (of course they could go down) + 4.01% on a purchase price of $24, you have a very big yield. So you are compensated for the risk.

          Agree with your yield calculation. Mine was only for 9 months. I only look at the money going into my pocket.

      2. Pitiful by their Investor Relations. How are they going to set rate without calculation agent? That just became optional?

  4. Anyone have a clue what is going on with Carecloud preferred today. No visible news I’ve seen. Preferred dividends declared for a couple months.

    1. I own CCLDP ; i find no clue why the huge drop ; also note the CCLDO 8.75
      experiencing the same huge drop ;

      1. theodore—that is crazy on big volume. Don’t see news, but I was always amazed at the levels it traded at when the common was just over a $1/share.

      2. CCLDO fell hugely on Monday but CCLDP waited until Tuesday to fall (32%). If there were a fundamental reason, would they not both have fallen on Monday?

  5. RPT-D off 1.00 today- and 1.45 since post merger announcement late Aug.
    Profit taking or something new- such as how it will be handled?

      1. Interesting they’re choosing the baby bond route… That will fall right into the sites of those who believe that PMT has purposely been trying to screw retail investors with something they know they couldn’t get away with with institutions with their decision to fix rates on PMT-A and B rather than adopt SOFR…. I don’t buy that line of reasoning but it will be interesting to see how this gets priced and whether or not PMT will have to pay a penalty price because of it.

  6. This appears to be a riddle to me:
    ONBPO & ONBPP both pay the same 7% and call dates are the same -8/20/25. (WHY did they do that?)
    But they often trade with differences of 50¢ or so.
    ONBPO today- high: 24.47 Low: 23.78 69¢ spread
    ONBPP 24.10 23.21 88¢ spread
    Last price now: PO is 11¢ higher
    PP has twice the trades, so someone is taking advantage of it. Over periods of a month or more PO wins, but for last 10 days, PP is doing much better.
    Is it all just arbitrage taking advantage of buyers who aren’t aware that they are the same, or am I missing something ( like I should be taking advantage of it)?

    1. Nope, no reason for you to take advantage. i will be happy fill that role instead.

      I don’t know the issue you are talking about, but what you are seeing is the bread and butter of flippers (which I confess to be, at least part time).

      markets are not perfectly efficient, and flippers (arbitrageurs) help make it more efficient by exploiting those variances.

      I have a couple of thinly traded issues where I make about $1/share/week – but only on small volumes. I have a couple of somewhat bigger volume players where it is more like $2 a month. Hard to find big issues where you can flip thousands of shares at a time (but they sometimes pop up).

      sometimes I can even flip some issues a couple of times in a day. Love that – but hard to find.

      1. Private-
        Don’t tell anyone….
        Might give it a whirl- sitting on PO shares at 19.58 cost, so can get more of each as price jumps around on them.

  7. AJXA

    A large slug of AJXA has been available around 24.50 the last few days.

    It is a 7.25% coupon tradable busted convertible senior note. Ex div is 9/30.

    It has two main points which make this “money good” in my mind.

    1. it matures april 30, 2024.
    2. Its parent company, MREIT Great Ajax, is in the process of being bought by Ellington, an MREIT with a much better credit profile.

    I haven’t done the YTM calc but I imagine it is close to 10%.

    1. One question, since it is a busted convertible, is the company obligated to redeem it on par on april 30,2024?

      1. HarborPark—yes maturity remains the same.

        From the prospectus

        Maturity date
        April 30, 2024, unless earlier repurchased, redeemed or converted.

      2. From one minute’s looking, I would think they have to redeem in 24. This is debt, and it matures then.
        There is probably more info in the prospectus that might contradict me, but I didn’t read it.

        1. Agree with Tim. This will mature on April 30, 2024 unless they default. If others have contradictory info, please share.

          I think it is fairly priced (at 24.5) IF the Ellington merger wasn’t in play. But with it.. and odds of success greater than 85%, then I really like the name.

          You won’t get rich off it.. but I like the odds..

          The only negative is opportunity cost; there are so many compelling opps now, including the enbridge prefs we have discussed .

          1. I guess I might have to raise my GTC I have been picking it up a little bit at a time around 24.45 to 24.47 now everyone knows so I guess it’s not going to fall below 24.50 now
            Thanks Maine!

            1. Hey! I had my fill, or most of it.

              Plus, I’ve gotten so many good ideas here, happy to share.

        2. https://www.sec.gov/ix?doc=/Archives/edgar/data/1614806/000110465923077386/tm2320412d1_8k.htm

          Referring to acquisition by EFC

          In addition, Great Ajax has agreed to use commercially reasonable efforts to effect the redemption of each outstanding share of Great Ajax 7.25% Series A Preferred Stock, $0.01 par value per share (the “Great Ajax Series A Preferred Stock”), and Great Ajax 5.00% Series B Preferred Stock, $0.01 par value per share (the “Great Ajax Series B Preferred Stock”), immediately prior to Closing, or take such other action to cause each outstanding share of Great Ajax Series A Preferred Stock and Great Ajax Series B Preferred Stock to no longer be outstanding immediately prior to Closing, in accordance with the terms in the Merger Agreement (collectively, the “Great Ajax Preferred Stock Redemptions”).

          1. 2whiteroses,
            Thanks! That’s even better. They were callable starting April 2022.
            So my guess is they wait until shareholders approve the buyout, and then put in the call.

            1. Usually one of the last hurdles before a Closing date is shareholder approval…. as far as I see, a date has yet to be set for a shareholder vote on this acquisition by AJX holders. I suppose that leaves timing a bit up in the air for now, but I think they have a Jan deadlin, which of course could be extended…. I’ve not followed this until today so thanks to whomever brought it up. Situation looks interesting – EFC is also acquiring Arlington [AAIC] – has there been any timing set for that one yet?


              Section 7.1 Conditions to Each Party’s Obligation to Consummate the Merger. The respective obligation of each party to consummate the Merger is subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any or all of which may be waived jointly by the parties, in whole or in part, to the extent permitted by applicable Law:

              (a) Shareholder Approval. The Company Shareholder Approval shall have been obtained in accordance with applicable Law, the rules and regulations of the NYSE and the Organizational Documents of the Company.

              (b) No Injunctions or Restraints. No Governmental Entity having jurisdiction over any party shall have issued any order, decree, ruling, injunction or other action that is in effect (whether temporary, preliminary or permanent) restraining, enjoining or otherwise prohibiting the consummation of the Merger and no Law shall have been adopted that makes consummation of the Merger illegal or otherwise prohibited.

              (c) Registration Statement. The Registration Statement shall have been declared effective by the SEC under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued by the SEC and remain in effect and no Proceeding to that effect shall have been commenced.

              1. Arlington is also scheduled to be closed in Q4. Same as AJX, the vote hasn’t been sent to shareholders yet, but my guess is that it happens soon as management just had a LOT of shares vest.

                Check out AAIC-C. It is trading close to par, another sign their deal will also close.

                1. The AAIC issues will be treated differently than AJX based on a quick read…. It looks as though they are essentially being assumed by EFC although its being done by conversion to EFC named issues… You see it the same way?

                  1. Right.

                    I just mentioned AAIC- C as evidence that the market likes Ellington as a credit.

                    I don’t understand rationale, but it seems
                    like the acquirer typically prefers NOT to assume the convertible debt of the acquieirer.. assuming they have a choice. I guess it
                    makes the takeover more complex legally or creates more potential dilution.

                    For instance, it was an issue in the WMC/ terra merger that failed, with MITT eventually wining the bid, and deciding to keep the debt.

                    From a risk perspective, having them taken out earlier is better, but the impact is less considering
                    Maturity is so soon.

                    Unrelated, fidelity can be both great and horrible at times. They don’t allow AJXA to be purchased as they ban all purchases of convertible debt. So frustrating. With that said, their execution and customer service are pretty good.

                    1. At a price of 24.50, I get a YTM for AJXA of ~12.8%. But that’s only for about 7.4 months.
                      As to AAIC, I’m thinking that AIC (notes) at 24.19 with a YTM of ~9.1% for 18 months might be worth a look.

                    2. NH and Maine

                      FWIW, I’ve recently started a small position in AAIN with a YTM of ~8.8% and a duration of less than three years.

                  2. Ellington seems to be sweeping up a few of these smaller financial companies. AAIC seems to be in slightly better shape earning wise than AJX but has more preferred and BB outstanding than AJX and I think it was mentioned on SA AAIC uses higher leverage. Pick your poison for higher risk, neither deal has been voted on or closed but either way AJXA is due in April 2024 so for me slightly lower risk with a slightly lower yield.
                    2WR you were looking at AAIC back in Nov. 2022 , has anything changed?

                    1. Charles – You’ve got a longer memory than I do if you know I was looking at AAIC in Nov ’22… I know I did look when the EFC deal was first announced, but backed off after discovering all that would happen would be an assumption by EFC, even though it was obvious that EFC had better credit metrics…… In general, though, I’m not comfortable with this area of REITs and am not ready to begin to up my own DD…. that being said, AJXA sure seems to be the kind of story I like – not only the likelihood of a quick call, but also a short maturity and good YTM. Just knowing EFC is willing to acquire them leads me to believe the risks of AJX not making it to 3/24 can be considered pretty slim……..

                    2. 2WR I always like to take a quick look on SA and more interested in the comments section sometimes. The author Jeremy on one article was nice enough to respond to readers comments. I happened to see your comment there.
                      Agreed, merits I really don’t have any interest in right now except for a small nibble.

          2. PLEASE NOTE: RE above SEC filing quote – https://www.sec.gov/ix?doc=/Archives/edgar/data/1614806/000110465923077386/tm2320412d1_8k.htm

            Spending a bit more time on this – it is referring to ‘each outstanding share of Great Ajax 7.25% Series A PREFERRED STOCK, $0.01 par value per share (the “Great Ajax Series A Preferred Stock”).” It is NOT referring to AJXA which is 7.25% SENIOR NOTE…. Ahhhhhhhhhh nuts! It sure did seem to be too good to be true and I guess it is…. That being said, maybe the seller who’s been out there on AJXA blew out what he had left today at the close with over 11k trading at 24.46 at the close.. Volume = 4.50x average today but there’s also been 5 large volume days on this one in the last month with today’s being the second largest. I’m now in at 24.48 average… YTM today = 12.42% with x-div date coming up on 9/29 I believe.

            1. Another caveat on AJXA – You’re well compensated to do so with a near 12.50% YTM, but be prepared to hold to 4/30/23 maturity. Maybe the selling that’s been in the market has been from funds required to own listed securities –

              From Plan of Merger – https://www.sec.gov/Archives/edgar/data/1411342/000110465923077395/tm2320414d1_ex2-1.htm

              P 62
              Section 6.19            Delisting. Each of the parties agrees to cooperate with the other parties in taking, or causing to be taken, all actions necessary to delist the Company Common Stock and the Company Convertible Notes from the NYSE and terminate its registration under the Exchange Act; provided that such delisting and termination shall not be effective until after the Effective Time

              1. 4/24 2WR and still early in the day and Mr. Market undecided. Not doing anything but watching, Well not exactly correct I bought a mongrel of a dog
                picked up a few bonds of DPL

                1. thanks for the typo correction, Charles… sorry ’bout that… BTW, if I am figuring right, now the YTM at 24.50 = 13%

    1. Sad I was hoping they would forget to call it for a little while. Is a big position for me.

      1. Yes I had parked a good chunk of money here, but I was expecting it to be called. Was a good combination of capitol preservation and income.
        Now like the GS-J I have to find a home for this.
        Just no interest with the way things are going in Sept right now to take capitol risk. The market seems to be building a Jenga tower with higher market moves, high interest rates, strikes at auto plants, higher oil prices, stuck with higher inflation, House of Reps making threats of Government shutdown, Have I listed enough negatives ? Anyone want to list some positives?

          1. Thanks Steve, I parked some of the proceeds in SOCGP today solid 6% chance of capital appreciation if rates go down.

  8. New Issue CD – 6.00%

    BMO Harris N.A.

    CUSIP 05610LBD5 – Issue date 09/28/23, callable 03/28/24, maturity 09/28/33

    A very small amount is available at E*Trade. I don’t see it at any other broker.

    1. Seems high- at Schwab there are two 10yr CDs- both 4.45% – why would they be paying 6% ? On TV, BMO advertises how smart they are.

      1. Maybe they are setting such a high rate because they plan to call very early? That seems something a “smart guy” might do. Wouldn’t do much for their reputation, but maybe they are so smart they think it won’t matter (and maybe it wouldn’t).

    2. CTM–probably not viable beyond another year or so — although who knows for sure.

      1. Tim, I agree with you, but to look at the flip side-
        Maybe Harris is betting that rates will climb and before long, 6% might look good, i.e. they might look really smart to have 6% money for up to 10 years if rates climb.

        1. I bought some of the BMO 6% 10 YR. Not worried about the early call feature.

          At a higher level, more concerned about the fact that FDIC only has actual assets to insure 1% of all insured deposits.

          In general, short term treasuries are ‘safer’ than CDs.

  9. Interestingly enough, Matt Levine over at Bloomberg had a piece on LIBOR transitions and PMT-A in his newsletter today. He concludes that the company is “…probably correct?”

    (I get it via email so don’t know how to get a link to people here.)

    1. Here is Matt Levine’s article
      Some Floating Rates Won’t Float

      By Matt Levine
      September 11, 2023 at 11:36 AM PDT
      Banks often raise money by issuing fixed-to-floating-rate preferred stock: They sell shares for $25, and for some fixed period (often five, seven or 10 years) those shares pay an annual dividend of, say, 6% ($1.50 per year, or $0.375 per quarter). And then after that they start paying a dividend that changes each quarter based on some benchmark interest rate. Usually the preferred stock is perpetual — the bank never has to pay it back — but it is callable: After it switches from a fixed to a floating rate, the bank can decide to pay it back at par ($25 per share). The rough idea is:

      For the bank, this looks like perpetual preferred stock, which counts as good loss-absorbing regulatory capital.
      For investors, this looks a bit like a medium-term bond: The preferred is perpetual, but it only has five to 10 years of fixed-rate interest-rate risk; after that the bank will either call it, or it will pay a market-based interest rate and so should trade fairly close to par.
      For many years, the standard benchmark interest rate was Libor, the London interbank offered rate, and fixed-to-floating preferreds normally reset to Libor plus some fixed spread. “Libor plus 4.0%,” the contract might say, and then if three-month Libor was 3.0% on some quarterly reset date, the dividend rate for that quarter would be 7.0% per year ($0.4375 for the quarter). (Technically this is a “dividend rate,” but it is natural and common to call it an “interest rate” instead, since the preferred is a fixed-income instrument.)

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      A puzzle in issuing a stock like this is how to define Libor. Libor was a rate determined by calling around a bunch of banks each day and asking them how much they’d charge to lend money, unsecured, for various terms and various currencies, to other big banks. The administrator — for a long time it was the British Bankers’ Association — would do the poll and then publish a trimmed average of the answers as Libor.

      Traditionally in these contracts Libor would be defined something like this1:

      There is some Bloomberg or Reuters page that shows the BBA’s published Libor rates, and “three-month Libor” is defined as the interest rate (for US dollars and three-month maturity) displayed on that page, “or such other page as may replace” that page.
      If Bloomberg or Reuters no longer displays a Libor page, then Libor is generally defined as the result that you get by calling “four nationally-recognized banks in the London interbank market” and asking them for “their offered quotation for deposits in U.S. dollars for a period of three months … to prime banks in the London interbank market at approximately 11:00 a.m. (London time),” and then averaging their quotes. That is, basically, if the Libor poll is no longer reported on a financial information service, the bank will re-create a small version of the poll itself.
      If you can’t get any banks to quote a Libor-like rate, then “the dividend shall be calculated at the dividend rate in effect for the immediately preceding dividend period”: If there’s no Libor this quarter, you just use last quarter’s Libor.
      Well, there’s no Libor anymore. There was a big scandal a decade ago — it turns out that when you ask banks what interest rate they pay, sometimes they lie — and regulators slowly got rid of it. Now there are other floating benchmark interest rates that are based more on market data; in the US the main one is SOFR, the Secured Overnight Financing Rate, based on Treasury repo transactions. SOFR is a bit different from Libor — it’s overnight, whereas Libor was for longer terms, and it’s secured (by Treasuries), whereas Libor was unsecured — but it is like Libor in being the successor standard US dollar floating interest rate.

      And there are all these contracts — floating-rate loans, bonds, preferred stocks, all sorts of things — that reference Libor. Some of these contracts were renegotiated as Libor went away: I owed you money at Libor plus 4%, Libor was going away, so we sat down to negotiate a new floating rate. But many contracts were hard to renegotiate: A preferred stock, for instance, is owned by lots of anonymous investors who can’t easily be contacted to agree to a new rate.

      So, in the US, Congress and the Federal Reserve got involved. The very very simple fix would be to just declare, by law, “all references to Libor now mean SOFR,” but that would be economically wrong: Libor, being longer-term and riskier than SOFR, is higher than SOFR, so just replacing Libor with SOFR would lower everyone’s interest rates. The more reasonable but almost as simple fix would be to just declare, by law, “all references to Libor now mean SOFR plus an adjustment” to reflect the fact that three-month Libor was a three-month unsecured rate and SOFR is an overnight secured rate.

      And Congress kind of did that? Last year it passed the Libor Act, which says roughly that:

      If there is a contract that uses Libor, then Libor, in that contract, will be replaced by a “benchmark replacement” chosen by the Federal Reserve; except
      If the contract has a “fallback provision” — if it says something like “if there’s no Libor, we’ll use this other interest-rate benchmark” — then the contract will just use that fallback provision instead of the Fed’s benchmark.
      And then the Fed published regulations implementing that. And now “three-month Libor” means “three-month CME Term SOFR plus 0.26161%.”

      Now here is a question. I laid out how typical bank fixed-to-floating preferred stock works:

      The floating rate is a published Libor rate.
      If Libor isn’t published, it’s a rate based on polling banks.
      If there’s no Libor at all, the floating rate is the previous quarter’s rate.
      Does that have a “fallback provision”? Obviously Option 1 is just Libor, and that went away. Option 2 — re-create Libor yourself by polling banks — does not count as a fallback provision; the Libor Act says that “a requirement that a person (other than a benchmark administrator) conduct a poll, survey, or inquiries for quotes or information concerning interbank lending or deposit rates shall be disregarded as if not included in the fallback provisions of such LIBOR contract and shall be deemed null and void and without any force or effect.”

      But Option 3? I mean, in a fixed-to-floating preferred, (1) there is a fixed rate for five to 10 years and then (2) it’s Libor. If Libor goes away while the preferred is still fixed-rate, then, by pure mechanical reading of the contract, that means that the preferred is fixed-rate forever: After it becomes floating-rate, each quarter, you look at Libor, you can’t find a Libor, so the contract says that the interest rate for that quarter is the same as the previous quarter. Which is the fixed rate.

      And so if you are a bank that issued a fixed-to-floating preferred in the last decade, when interest rates were low, and it will soon start floating, and interest rates are high now, you might say, well, we have fallback language, and the rate is fixed (and low) forever.

      Here is a fun story from Barron’s:

      Welcome to the Twilight Zone of two preferred stocks from PennyMac Mortgage Investment Trust (ticker: PMT), a real estate investment trust that invests in mortgages (and no relation to government sponsored enterprise Freddie Mac). These two preferreds, series A (PMT.PRA) and series B (PMT.PRB), were of the fixed-to-floating-rate variety. That means they paid a fixed dividend until a specified time, after which their payouts would be adjusted based on the London interbank offered rate, or Libor, plus a spread.

      Based on that, PennyMac preferred-share investors likely anticipated a big rise in payouts next year. The series A preferred dividend was slated to adjust from 8.125% annually on March 15, 2024, to Libor plus 5.831%. The series B dividend was set to change from 8% to Libor plus 5.99%. Those changes would likely have put the preferreds’ payouts over 11%. …

      But in a press release published late in the afternoon on the last Friday of August, PennyMac announced that, per the contractual provisions for its preferred shares, the dividends would be fixed at the rate of the preceding period — for series A and series B shares, 8.125% and 8%, respectively. Had PennyMac used a base rate of 5.56% (SOFR’s 5.3% plus 0.26161%), that would produce a dividend rate of 11.39161% for series A and 11.55% for series B. …

      Adding insult to injury, the shares sank in the wake of the Aug. 25 dividend announcement: Series A fell 6.5% to $21.83 this past Thursday, and series B dropped 5% to $21.67. …

      Market pros have been critical of PennyMac’s actions, which differed from the vast majority of payers of floating-rate instruments that transitioned to SOFR from Libor. “PMT’s behavior was particularly nasty, even exploitative, to investors,” wrote Charles Lieberman, chief investment officer of Advisors Capital Management, in an email. He’s also an investor in other mortgage REITs’ fixed-to-float preferred shares.

      Lieberman noted the PennyMac preferreds were $25 par issues traded on exchanges and aimed at individual investors. “I don’t think they would have had the sheer chutzpah to treat institutional investors that badly, ” he wrote. “I’m glad we had no exposure here, since I would have been royally upset.”

      I don’t know! The thing is, PennyMac2 can’t just change the terms of its preferred stocks by itself. Either the Libor Act changed those terms (in which case PennyMac’s shares pay SOFR, plus 0.26161%, plus 5.831% or 5.99%), or it didn’t (in which case they pay 8.125% or 8% flat). Apparently PennyMac takes the view that the third option in its preferred stock — the rate stays fixed forever — is a fallback provision, and so the Libor Act didn’t override it, so that’s what the preferred stock now pays. (Here is the press release, and here is the original 2017 prospectus for the 8.125% preferred.) That strikes me as … probably correct? The contract says that, if Libor goes away, the rate stays fixed forever. Libor went away, so the rate stays fixed forever.

      Casual examination of other fixed-to-floating preferreds suggests that PennyMac is not alone. A lot of banks did replace all their Libors with SOFRs along the lines of the Libor Act; here are announcements from Morgan Stanley, Citizens Financial Group Inc. and Regions Financial Corp. But here is a more complicated announcement from State Street Corp. from June. State Street has some fixed-to-floating preferred stock (and bonds) that were indexed to Libor, and that will now, under the Libor Act, be indexed to SOFR. But it also has some that won’t be:

      Each series of State Street’s Preferred Stock listed in Annex 3 to this press release is governed by the terms of a certificate of designation (each, a “Certificate”) and will not transition to Three-month CME Term SOFR by operation of law or otherwise. The Certificate for each such series specifies a fixed dividend rate (the “Dividend Rate”) for a dividend period beginning on a specified date (the “Commencement Date”), in each case as shown for each series in Annex 3 to this press release, if Three-Month USD LIBOR cannot otherwise be determined as provided in the applicable Certificate. Given that the Commencement Date for each such series follows the LIBOR Replacement Date, the Dividend Rate for each series after the applicable Commencement Date will be the applicable fixed rate specified in Annex 3 to this press release.

      That is, some of State Street’s preferreds are in the same boat as PennyMac’s: They currently have a fixed rate (“the Commencement Date for each such series follows the LIBOR Replacement Date”), so their current interest rate doesn’t change due to the Libor Act. And when they move to a floating rate in the future, there is fallback language saying that, if there’s no Libor, they just use the previous quarter’s rate. Which will be the fixed rate, forever.

      Obviously PennyMac could call the preferred stocks at their first call date in 2024. This would mean paying investors $25 for shares that currently trade below $22. And then PennyMac could replace them with new preferred stock that pays a higher dividend rate, say SOFR plus 6%. That would be nice, for investors; it would give the investors roughly the experience (seven years of fixed payments, then perpetual floating-rate payments) that they signed up for. But, you know, why? PennyMac has lucked into cheap(ish) perpetual

      1. Well written except for the last sentence. “PennyMac has lucked into cheap(ish) perpetual”. Luck has nothing to do with it. They inserted a few words that allowed them to market a “fixed to floating rate” issue and switch it to a fixed rate. Where’s the luck? As far as I am concerned this is a classic bait-and-switch tactic. Yes – it’s legal. Yes – it may even be required by the prospectus. Yes – they buried it in the fine print despite how it was marketed. All the things that “bait-and-switch” tactics do.

        The author notes they could call back the preferred stock. “But why should they?” My answer is that doing a “bait-and-switch” is simply not the right ethical thing to do. But, I get it. They are going to maximize profits and not deliver on what they marketed. The fixed to floating rate got switched to a fixed rate. They played “gotcha” and the customers lost.

        1. > Where’s the luck?

          When they issued the shares in March 2017, they had no idea what the 2022 LIBOR Act provisions would end up being. As Levine notes, you could imagine a different regulatory regime where the government just said, “okay every contract that says 3mL now says 3m Term SOFR”, for example. But that’s not the way it happened, and PMT got lucky in that the way the law was written let them avoid the reset.

          1. Point taken. I do not think this way. Yes, they got lucky the law did not require them to honor the original intent of the issue which was to float off Libor. This allowed them to use the language they intentionally inserted to convert it to a fixed.

        2. A prospectus is not fine print, it is a legal contract that should be read and understood. If someone is unable to do that, they should not be investing in said investment. I’ve worked in an industry where bait & switch was very common, this is certainly not bait & switch. It is their duty to stock holders to maximize profits.

          1. If every company felt that way there would be no more preferred stocks. Nobody would buy them if they could be stolen willy nilly to benefit common stockholders. How would that maximize profits?
            If I didn’t buy anything I didn’t fully understand I’d never buy anything except maybe bank accounts.

          2. When an issue is brought to market and sold as “fixed to floating”, having it become “fixed” at the initial 5 year rate via language the company intentionally inserted it is certaintly bait and switch. The legal document (the prospectus) crossed the line and the customer got deceived via the insertion of a few words in the fine print. Smelly business practice. But yes, it is legal. Not very ethical.

  10. GNL acquisition of RTL is a done deal- both approved today- closing 9/12.
    2 preferreds : RTLPO RTLPP

      1. They were transferred to GBL preferred stock. Trading cost dropped today by a few percent. I haven’t seen any discussion if they are at risk.

  11. Tim

    Longtime reader of your great site.
    Question for you and board –
    Looking at MS-PA which pays dividend: greater of 3 mo LIbor +70 basis points or 4%
    Trading in low 21s. current yield is 7.4%
    I realize as interest rates go down that yield will drop. However, it price should also trade up to historical average closer to 24s.

    What am I missing here? MS is solid company (ala mini GS)?
    Appreciate everyone’s opinion.

      1. Both MET-A and BML-J are good but yield 6.3x% as compared to MS-A which pays higher. More to do with current trading price and what you can buy it for…

    1. If rates ever drop in future years this will pay under 5%. That’s probably whats keeping the div high now. And MS issues pay a little higher than others apparently investors think it’s slightly higher risk. Though I would think the risk is relatively low. I inherited an MS account and transferred it out as fast as I could, they are fee based for non-do-it-yourself investors.

      1. What are the chances MS just calls these fixed to float preferred and just issues a new fix/floater? They could keep doing that and keep rates lower if the cost made sense. I just do not know the company well enough to make an educated guess. They came out with some pretty low yielding fixed preferred lately and why wouldn’t they call some and issue new to lower their costs and play some sort of shell game a bit?

        1. Makes sense if rates stay high for a number of years. But a new issue would not have the same low minimum rate so they may keep the current issue as a hedge against falling rates in the future. Or just wait and see how it plays out.

      2. My thoughts: On MS-A, if short term rates dropped to zero, and the MS-A coupon went to 4%, you are correct that the yield of around 5% sounds unattractive today. But if short term rates went to zero, at what price do you think MS-A would trade? We have seen that environment before, and a 4% coupon on an MS obligation would look pretty attractive. I would guess that it might trade around par in that environment. So the downside is that the yield declines. But the upside is that price of MS-A likely rises, giving you a nice total return (particularly in a taxable account where the dividends are qualified and sale of the security gives you a nice capital gain). In that environment, many high coupon perpetual preferreds would be called anyway, so you would not be holding onto higher coupon fixed rate instruments.

    2. Has MS announced how they will treat this post 3ML being discontinued? Are they adopting the SOFR in place of LIBOR?

      1. Morgan Stanley’s treatment of LIBOR legacies (in-part) appears inequitable and unfair: On April 28th, Morgan Stanley announced that they would be transitioning to industry standard benchmarks for their preferred securities except for five fixed-to-floating securities (i.e., the preferred series E, F, I, K and M) that will retain their initial fixed coupon (to perpetuity) because the last fallback step says “initial dividend rate” rather than referencing a LIBOR calculation.

        1. I consider it bait and switch. Their preferred’s were sold as something that would float after 5 years. This attracts a different kind of investor and the 1st 5 years usually go at a discount to issues that are just fixed rate beyond 5 years. To save money with lower interest for 5 years and then in essence say the float is 0% may be legal but shows horrible executive leadership. Just because you can do something the lawyers managed to get into a prospectus doesn’t mean you should. Executives are obligated to lead. Closed my Etrade account. This is not showing honorable and respectful treatment of investors.

        2. Maybe I’m the naive one here, but I just don’t see it the same way… Do you really think MS thought to themselves hey, given the death of LIBOR, why don’t we save a few bucks by choosing to fix some of our F/F preferreds and not others? I believe their attorneys thoroughly went thru the language in each prospectus and concluded that on those that were declared to become fixed because of the transition to SOFR, they (MS) had no choice but to adhere to the letter of the words which leads to them becoming fixed… Yes I know some believe that an attorney’s review starts with an assumption of what the client wants the answer to be, but I just don’t buy it…… Beside MS, WFC and STT and maybe one more bank as well, have had to make the same decision on some of theirs as well… STT in particular is interesting because they came to polar opposite decisions on their 2 preferred solely based on the slight variations in language within the two prospectuses. So that leads me to believe none of these issuers are making executive decisions done in an inequitable or unfair way to benefit them at the expense of the preferred holders

          Right now on that other website there’s been a lot of ink spilled over PMT making the same decision regarding PMT-A and B. There are well thought out arguments being espoused on both sides by some knowledgeable people and even some threatening to sue claiming PMT will be in default if these do not float….. So far I do not think PMT has done anything but remain silent which is probably the right thing for them to do right now legally….. I’ve not heard of any real legal actions being taken either vs any of these guys, especially PMT which is garnering the most objections – maybe because they are a REIT while the others are banks or investment banks.

          1. i will be in the 5% minority. You in the 95%. My standard for business ethics is not even close to how businesses operate today. They sold and captitalized on a fixed to floating rate. Lawyers do not run the business. If the lawyers said it had to be a fixed rate issue now, an ethical leader says that we calling the issue in. Nobody brought a fixed rate issue 5 years. That was against the stated intent and purpose.

          2. Hi 2White

            “Do you really think MS thought to themselves hey, given the death of LIBOR, why don’t we save a few bucks by choosing to fix some of our F/F preferreds and not others?”

            Yes that is exactly what I think happened. I suspect the lawyers got a bonus for it for saving the company money.

            As I have stated a few times before, I have the MS E. Right now it has an attractive current yield of 7% which is good for what the issue is. However, after the 10/15 coupon payment and the Oct/Nov Fed rate hike I plan to look for alternatives and replace it.

            1. MS also underwrote the NFE GMLPF issues. Then MS put clients into the issue. Last conference call a MS broker (somehow) got on the call and asked about delisting and the integrity of potentially not paying preferreds. I would never deal with them. Their local guy in East TN is very successful and has many wealthy clients. I plan on asking him about these issues. He will have no idea as he (like most) are salespeople that bring on the big fish to the NYC office. BUT I will ask him in front of as many big fish as I can. I might also ask him on LinkedIn as he is a frequent poster. I would encourage all to do same. The local brokers do not make decisions but their feedback to the decision makers may make a difference. Personally, none of this is in my portfolio. I simply detest the conflict of interest and find MS the absolute worse.

              1. Hi TNT – I agree with you, but it is important to note that the interests of Bond holders and owners of Preferred shares are inherently in conflict with the interests of Common Equity. These conflicts of interest are fundamental to the capital structure of every company.

          3. “Do you really think MS thought to themselves hey, given the death of LIBOR, why don’t we save a few bucks by choosing to fix some of our F/F preferreds and not others? I believe their attorneys thoroughly went thru the language in each prospectus and concluded that on those that were declared to become fixed because of the transition to SOFR, they (MS) had no choice but to adhere to the letter of the words which leads to them becoming fixed”

            Exactly. This is no conspiracy . Having worked with some of these big law firms that advise on security issues a few decades ago, I am confident they simply read the prospectus language and concluded on that language. No vast conspiracy to screw holders of these securities. It is clear based on the various decisions made which even differ among securities issued by the same company

            1. The company offered and the purchasers brought a security that would float after 5 years (bait). They now own a security that is changed to a fixed (the switch). until called. If you believe it was justified as some do or you believe it is not as I do, it’s undeniable that the floating rate is now a fixed rate. Not an ethical way to do business. A business leader who finds themselves in this position should have called the issue. That’s an executive decision that has nothing to do with lawyers.

              1. “it’s undeniable that the floating rate is now a fixed rate. Not an ethical way to do business. A business leader who finds themselves in this position should have called the issue. That’s an executive decision that has nothing to do with lawyers.”

                Sorry – but I don’t see it as an ethical issue at all and I certainly don’t see any rational for a company to have called the issue. It was not the companies fault that LIBOR was phased out. And each investor has the option to hold the issue or sell it if i no longer fit their needs. Wanting a company to call an entire issue over this is naive IMO

            2. Maverick,
              I when I look at the PMT A prospectus and the NLY G prospectus I find exactly the same language concerning payments of floating dividends based on LIBOR and treatment for the case where LIBOR does not exist. This amounts to a couple of paragraphs in the documents are are easy to read.

              Do these documents name SOFR? No. That said we have 2 outcomes from two similar firms in a similar industry:

              NLY chose to maintain the floating dividend honoring their commitment.
              PMT chose to not honor their commitments and plans to pay a fixed dividend.

              You can rest assured that had the floating payment been less than the fixed coupon then PMT would have chosen to honor the fixed/floating contract.

              There is no conspiracy here.
              It is not that complex.
              PMT are deadbeats. NLY are not.
              It is that simple.

              1. Missing from PMT-A language but in NLY-G = “Notwithstanding the foregoing, if we determine on the relevant Dividend Determination Date that the LIBOR base rate has been discontinued, then we will appoint a Calculation Agent and the Calculation Agent will consult with an investment bank of national standing to determine whether there is an industry accepted substitute or successor base rate to Three-Month LIBOR Rate. If, after such consultation, the Calculation Agent determines that there is an industry accepted substitute or successor base rate, the Calculation Agent shall use such substitute or successor base rate.” My suspicion is that that might be pertinent to their arriving at opposite decisions, but that’s purely speculation on my part… but then again, are you saying PMT didn’t do anything wrong – they just did something discretionary but within the law and they could have opted not to but didn’t?

                I also wonder – there’s been sufficient time between these decisions having been made by MS and PMT and also sufficient deep pocketed holders of each for someone to mount a challenge or two to the legality of their decisions in the courts if they felt they had a case – there haven’t been any yet, have there?

                1. Other probably meaningful differences between the languages in the 2 prospectuses:

                  NLY-G – [in case there had NOT been a named substitute for LIBOR] “If the Calculation Agent is unable or unwilling to determine LIBOR as provided in the immediately preceding sentence, then LIBOR will be equal to Three-Month LIBOR for the then current Dividend Period, or, in the case of the first Dividend Period in the Floating Rate Period, the most recent dividend rate that would have been determined ….”

                  PMT-A – “If fewer than three New York, New York banks selected by us quote rates in the manner described above, the three-month LIBOR for the applicable dividend period will be the same as for the immediately preceding dividend period, or, if there was no such dividend period, the dividend shall be calculated at the dividend rate in effect for the immediately preceding dividend period.”

                  BTW, for the record, I’m not trying to discredit your theory, AW. Your statement that you saw “exactly the same language concerning payments of floating dividends based on LIBOR and treatment for the case where LIBOR does not exist” challenged me to see if I thought the same thing when reading them side by side…

                  1. One difference I noticed is whether the particular issue was already in the floating rate period as of June 30, 2023 (when LIBOR ceased), or not. For example, the PMT issues and the 4 MS issues were not yet floating as of June 30, so PMT and MS determined that they would stay at their fixed rates in the absence of LIBOR, when they would have otherwise gone to float. On the other hand, issues such as MS-A that were already floating as of June 30 would go the SOFR3+.0026 replacement at the first new determination date after June 30.

                    Don’t know for sure if there’s anything to this, and reading the prospectus language, I can’t see anything that would imply a distinction based on whether the issue was already floating as of 6/30 or not, but it looks like there might be a pattern.

                  2. Hi 2W Thanks for pointing that out to me. Actually I have seen a similar comment on a different board related to this matter as well. I now realize that I had missed this critical difference between the NLY G and the PMT A (for example) documents.

                    It looks like the language that we need to see in these prospectus filings is the specific declaration that we see in the NLY document.

                    Thanks for your help and it is perfectly ok to discredit any of my theories – particularly when I am mistaken!

                    BTW I still think that the PMT and the MS-E examples are examples of lawyers optimizing the outcome to benefit common equity at the expense of preferred equity and I still suspect we would have seen a different outcome has rates fallen rather than risen.

                    1. Not to put too find of a point on it, but to summarize.

                      NLY-G is went from fixed to floating
                      PMT-A will not
                      The question is what specifically should the investor look for in a prospectus to understand why one issue went one way and the other issue when the other.
                      The answer is that NLY G had this on page S20 of the prospectus

                      “If, after such consultation, the Calculation Agent determines that there is an industry accepted substitute or successor base rate, the Calculation Agent shall use such substitute or successor base rate. ”

                      Any the PMT-A issue simply does not.

                      The conclusion is that when considering currently fixed fixed/floating preferred one should look for this sentence in the document.

                      As a test – I referred to the CIM-B prospectus. This language is not present in that prospectus.

                  3. So, this issue is kinda complicated and relies on people carefully and closely reading governing documents, as well as what the regulators have said about the transition. I’d recommend people take a look at this powerpoint from the Fed:


                    And you’ll notice that having a Determining Person (i.e. a Calculation Agent) is *pretty danged important* if you’re trying to figure out exactly what needs to happen to some of these future floaters. It sounds like PMT-A just has a fallback and NLY-G has a Determining Person, which would explain why under the LIBOR Act the two issues are treated differently.

          4. Hi 2WR,

            I would bet serious money that these companies paid big bucks to get opinion letters from well respected law firms saying that exactly what the companies did was in line with terms of the documents.

            That said, from my experience, the idea that:
            “Yes I know some believe that an attorney’s review starts with an assumption of what the client wants the answer to be, but I just don’t buy it”
            is not how wall st. lawyers work. They work in service of a client. The practice of law is not about the search for truth.

            1. Obviously, the only thing we all have on this topic are opinions, all valued, all welcomed… That being said, I suspect attempts to defend one’s opinion in this case or to sway someone else’s opinion will have the same fruit bearing possibilities one has when trying to get someone to see the error in their ways when they have the wrong political opinions – lol….. I still believe the decisions made were based on what they believed they were required to do, not based on what’s necessarily best for the comm shareholders as opposed to preferred or bond holders.

              In a way, it’s sort of ironic that I have this opinion because I also believe the exact opposite treatment is being foisted on holders of NEWTZ and L where the company has purposely gone out of its way to find a way to skirt the protections still afforded noteholders under the 1940 Act BDC asset coverage ratio requirement for the benefit of the common shareholders at the expense of noteholders. And they’re doing it in such a clandestine way that they refuse to admit when questioned what they’re doing. And they have even stopped publishing the actual asset coverage ratio in place. They only refer to what it was a/o 12/31/22.

              1. So 2WR what is your reasoning to continue to hold? with dividends on the Z and L you must be close to break even. With NEWT converting to a bank holding company what do they see as their future when a lot of established banks already are on shaky ground.

                1. It’s an excellent question, Charles, and one I can most likely only answer irrationally, especially since I have an oversized position…. Part of my rationale is that I do not really consider this position to be of much credit concern, so with the 2 short maturities, all I’m giving up by holding is opportunity cost. And since I already have a great deal of cash sitting around, then theoretically, I’m not really giving up opportunity costs by continuing to own these because I could already jump on an alternate anyway since I don’t need to sell in order to buy something else.

                  Secondly, I want to get to the bottom of this…. I don’t need to have a full position in order to do so, but I still think there’s a greater issue involved here that needs further explanation… It goes beyond just NEWT because of the possibility that what’s being done here might be impactful to all BDC baby bonds who are theoretically afforded added credit protection under the 1940 Act with the mandated 150% asset coverage ratio…. Could it be that what’s being done makes this supposed added protection for bondholders under the 1949 Act a paper tiger across the board for all BDC baby bonds? I want to keep pushing as best I can. Again, this is not a good reason to be maintaining an oversized position – I could own 5 bonds only and still do the same thing. And who knows? Maybe, and most likely, NEWT has not breached the ratio coverage, but bondholders need an explanation why or how that’s possible, especially since they purposely no longer even publish their ratio as they had quarterly up until 12/31/22.

                  Third, conversations I have had privately do make me feel that I am not wrong…. those conversations left an impression that these still will not make it to maturity. However, as written material such as the most recent NEWTI prospectus doesn’t even make mention of the asset coverage ratio when describing the outstanding Z and L bonds nor does it make note that NEWTI is de facto being issued under the same asset coverage ratio limitation just as long as Z and L are outstanding it makes me still want to be told what is going on or what has changed. I’ll keep trying. NOTE – NEWTI is NOT directly subject to the same asset coverage ratio. It is only indirectly so just as long as Z and L are outstanding according to the 10k

                  Finally, whether or not I am at breakeven has not entered into my thinking in maintaining my position…. YTM has. IMHO, both I believe are trading too cheaply to sell on a YTM basis, particularly if I still believe the story…

                  Like I said, these are mostly irrational, inexcusable passion induced reasons. It’s thinking like this being allowed to dominate an investor’s thinking that has led to the exponential growth of bots that take the human aspect out of trading…. ha…

              2. I agree with you about NEWT.

                My point was only that company management decides the path they want to follow, then they try to get a legal opinion to back up the actions they want to take. Lawyers don’t make the decisions. Lawyers may tell management that the path management wants to travel has problems, but they generally won’t say “go this way”.

                So, as an investor, it comes down to how much you trust the management team and how ethically you think they will operate (and whether they will ever need to go to the market to raise capital again).

                I have invested in a few companies where I trusted management to be relatively honest, but in general, I don’t trust management to treat preferred/debt investors well. I think most will only do what they have to.

                I am sure you have seen companies where management will do anything they can to improve their lot at the expense of preferred investors, and a few (like the Karfunkel-Zyskind cabal that runs AFSI) that actively conspire to screw investors for their own benefit.

            2. As a lawyer, I find this discussion hilarious about how people seem to think lawyers behave.
              They take the prospectus language and say whether it can be fit into the SOFR legislation and/or terms of the document.
              They don’t take a conclusion and fit the language to it.
              And if the language is unclear, they will say it is unclear and that investors could sue over it and it would be up to the CFO on what to do.
              To be fair to them, LIBOR has been around for decades, so it going away was not something most of them contemplated when drafting the prospectuses. (but as we have seen, some did see this and added language contemplating a new industry standard)
              But as my monetary economics professor said in the first day of class, anyone who could predict the future of interest rates would be the wealthiest person in history.

              1. “going away was not something most of them contemplated when drafting the prospectuses”

                And if the lawyers were aware that LIBOR was being phased out, weren’t they paid to make sure their company had the maximum flexibility? Since you are a lawyer, I would have expected you to do so if I hired you.

                Well, this is EXACTLY the scenario that happened here. It was announced and well-known that LIBOR was being phased out. That means the language was intentional or the lawyers did not do their job.

                Unlike most, I do not blame the lawyers. It is the Executive leadership. But to suggest the lawyer’s language was not intentional is a non-starter for me. They gave the Executives the option. They planned the escape hatch with the language inserted.

                  1. Libor was discredited during the Great Financial Crisis and the manipulation of it was a part of the problem. At that point, the discussions on it being phased out started.

                    1. Still not seeing it.
                      Which issue are you referring to?
                      They all have the same language, and Series I doesn’t float until 2024, Series K doesn’t float until 2027, and have fallback language to the original rate. e.g. for K on Page S-15
                      “if there was no such dividend period, the dividend payable will be based on the initial dividend rate.”

                      The only thing that could be in dispute is this:

                      “LIBOR will be the rate for deposits in U.S. dollars for a period of three months, commencing on the first day of such dividend period, that appears on Reuters screen page “LIBOR01”, or any successor page, at approximately 11:00 a.m., London time, on that dividend determination date.”

                      I don’t even know if this has been determined, but I would interpret the language “or any successor page” as the 3 month SOFR rate page.

                    2. SteveA – I work in structured finance (for issuers my whole career) and have had to deal with LIBOR issues for a long time. First off, if you are not familiar with the LIBOR Act and the Fed regulations, you need to be. This gave issuers a safe harbor to transition from LIBOR to a new rate with no fear of regulators or investors bringing suit against the issuer for how they transitioned from LIBOR. This law was not passed until 3/10/2022 and the regulations finalized late last year. You can read them here: https://www.federalregister.gov/documents/2023/01/26/2023-00213/regulations-implementing-the-adjustable-interest-rate-libor-act

                      Prior to this, no one knew how transition would occur. In my world, most of my issues required 100% investor approval to move from LIBOR to anything. Since that wouldn’t happen, we had no clue what or how transition would occur. Issuers in many asset classes had similar challenges.

                      We spent lots of legal time on the problem and it was not predicated on what would be best for the issuer but what could we actually do. We had issues from as far back as 1999 outstanding and they contained nothing about what to do if LIBOR rate was unavailable (no polling or other mechanism to determine rate, not even a “use the last known LIBOR rate”) Once the regs were released, the focus became seeing how our deal language fit into the regs and the natural outcome from there.

                      I suspect most issuers across many asset classes had similar experiences.
                      While you may believe that issuers are looking to choose the best option for them, well, you would be correct. But that does not mean it automatically is a screw the investor decision. The best option is one that keeps the issuer from being investigated by the regulators or sued.

                      If you are an issuer in the public markets, your (often external) legal team is around to keep you from doing something which will end badly for you. Picking an answer not supported by the law to save a few bucks has a good chance of ending badly – lawyers will not sign off on that strategy. One can still go that route, but you will be on your own defending a position your lawyers don’t agree with.

                      So while you may not like the outcome of LIBOR transition on your investments, it is highly unlikely they were haphazardly undertaken or focused on how to cheat the investors.

                    3. There is nothing else to be gained in the conversation, so I will no longer respond after my final 2 cents.

                      The LIBOR replacement language was inserted because everybody was aware that LIBOR could be phased out. They may not have known when but they knew at least it could happen. So they inserted language to protect the company which is what they were supposed to do. They were highly skilled in their profession. This is what I believe.

                      Or you can believe they were surprised by the transition and just happened to have language that would cover this. They were more lucky than skilled in their profession. You are welcome to believe this.

    1. Somewhat surprising to me to see ENB picking up regulated US utilities. (“Hey Mister, wasn’t you a pipeline company once” – Tender Mercies) Maybe not surprising to see D, off 24% YTD, wanting to get some cash. (Steamboat Round The Bend, 1935 – “We ain’t got steam enough…”)

      I have no idea about whether this is good or bad for D or ENB. I will have to wait for Mr. Market to tell me. Or a wise poster here. DYODD

      1. Bear,

        I’m thinking the acquisition will work out OK for ENB as they operate a major gas utility in Ontario today.

        I’m very long ENB debt (the 5 year adjustable preferred) but added to my position in the common this morning. It’s very hard to pass up a well covered 8.1% QDI yield.

      2. Dominion selling these to Enbridge may be fallout from the cancellation of the Atlantic Coast Pipeline that Dominion took an almost 3 Billion write down in 2020 on for it’s part in the pipeline. A good part of it was built when they pulled the plug with their partner Duke Power. What killed it was large grassroots opposition centered in Nelson County Virginia, a very scenic and a tourist driven economy. Dominion has an aggressive capital intensive program to move into cleaner energy. They need money for their plans plus make up for the hit on the pipeline cancellation. Dominion also cut it’s dividend by a third with the pipeline cancellation.

        1. Thanks for the info. I don’t follow D at all, just came across it when looking around at the Utes. I was attracted to D’s high yield. (From the Miller Analogies Test — Bear:high yield::moth:flame)

          I couldn’t get my arms around what D is doing or trying to do. Also the stock price was down big time YTD. I am full up with Utes, and CD rates are over 5%, so D went on the watch list. Just my opinion. DYODD.

          1. Dominion is the utility my natural gas comes from I have gas heat, gas dryer, gas got water heater, and my whole house emergency generator is natural gas powered too. I don’t own any Dominion stock. The reason I know about them is I have followed the pipeline a lot. I have friends in Nelson County and frequently visit there. Duke and D tried to jam that pipeline through there come hell or high water and got their head in a meat grinder. That was real money D wrote off as most of the pipeline was done. It ran through North Carolina where I grew up and my Dad and I followed the construction a bit. Interestingly the pipeline terminus in NC is an area where there is natural gas underground that has never been developed. It a fairly rural area with virtually no infrastructure to support it. There has been a lot of politics involved in attempting to get this area drilled amd some fortunes lost trying.. Because of the mineral rights and the way deeds were done in that area fracking / horizontal drilling is required and lots of water, which isn’t available, and disposal of the spent water is a problem too. For the small of amount of gas estimated there no company that has bit on trying to develop it. Far cheaper to drill in existing fields The pipeline and development of the gas field have been a big mess and dead in the water now.

            1. I followed Mountain Valley Pipeline, also in Virginia, a bit. It is still getting protested in Virginia as of yesterday, in spite of the full might and power of All Three Branches Of The United States Government being in favor of it.

              MVP is an ETRN project. ETRN had a big price jump on favorable political intervention. What I remember most about MVP was not the spirited opposition, but its continual cost overruns. The project cost went from $3.7 billion in 2018 to $6.0+ billion in 2023, if you trust the new fangled AI powered computers.

              If y’all still talk Southern, you might just say, “This dog can’t hunt.” I’m waiting to see some cash money coming in instead of press releases coming out. Long: pipelines, energy, utes. Just my opinion. DYODD

              1. At the time D and Duke gave up the ship the Atlantic Coast Pipeline they had already sunk $ 8 Billion in it and still not finished! Huge cost overruns also. I wonder if they used the cover of opposition to pull the plug because of the huge cost they were incurring……

              2. I speak southern.
                It’s actually- “dat dog won’t hunt”
                and the infamous- “dat dog’ll hunt” 🐶

    2. Grrrrrrrrrrrrrrr! Now we know why the preferreds have been looking so weak relative to their ratings – hit again today

      https://www.moodys.com/research/Moodys-changes-Enbridge-and-four-subsidiary-outlooks-to-negative-from–PR_479997 {need to have an account to open]

      Rating Action
      7 min read
      05 Sep 2023
      Moody’s Investors Service
      Approximately CAD43 billion of debt securities affected

      Toronto, September 05, 2023 — Moody’s Investors Service (Moody’s) has affirmed the Baa1 senior unsecured ratings of Enbridge Inc. (Enbridge) and its subsidiaries Enbridge Energy Partners, L.P. (EEP), Enbridge Energy Limited Partnership (EELP) and Spectra Energy Partners, LP (SEP). Moody’s also affirmed the A3 senior unsecured rating on Texas Eastern Transmission L.P. (TETCO) and the Prime -2 short term commercial paper rating on Enbridge (U.S.) Inc. In addition, Moody’s changed the outlooks for Enbridge, EEP, EELP, SEP and TETCO to negative from stable.


      …Issuer: Enbridge Inc.

      …. Issuer Rating, Affirmed Baa1

      ….Backed Senior Unsecured Shelf, Affirmed (P)Baa1

      ….Subordinate Shelf, Affirmed (P)Baa3

      ….Preferred Shelf, Affirmed (P)Baa3

      ….Preferred Stock, Affirmed Baa3

      ….Preferred Stock, Affirmed (P) Baa3

      ….Subordinate Notes, Affirmed Baa3

      ….Senior Unsecured MTN Program, Affirmed (P)Baa1

      ….Backed Senior Unsecured Notes, Affirmed Baa1

      ….Senior Unsecured Notes, Affirmed Baa1

      ..Issuer: Enbridge (U.S.) Inc.

      ….Backed Senior Unsecured Commercial Paper, Affirmed P-2

      ..Issuer: Enbridge Energy Limited Partnership

      ….Senior Unsecured Notes, Affirmed Baa1

      ..Issuer: Enbridge Energy Partners, L.P.

      …. Issuer Rating, Affirmed Baa1

      ….Senior Unsecured Notes, Affirmed Baa1

      ..Issuer: Spectra Energy Partners, LP

      ….Senior Unsecured Notes, Affirmed Baa1

      ..Issuer: Texas Eastern Transmission L.P.

      ….Senior Unsecured Notes, Affirmed A3

      Outlook Actions:

      ..Issuer: Enbridge Inc.

      ….Outlook, Changed To Negative From Stable

      ..Issuer: Enbridge Energy Limited Partnership

      ….Outlook, Changed To Negative From Stable

      ..Issuer: Enbridge Energy Partners, L.P.

      ….Outlook, Changed To Negative From Stable

      ..Issuer: Spectra Energy Partners, LP

      ….Outlook, Changed To Negative From Stable

      ..Issuer: Texas Eastern Transmission L.P.

      ….Outlook, Changed To Negative From Stable


      “The negative outlook on Enbridge is prompted by the company’s announcement that it would acquire US gas utilities for approximately USD14 billion, adding pressure to an already weak financial profile that we expect to persist following the transaction close,” said Gavin MacFarlane, Vice President – Senior Credit Officer. ” Although Enbridge’s business risk profile improves modestly with the transaction, it is not enough to offset ongoing pressure on the company’s financial profile.”

      Today, Enbridge announced (1) that is has reached an agreement to acquire a portfolio of local gas distribution utilities from Dominion Energy, Inc. (Baa2 stable) for an enterprise value of USD14 billion, which includes an acquisition price of $9.4 billion and $4.6 billion of assumed debt. The utilities include The East Ohio Gas Company (A2 stable); Questar Corp, which includes Questar Gas Company (A3 negative); Wexpro (unrated) and the Public Service Company of North Carolina, Inc. (Baa1 stable). The company expects to close the acquisitions separately in 2024 following regulatory approvals.

      The negative outlook reflects continued high leverage metrics, with proportionately consolidated debt to EBITDA forecast to remain around 5.5x (5.6x at 31 December 2022) for the foreseeable future, and low levels of financial flexibility highlighted by weak distribution coverage metrics (using depreciation) of 0.9x. The company’s low business risk profile improves with the acquisition of these utilities but not enough to change our overall business risk assessment of the company. With the close of these acquisitions, the gas utilities business will grow to about 22% of EBITDA from 12%. While diversification is improving with the acquisition, structural subordination is also increasing, although we do not expect to add a notch to Enbridge’s rating for this.

      Enbridge has announced a CAD4 billion equity issuance in conjunction with the acquisition announcement. We expect the balance of the transactions to be financed with a mix of debt, hybrids, asset sales, and equity issuances which may include a combination of an at the market program or the activation of a dividend reinvestment program. The company has received debt financing commitments totaling $9.4 billion to improve liquidity in advance of closing the transactions.

      The affirmation of Enbridge’s Baa1 rating reflects the company’s large size, scale and diverse, low risk asset base, all of which will be enhanced as a result of these acquisitions. Offsetting these strengths is ongoing high leverage and a sizable multiyear capital program. The company’s portfolio of assets will continue to generate stable cash flow based on a combination of rate regulation, a favorable contractual profile and a strong competitive position.

      The ratings of subsidiaries SEP and EEP reflect the strength of the cross-guarantee that exists between each of them and Enbridge that causes the senior unsecured notes at these entities to have similar credit quality. EELP benefits from a guarantee from Enbridge that drives its credit profile. The credit profile of Enbridge (U.S.) Inc. reflects the liquidity support provided by Enbridge, which guarantees the commercial paper program. The ratings on Tetco have been affirmed based on the underlying strength of its business with the negative outlook reflecting our view that its rating is limited to one notch above that of Enbridge.

      Rating Outlook

      The negative outlook reflects the incremental pressure on the financial profile of the company as a result of the acquisition, given its already weak financial profile for the current Baa1 rating.


      Factors that could lead to an Upgrade

      • An upgrade is unlikely given the negative outlook

      • The outlook could return to stable if we expect proportionately consolidated debt to EBITDA to be sustained comfortably below 5.5x and distribution coverage, using depreciation, to be above 1x

      • A further improvement in the company’s business risk profile

      Factors that could lead to a Downgrade

      • Proportionately consolidated debt to EBITDA at or above 5.5x or distribution coverage, using depreciation, at or below 1x

      • Failure to successfully execute or material delays with regard to the capital raising and asset sales programs

      • A deterioration in the company’s business risk profile or an increase in structural subordination

      The principal methodology used in rating Enbridge Inc., Enbridge (U.S.) Inc., Enbridge Energy Partners, L.P., Enbridge Energy Limited Partnership and Spectra Energy Partners, LP was Midstream Energy published in February 2022 and available at https://ratings.moodys.com/rmc-documents/379531. The principal methodology used in rating Texas Eastern Transmission L.P. was Natural Gas Pipelines published in July 2018 and available at https://ratings.moodys.com/rmc-documents/64961. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.

      1. 2WR. Thanks for reprint, the gist I got was the 5x EBITDA that’s high even for a pipeline co. 3x is pushing it normally. All the subsidiaries being downgraded may be an opportunity. I would be comfortable with Spectra.

  12. It looks like Charter Communications and Disney will be having a divorce and I suspect it will be impacting my holding of Liberty Broadband (LBRDP). This security is a John Malone creature that owns ~26% of CHTR and will be redeemed at par ($25) in 2039. It’s balance sheet is great and has a yield of ~7.7%.

    Tim did a nice blurb on this holding in the past, and I think the comments are valuable.

    I will likely be adding to my current holdings at prices like $22.20 and I’m confident Charter will do fine over time.


    1. Greg,
      The article you linked to here on III from 2-1/2 yrs ago was talking about LBRDP being 26 to 27 and now its in the 22.00 to 23.00 range who knows where it’s going to be at over the next 17 to 18 years. Not saying I wouldn’t buy, but there has been times in the past year it’s been even lower.
      I purchased on 10-10 at 23.95 and received one dividend and sold 1-17 @24.00 I have missed 2 dividends since then but if you have been trading the stock you will notice it rises going into the dividend. Next x-divy is 9-29
      Long term hold maybe, trading stock sure but is now the time to buy and how much could you make trading?
      In June 28th it hit a high of 23.05 the dividend is .44 so just to break even this would have to hit about 23.20 if you sold before the x-dividend it was below 22.00 2 weeks ago.
      But then the question is, how low will it go after the x-dividend since it will be Dec before the next one,
      Throw a low ball GTC if you have a MM fund to park it in and you can always cancel in a week or two if the bet doesn’t look like it will play out.
      Not sure I would do this in a Schwab account as they don’t pay peanuts in a holding account and you have to do a manual transfer between the mm fund and the trading account as 2WR and Private have mentioned.

      1. Charles,

        I see it as a long term hold and am looking to add to the position.

        It seems to track based on both the health of CHTR and longer term interest rates. I think CHTR will survive the battle with content providers and we are hopefully near the peak of interest rates on this cycle.

        1. I have a full allotment in my accounts already with average price in the $23 even range plus or minus 5c. So, that’s in the low to mid-7% YOC range which I am more than happy with so far. I’m not worried about it nor do I have aspirations of trading it at this point.

      2. i have been trading this one; in at 22 and out 23 ; i think i will see 23 before the ex ; and sell my last 100 sh and see it it drops to 22 ; otherwise im ok with holding for a while and collecting the div

    1. I had a very small position that I sold about 1 year ago due to declining NAV. It seemed they would not even come close to meeting their target of returning original NAV in 2023, although I recall them being in shorter duration bonds at the time. Looking at CEF Connect today, I don’t understand why they would be 70% in 20-30 year bonds when they have a 2023 target date. I got the feeling they were in business just to collect the 2.5% expense ratio (which seems very high for a simple bond fund), and damn the investors. The fact that the NAV has dropped considerably in a short time is reason enough for me to stay away.

    2. As long as you are asking – don’t know the fund, but I did look at the fact sheet. Good news is that it is not leveraged, however, when I looked at the portfolio as of 7/2023 I noted that fully 76% of assets are in CMBS – Commerical Mortgage Backed Securities. A further 6% is in REIT notes and preferred shares.

      Also looking at the supposed credit quality of their book I see that 14% is in cash, but a large percentage is in BBB and BB and CCC credits. I say supposed because I don’t trust any ratings agency’s assessment of CMBS bond credit worthiness in this (or any other) environment.

      I would only buy this if it traded at a 20% or greater discount to they reported NAV. Right now it is at a 5% discount. In this market, however, I would avoid any exposure to CMBS and would avoid exposure to supposed BBB or lower CMBS tranches like the plague.

      The fund’s “objective” is to return original NAV of $9.835 a share on Dec 1 2023. If they do that great! If that were likely, however, the fund would trade close to that figure right now.

      They claim that NAV is $7.73 and it is trading for $7.34. So lets call that $.4 discount. Assuming this NAV is any where near accurate and it returns $7.73 you would get 5% on that please a few months of interest.

      Given the composition of the assets of the fund (very hard to value BBB and lower tranches of CMBS securitizations) I don’t think that their models of NAV are accurate at all, so I would even question if they can return $7.73 as an NAV.

      Personally I will pass.

      1. It is actually a bit worse than this. Fully 36.8% of the fund is in BB+ or lower credit quality. Also 13.26% is in lodging, 22.6% is in office, 26.9% is in retail
        These are the hardest hit sectors of the CMBS space.

        If you assume that the BB+ and lower rated issues pay out at $.50 on the dollar and the balance of the portfolio returns par then the $9.835 NAV objective would actually return $8.0 ($9.835*81.6%). To me this is a best case scenario given the assets in the fund. So your capital gain if the fund returns NAV in Dec 2023 could be $8.0-$7.34 (current price) = $.66 or $.66/$7.34= 9%.

        Again I will pass.

    3. For the sake of consolidation, I’ll re-post the reply [modified] I wrote when you duplicated your request on the “Don’t Look Now But Markets are Irrationally Exuberant” article page:

      I did a lot of work on IHIT about a year and 1/2 ago… It’s been a loser… It’s a complex one to understand but dollars to donuts they will use their ability to extend the “maturity” of the fund 6 months or more and this will not be a target term issue paying off in December. When constructed, they bot a lot of mortgage related issues that on paper appear to be well beyond their target date. However, true to their mandate, based on projected mortgage related prepayments as experienced in the low interest rate environment when they were in when created, they projected actual maturities to match up with Dec ’23 target date.… When interest rates ballooned, that absolutely destroyed their estimated prepayment schedule and if you review their holdings quarterly over the last year and a half, you’ll see the same maturities listed over and over again only with an ever lengthening maturity as prepayments fell off a cliff. Now they’re left with much longer duration holdings than they ever thought possible….. So even though most target terms issues reduce payouts as they approach term, I believe this one has yet to do so….. That’s another indicator they will not be paying out in December… They are also almost guaranteed to not ever be able to reach their term target price… CEFconnect has this trading at a 5% discount to NAV… Don’t be fooled by that thinking it will narrow by December and you’ve got an easy locked in gain to be realized in 4 months…. I doubt very much that will happen.

      BTW, I bot a starter position only to keep it in sights and to see how it performed to maturity. The expectation was to add as opportunities developed…. I never did and they never did….

      1. Well said 2WR.

        I took a quick look at some of IHIT’s holdings myself. At least one of the underlying mortgages now has a maturity of Dec. 2024. I’m curious how they’ll treat that–they could sell the bond, though I can’t imagine they’d get a great price–but seems like there’s no way this thing terminates in three months.

        1. I remember about 3yrs ago Tim, myself and several others were trading one or two of the IVESCO target funds right after the Covid melt down with the expectations they would return par as they reached termination date. I also remember another one I invested in to pick up a couple dimes took 30 days after official close to finally pay off.
          At the time the discussion never came up about what the funds held and if the assets were liquid.
          I am glad this discussion is happening as I am sure there are other investments holding CMBS that will come under stress. I see now why experts have been saying this will take years to play out

        2. Sure, they certainly do have some bonds that they are valuing near par that mature in 2024. There is one position out there in 2027 as well That one is a CMBS bond with 4.93% (probably junk credit) coupon that they value close to par. They also have an underwater portfolio of about $11.9M in mREIT preferred stocks which which will also have to be sold. Can they find buyers? Yes. Worst case scenario they can always dump them on some other crappy Invesco FI fund that these portfolio managers manage. Will they stretch out the liquidation date? Possibly .

          I am sure the portfolio managers get a bonus for liquidating on time, and and will probably take a hit to NAV to achieve this goal.

          To me the larger issue is the NAV of the fund at when they do liquidate it. Given that this portfolio is largely composed of below investment grade CMBS bonds in highly troubled sectors, I just think that the valuations reported are probably quite optimistic.

          The assets as of May 31 2023 with valuations are shown in link below.
          These are mostly mortgage bonds issued by CMBS securitizations and not whole loans on individual buildings.


          1. Those dates in the schedule of investments are the estimated payoff date.
            e.g. this line.
            Series 2014-UBS3, Class C, 4.90%, 05/10/2024, which is a 10 million dollar position, is CUSIP 12591YBH7, which actually has a listed maturity date of June 12, 2047, and the expected payoff date of 5/10/2024 is probably a fantasy.
            But this one has note e), which means it is a floating rate.

    1. Its my biggest hold and I trade for minor 15-20 blips during the cycle to amuse myself. That being said, remember the exD date is largely irrelevant in terms of any date they would have in mind to redeem. Also the exD date would include the forward interest pay period from exD date until actual payment date. In other words it wont start accruing anything until after payment date of around 10/15 if memory serves me.

      1. Watchyou talkin’ ’bout, Willis? I’m not sure you’re being clear – either that or my brain is getting even fuzzier every day and that’s a far too real possibility…. In mSquare’s example of a theoretical 9/30 call, everyone owning ALL-B when it’s called would receive 100% of the accrued on 9/30 because an x-div date doesn’t enter into the picture at all… BUT, if it was called on 10/30, for example, instead of 9/30, then holders, or potential buyers, would have to pay attention to an x-div date because if you bot on 10/1, for example, you wouldn’t be entitled to the 10/15 dividend…. Is that what you’re pointing out too?

        1. No I wasnt explaining what you are thinking about. All I was saying was they dont have to align the call date to exD date. Its nothing magical. And to get the entire projected interest for this quarter, the call date has to be announced no earlier than 9/15 (give or take that day as I aint counting it out) or one will not get the entire quarterly interest payment….Buying after exD on a call…I wasnt going there either, ha.

    2. Don’t know whether this is needed or not, but for the record, ALL-B is now continuously callable…. In other words, the only thing definitive about that 9/30 call date mentioned is that it’s 30 days after the present date… That call date will show as 10/1 the next time you look… And isn’t ALL-B carrying a coupon of about 8.73% right now???

      1. I hope you are correct 2WR. I really haven’t done the math since last payment and it was around 8.5%. The higher the better! I’m probably more of an ALL honk in terms of being paid and safety. So I don’t mind being a bit over exposed here. I call is a non issue in terms of losing money so the only enemy is the Fed lower rates which doesn’t seem to be on the horizon near term.

      2. I also hold a slug of the B and agree it is now continuously callable. I looked at the prospectus (and specifically page S-20) and didn’t see any requirement of a 30 day notice period. Did you see that requirement somewhere in the prospectus and if so, where ?

        Or are you assuming that 30 day period as a “common practice” ?

        thanks !

        1. Mike, its snuck down below on bottom of page S-21…
          “Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of Debentures to be redeemed at its registered address…”.
          Of course as most know we actually dont own these baby bonds, so we wont get the redemption notice anyways. AllState doesnt seem to announce much on this floating rate debt, so I am assuming we wont be the first to know when it happens. The price stays so anchored that it largely doesnt matter anyways.

            1. It certainly wasnt the easiest thing to find. They passed on several earlier opportunities to mention it and didnt,

  13. Seems to be a large seller of Regco at 22.54 after hours. Down 4% from when I sold mine yesterday. 6.4% yield

    1. Maybe, but probably not. That usually requires changing the security’s governing documents, which is a mess. (disclosure – I haven’t read their specific documents).

      Usually, the security ends up being a “busted convertible” – meaning there is no way to convert it because the security it would convert into doesn’t exist any more. There are a few of those around. I own/have owned quite a few over the years. (SLMNP jumps to mind).

        1. OK, I went and spent a few minutes in the SEC filing and it appears this will not be a busted convertible.

          It says:
          “…each share of 7.25% Series D Cumulative Convertible Perpetual Preferred Shares … will be cancelled and automatically converted into … a share of a newly created series of preferred stock ,,, of Kimco … having the rights, preferences and privileges substantially as set forth in the Merger Agreement…”

          Not clear to me that the new kimco shares will be on same terms as the RPT shares. The terms of the new shares are in Exhibit A to the agreement (in the SEC filing), but you would have to compare that text to the old RPT document to see how close it is (I don’t own any RPT, so I am not going to wade through those documents).

          1. Private:

            If you read Exhibit A of the Merger Docs, it all is essentially the same terms as RPT+D:

            Section 8. Mandatory Conversion.

            (A) At any time on or after the Issue Date, the Corporation shall have the right, at its option, to cause the Class N Preferred Stock, in whole but not in part, to be automatically converted into a number of shares of Common Stock for each share of Class N Preferred Stock equal to the Conversion Rate then in effect.

            The Corporation may exercise its right to cause a mandatory conversion pursuant to this Section 8(A) only if the Daily VWAP of the Common Stock equals or exceeds 130% of the then prevailing Conversion Price for at least 20 Trading Days in a period of 30 consecutive Trading Days, including the last Trading Day of such 30-day period, ending on the Trading Day prior to the Corporation’s issuance of a press release announcing the mandatory conversion as described in Section 8(B).”

            “Conversion Rate” means [2,296.3]1 shares of Common Stock per share of Class N Preferred Stock, subject to adjustment as set forth in Section 7.”

      1. That’s my thought- RPT is a goner. KIM common price would meet the conversion provision if it held their price for 20 out of 30 trading day.s. Pretty sure they would not have said it would remain outstanding with that prospect hanging over it.
        Seems like a sell with the recent run-up ( unless folks wish to bid it up to old highs)
        Also- from the prospectus:
        Recapitalizations, Reclassifications and Changes of our Common Shares
        In the case of any recapitalization, reclassification or change of our common shares (other than changes resulting from a subdivision or combination), a consolidation, merger or combination involving us, a sale, lease or other transfer to a third party of all or substantially all of the assets of us (or us and our subsidiaries on a consolidated basis), or any statutory share exchange, in each case as a result of which our common shares would be converted into, or exchanged for, shares, other securities, other property or assets (including cash or any combination thereof), then, at the effective time of the transaction, the right to convert each Series D Preferred Share will be changed into a right to convert such Series D Preferred Share into the kind and amount of shares, other securities or other property or assets (including cash or any combination thereof) (the “reference property”) that a holder would have received in respect of common shares issuable upon conversion of such shares immediately prior to such transaction.  (S37)


        We must give notice of each fundamental change (as defined below) to all record holders of the Series D Preferred Shares, by the later of 20 Business Days prior to the anticipated effective date of the fundamental change (the “fundamental change effective date”) and the first public disclosure by us of the anticipated fundamental change. In addition, we must give notice announcing the effective date of such fundamental change and certain other matters as set forth under “—Determination of the Make-Whole Premium.” If a holder converts its Series D Preferred Shares at any time beginning at the opening of business on the Trading Day immediately following the effective date of such fundamental change and ending at the close of business on the 30th Trading Day immediately following such effective date, such conversion will be deemed to be in connection with the fundamental change and the holder will receive for each Series D Preferred Shares converted, a number of common shares equal to the greater of:
        (i) the applicable conversion rate (with such adjustment or cash payment for fractional shares as we may elect, as described under “—No Fractional Shares”) plus (ii) the make-whole premium, if any, described under “—Determination of the Make-Whole Premium”; and
        the lesser of (i) the liquidation preference divided by the Market Value of the Common Shares on the fundamental change effective date and (ii) 7.9808 (subject to adjustment).
        In addition, a converting holder will have the right to receive cash in an amount equal to all unpaid accrued and accumulated dividends on such converted Series D Preferred Shares, whether or not declared prior to that date, for all prior dividend periods ending on or prior to the Dividend Payment Date immediately preceding (or, if applicable, ending on) the conversion date (other than previously declared dividends on our Series D Preferred Shares payable to holders of record as of a prior date), provided that we are then legally permitted to pay such dividends.
        In lieu of issuing the number of common shares issuable upon conversion pursuant to the foregoing provisions, we may, at our option, make a cash payment equal to the Market Value determined for the period ending on the fundamental change effective date for each such common share otherwise issuable upon conversion. Our notice of fundamental change will specify whether we intend to issue common shares or pay cash upon conversion.

        1. This was not a “fundamental change”

          RPT-D will continue to exist. They said so on the call. It will just have a new ticker,, KIM-N, and conversion ratio.

        2. Gary:

          “Seems like a sell with the recent run-up ( unless folks wish to bid it up to old highs)”

          How do you come to that SELL conclusion? Please let me know if my calculations are incorrect:

          As of 6/30/23, the 1.849 Million shares of $92.5 Million RPT+D was convertible into 7.017 Million shares of RPT common (ratio of 3.795). So the base conversion price was $13.17/share. Deal was at $11.34/share.

          3.795 * .6049 = 2.296 (new conversion ratio for $50 par value KIM+N).

          So the new “base” conversion price for KIM+N that will be used to calculate the 130% test will be $13.17/.6049 = $21.77 (or $50/2.296).

          So a holder is essentially protected from conversion unless KIM common trades at 130% of that $21.77 price (1.3 *21.77 = $28.30)/share for 20 out of 30 trading days. That scenario would put KIM+N at nearly $65/share ($28.30*2.296). You are getting paid nearly 7% to wait with one of the finest REITs in all of REITland.

          I did notice that KIM will be changing the dividend declaration periods on KIM+N to match those of KIM+L and KIM+M. But that is OK since they will pay a partial dividend to make up for the different dividend periods for RPT+D.

          1. Kid – I appreciate your math…… Assuming the interpretation is correct, once you cut to the chase, would it be safe to say that a buyer of RPT-D today @ 52.75 approx ends up owning a noncallable perpetual 7.25% of probably Baa3/BBB- quality from a Baa1/BBB+ rated REIT (KIM) at a 6.87% current yield but one with an issuer option convertibility kicker should the underlying common (KIM) appreciates 51% approx?

            1. That’s a fair summary.

              The outstanding KIM pfds are actually Baa2/BBB- and trading around 6.1% yield, which would imply ~$60 price for the new KIM-N

              And KIM-N will be superior to the due existing pfds due to:
              1. Non-call
              2. Convert gives upside to $65
              3. Complicated “make-whole” provision which appears to ensure shareholders will get at least $50/share in almost any realistic scenario where KIM is acquired (other than another public company issuing shares like the current deal)

          2. Kid-
            I appreciate your explanation-
            Will likely hold, even tho cost basis is 32.60 unless I see a worrisome drop as it begins to close ( and buy back later).

  14. APOS ( 7.625% Fixed-Rate Resettable Junior Subordinated Notes due 2053 ) expected on NYSE today

  15. plym-A due to be called away on 9-6
    its currently under par.
    payout should be 25.34
    i picked a few shares.
    seems like a win unless i am missing something

    1. Anybody that bought the common or preferred at the low point during the covid episode and held on the their shares really did well. Good for them.

      1. Yes, but I was hoping they’d stay outstanding at that low rate. I have all three but my D’s’ were yielding 56% and I was hoping to hold them forever.

      2. Didn’t get it at its low, but managed to get the “E” pref a little north of $5. Been kicking myself for not selling earlier as it hit $25 a few yrs ago I think, so this is a nice happening for me.

      1. I sold at $25.07 and bought back at at $24.85. After it settles I’ll probably put in a GTC a little over $25. Have to see how it flows with the dividend.

      1. I report….you interpret… ii) each share of 7.25% Series D Cumulative Convertible Perpetual Preferred Shares of Beneficial Interest, par value $0.01 per share, of RPT (other than certain shares as set forth in the Merger Agreement) issued and outstanding immediately prior to the Company Merger Effective Time will be cancelled and automatically converted into the right to receive one one-thousandth of a share of a newly created series of preferred stock, par value $1.00 per share, of Kimco (or depositary shares in respect thereof) having the rights, preferences and privileges substantially as set forth in the Merger Agreement, in each case, without interest, and subject to any withholding required under applicable law, upon the terms and subject to the conditions set forth in the Merger Agreement.

          1. Yes, that’s what I read Q and only quickly, maybe too quickly, dismissed this based on the immediate market reaction… there’s apparently no make whole triggered – “if the share price is less than $12.53 per share (subject to adjustment in the same manner as the share price), no make-whole premium will be paid” p 41….. and if it converts to a Kimco issue won’t it remain immediately callable? Is there reason to believe make whole call will be retriggered if it’s converted? I spent next to no time on this before passing..

            1. RPT-D is not callable. There is a mandatory conversion feature which is what Quantum seems to have picked up as the “call date”

              The new Kimco preferred will retain the non-call provision:
              “The Class N Preferred Stock shall not be redeemable by the Corporation.”

              Seems like this should trade above $60 to reach parity with outstanding KIM preferred.

              1. Hah! There it is right on the first page of the original prospectus : “The Series D Preferred Shares are not redeemable by us.”

              2. 730Cap,


                What are we missing?

                Kimco is a fantastic credit. At $53, it has a current yield of 6.8%, not in luring any accrued div. Plus, it is non-callable AND has a conversion feature. That should only enhance the price.

              3. If RPT goes away, how can it convert to RPT? Or does the mkt expect it to hit the 130% of the conversion price (14.41= 18.733) for 20 of 30 consecutive trading days– before closing?

                1. Kimco stated on the call today this will remain outstanding subject to the same 130% call terms.

                  This is a massive opportunity.

                  Do your own due diligence.

                  1. Maine:

                    It is a decent opportunity as long as the new KIM convertible stays busted – correct? Since one is now paying over $50/share today – there is always the small risk that KIM common stock rises to old highs ($30+/share) and meets the “immediately convertible” test.

                    I believe long term RPT+D holders should be thanking their lucky stars that the company was bought out by another public REIT like KIM.

                    Since the deal price for RPT was below $12.53/share, there would have been no “make whole” provision at $50/share for RPT+D if RPT was taken private in an all-cash deal at the deal price of $11.34. It seems RPT+D holders would have received less than $40/share. This is why I always kept this position very small.

                    But obviously the facts have changed now that publicly-traded KIM will take over it. There is an old saying. “When the facts change, I change my mind. What do you do, sir?”

                    Will be a new conversion ratio based on KIM’s common stock price, and will still be non-callable unless it meets the following test: “On or after 4/20/2018, if the price of the common stock exceeds 130% of the conversion price for 20 of any 30 consecutive trading days, the company may, at their option, cause the preferred shares to be converted into common shares at the then prevailing conversion price”.

                    The GREAT news is that many are now seeing and realizing that these REIT-to-REIT mergers don’t mean that preferred holders will get screwed over. REG/UBP, KIM/RPT, and likely others to follow.

                    It seems that CDR-WHLR deal from 2022 was truly an anomaly.

                    1. Kid Twist – If KIM trades at $30, then the conversion feature is worth $68.8.

                      I see this as the good type of “risk.”

                      old conversion x KIMCO adj x share price
                      3.7962*0.6049*30= $68.8

                2. Remember SLMNP? That was their conundrum as well and they resolved it be providing the former A Shulman SLMNP shareholders with a perpetual put based on the price at which LYB closed the Shulman purchase… is it spelled out how these guys are going to handle the conversion factor going forward once the new preferred is created?

                  1. 2WR, you will have to know the details as it could have a WFC-L outcome also (Wachovia). Meaning no tender floor put. Just a new conversion number that could be out of whack with ever occuring.

                    1. Right – that’s why I was asking if the details were spelled out… I’ve not gotten that far yet.

                  2. 2WR:

                    My guess is it will be very similar to what RC did when they bought the old Anworth Capital (ANC) and had to assume busted convertible RC+C.

                    The conversion rate was adjusted based on RC’s common stock price and all the other terms regarding “convertible at any time if…” stayed the same.

                    No need to complicate things. REITs tend to keep it simple.

                  3. I don’t think there is any analogy to SLMNP, where they left the pfd at the non-public subsidiary level. KIM is issuing a new class of KIM preferred stock.

                    All the details are spelled out in Exhibit A. Bankers and lawyers already did all the exchange ratio math for us:

      1. I’m happy to hold the new security (if one is indeed issued). It’s now effectively IG yielding 7.25% at par (and double digits at my cost). At par that’s 2%+ more than other KIM preferreds.

        1. My quandary: I pd 32.60, and not sure if it can go back to old highs or some new high beyond this $53 hit so far today.

          Would appreciate any considered advice from anyone here.

    1. Thanks for posting… I do not participate in the REIT Forum, so please do keep us informed of future developments on the reaction to CWMF’s article… As an SA author, I respect Colorado Wealth Management Funds writings. To me the most interesting prior case worthy of his analysis of this same situation would be how STT has chosen to address their LIBOR based F/F issues… This is because they seemingly have decided to treat their two issues differently from one another apparently based on the minutia of the actual words used in the two different prospectuses…. https://investors.statestreet.com/investor-news-events/press-releases/news-details/2023/State-Street-Corporation-Announces-Transition-Information-for-Outstanding-U.S.-Dollar-LIBOR-Linked-Instruments/default.aspx It would be interesting to know CWFM’s take on how STT has interpreted what they have to do – would he feel the same way about STT’s decision as he does on PMT’s. Unquestionably CWFM has researched this extraordinarily carefully, in far greater depth than I’d ever even dream of doing…

      The relevant prospectuses are https://www.sec.gov/Archives/edgar/data/93751/000119312514072924/d682864d424b5.htm

      1. No problem. I got that from his free blog. It has a comment section at the bottom. If you don’t mind, it would be helpful for you to post your comment on it.

        My take is that it isn’t as simple as colorado states, but, like you, I respect his analysis so it would be good to hear his take. As covered in this site, companies like Morgan Stanley have gone the fixed route, so if they can do it, others can as well.

        I see this issue as creating noise and opportunity for preferred investors.
        We can handicap how companies will elect and invest accordingly.

        1. Maine, Do you hold any M REIT preferred? and if so are they long term holds or just trades? I decided with the volatility I have seen and my own experiences in the building trades to not invest. The only REITS I invest in are the ones who own the land and or the buildings on them.
          Banking preferred have been just as volatile this past year and those preferred have occupied a lot of my time which is enough for my sanity. Same goes with energy stocks but I have couple decades of dealing with energy stocks to feel more confident on what to hold there.

          1. Charles- yes, I am a huge fan of MREIT Preferreds., especially during period like now when they are out of favor. I know it is a lonely group of us on this forum.

            It comes down to incentives and the structure.

            Long story short… many MREIT common shares are down 50%+ over long time horizons, 5-10 years.

            However very few MREIT prefs are down over the long term.

            MREITs are like cockroaches. Management figures out ways to avoid bankruptcy (often at common shareholders expense) in order to keep their golden goose of captive fees. And the Preferreds continue to get paid.

            You need to understand both investment management due diligence and the inner workings of the real estate structured and securitized market to evaluate.

            1. Charles, some are long term, some are trades. But even trades are ones I have confidence won’t go bust.

              Most are price dependent. For instance, I think the margin of safety is so large now I am significantly overweight MREIT Preferreds. In other periods, I may only hold a small allocation.

            2. There are 2 areas where I will only buy preferreds, never the common. Shipping and mREITS. Seems every mREIT common has a really ugly long term chart and shipping is way to volatile for me.

        2. Yeah, colorado is already getting some feedback that his interpretation may be false. He may have to eat some humble pie. Happens to the best of us..

        3. Maine – you’re welcome to edit and post what I’ve written here to the Forum because I’m apparently too ignorant to figure out how I do it myself. I keep going round in circles in attempting to create a login and on top of that I’ve created an ID for something called substack that I don’t want… So I guess I’m not going to get my response posted on the Forum directly….. This is how I was going to revise what I wrote:

          I appreciate your work on this subject.. To me the most interesting prior case worthy of this same comparative analysis might be how STT has chosen to address their LIBOR based F/F issues… This is because they seemingly have decided to treat their two issues differently from one another apparently based on the minutia of the actual words used in the two different prospectuses…. https://investors.statestreet.com/investor-news-events/press-releases/news-details/2023/State-Street-Corporation-Announces-Transition-Information-for-Outstanding-U.S.-Dollar-LIBOR-Linked-Instruments/default.aspx. It would be interesting to see your take on how STT has interpreted what they have to do compared to what PMT is doing – Would you feel the same way about STT’s decision as he does on PMT? Please note this as an academic question, not one challenging your conclusion on PMT. Your analysis far surpasses anything I would attempt to do personally.

          The relevant prospectuses are https://www.sec.gov/Archives/edgar/data/93751/000119312514072924/d682864d424b5.htm

          1. 2WR, You arent the only ignorant one here (though I could read that blog, ha).
            Your comment espouses one of my 2 overall thesis to investing. When I stray from one of these 2 things dont work out as well.
            #1…I am dumb
            #2… All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call “error creep”.

            1. Grid – just to set the record straight, there does seem to be a limit to my ignorance at least. I, too, could ultimately read the blog… I just couldn’t satisfy the blog gods on what’s necessary to be able to post…… lol I’ve taken Charles’ advice and posted to CWMF’s SA site…. had also thought about PMing him if need by but didn’t yet.

          2. 2WR you can publish here on WCMF article without signing up for his forum.
            Especially read the comments on the link.
            I think Maine is right.
            Don’t forget, next week a lot of traders take off before a holiday and the next week also and that is a shortened trade week. Market can be volatile or it could be a rising or sinking market. If my memory serves me correctly and its not the best, if the market rises before a holiday the week after sees a drop as traders take a profit. ( my crystal ball is never 100% and it’s in the repair shop right now)

      2. 2WR I like reading the comments section on articles and out of the 5 comments on CWMF article, 2 readers pointed out MS ( Morgan Stanley ) decided to go to a fixed rate and one reader who has 15 yrs as a senior bank lender and has been dealing with the SOFR and LIBOR issue thinks PMT can do it.
        Mortgage Reits and banks are similar in that they are both lenders.
        If PMT A & B fall and you take the risk that no one is going to legally challenge the decision …
        But is there a point some group of lawyers is going to go to court over interpreting the language of these that other lawyers wrote? CWMF is saying When congress wrote the laws on SOFR it was to clear up any problems that might occur.

        1. Charles – I don’t have much experience in these matters as far as attorneys filing suit, but wouldn’t they have to prove damages in order to have a case worth pursuing? I wonder if there’s enough meat on the bone for any ambulance chasers to do that at this point, is there? Maybe for a class action, but I have no worthwhile experience to say so or not.

      1. Saw that – I have 500 shares and am very interested to see if there will be a class-action or other legal matter with this. X-DIV is this Thursday, so I am holding PMT-A for now.

      2. I made the unusual play of swapping PMT-C for PMT-B. At very nearly the same fuxed div on the offchance there will be a correction. Alteday been a mild adjustment since then.
        I did take some of it off the table.

    1. Thanks for posting Maine,

      What I find interesting is that PMT and NLY are both mREITS and both have the so called “polling provision” in their prospectus documents. I don’t know that these were made null and void by act of Congress or not, but to me this possible Congressional action is not the central issue.

      My issue is that PMT appears to be using this provision as an excuse to keep the coupon rate fixed. NLY, however, are currently paying floating coupon rates on their F&G issues. They both had the same provision.

      When making decisions about Fixed Income securities I always keep Character, Credit, Cash, Collateral, Covenants in mind. To me the most important of these is Character.

      In my view this decision reflects poorly on PMT character particularly when compared to a peer firm – NLY.

      I feel that it’s best to cut bait and move on when Character issues surface, and I feel that interpreting the “polling provision” in this manner is a Character issue. There are plenty of fish in the sea, and PMT would appear to be a throwback from what I can tell.

      Full disclosure – I own the MS-E which also decided not to let the coupon float. My plan here is to wait for the October/November Fed Meeting driven interest rate hike and take my November dividend. I will then shop for an alternative that meets my objective which is a TBTF income vehicle. I am considering changing the objective and picking up another Fannie 6% MBS bond which I am thinking will be trading below par at that time. We will see what rates look like in November.

      MS and PMT suffer from the same Character issue IMO.
      Given the choice its best to shoot fixed income investments that exhibit bad Character.

  16. NewtekOne, Inc. Senior Note Priced @ 8% –

    8.00% Fixed Rate Senior Notes due 2028
    Pricing Term Sheet
    August 24, 2023
    The following sets forth the final terms of the 8.00% Fixed Rate Senior Notes due 2028 (the “Notes”) and should only be read together with the preliminary prospectus supplement, dated August 24, 2023, together with the accompanying prospectus dated, July 27, 2023, relating to these securities (together, the “Preliminary Prospectus”) and supersedes the information in the Preliminary Prospectus to the extent inconsistent with the information in the Preliminary Prospectus. In all other respects, this pricing term sheet is qualified in its entirety by reference to the Preliminary Prospectus. Terms used herein but not defined herein shall have the respective meanings as set forth in the Preliminary Prospectus. All references to dollar amounts are references to U.S. dollars.

    Issuer: NewtekOne, Inc., a Maryland corporation (the “Company”)

    Title of the Securities: 8.00% Fixed Rate Senior Notes due 2028

    Rating:* BBB+ / Positive Outlook (Egan-Jones)

    Initial Aggregate Principal Amount Being Offered:

    Over-Allotment Option: Up to $5,250,000 aggregate principal amount of Notes within 30 days of the date hereof solely to cover over-allotments, if any.

    Issue Price: $25.00

    Principal Payable at Maturity: 100% of the aggregate principal amount. The outstanding principal amount of the Notes will be payable on the stated maturity date at the office of the trustee, paying agent and security registrar for the Notes or at such other office as the Company may designate.

    Type of Note: Fixed rate note

    Listing: The Company intends to list the Notes on the Nasdaq Global Market within 30 days of the original issue date.

    Stated Maturity Date: September 1, 2028

    Interest Rate: 8.00% per year

    Underwriting Discount: 3.00% (or $1,050,000 total assuming the over-allotment option is not exercised)

    Net Proceeds to the Issuer, before Expenses: 97.00% (or $33,950,000 total assuming the over-allotment option is not exercised)

    Day Count Basis: 360-day year of twelve 30-day months

    Trade Date: August 24, 2023

    Settlement Date: August 31, 2023 (T + 5)**

    Date Interest Starts Accruing: August 31, 2023

    Interest Payment Dates: Each March 1, June 1, September 1 and December 1, commencing on December 1, 2023. If an interest payment date falls on a non-business day, the applicable interest payment will be made on the next business day and no additional interest will accrue as a result of such delayed payment.

    Interest Periods: The initial interest period will be the period from and including August 31, 2023, to, but excluding, the initial interest payment date, and the subsequent interest periods will be the periods from and including an interest payment date to, but excluding, the next interest payment date or the stated maturity date, as the case may be.

    Specified Currency: U.S. Dollars

    Denominations: The Company will issue the Notes in denominations of $25 and integral multiples of $25 in excess thereof.

    Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York City or the place of payment are authorized or required by law or executive order to close.

    Optional Redemption: The Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after September 1, 2025, upon not less than 15 days nor more than 60 days written notice to holders prior to the date fixed for redemption thereof, at a redemption price of 100% of the outstanding principal amount of the Notes to be redeemed plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to, but not including, the date fixed for redemption.

    CUSIP / ISIN: 652526 807 / US6525268073

    Use of Proceeds: The Company intends to use these proceeds for general corporate purposes.

    Joint Book-Running Managers:
    Piper Sandler & Co., B. Riley Securities, Inc., and Ladenburg Thalmann & Co. Inc.

    Trustee, Paying Agent, and Security Registrar: U.S. Bank Trust Company, National Association

    * Note: A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.
    ** Under Rule 15c6-1 of the Securities Exchange Act of 1934, as amended, trades in the secondary market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the Notes on any date prior to the second business day before delivery thereof will be required, by virtue of the fact that the Notes initially will settle T+5, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of the Notes who wish to trade the Notes prior to their date of delivery hereunder should consult their own advisors.


    1. Does this mean we will get to find out if they intend to honor the debt coverage ratios for NEWTZ?

      1. Ha! Boy that’s what I’d like to know too. I’ve not read the full prospectus yet but upon first glance there’s not even a mention of the asset coverage ratio nor the added protection afforded NEWTZ and NEWTL noteholders that the new noteholders for this 2028 bond will not have, even though they are described as “pari passu.” Legally speaking I suppose they are pari passu, but unquestionably the holders of these two notes who comprise over 70% of all their previously outstanding senior unsecured note holders, are theoretically afforded greater protection than this note will have. This note says, “The Indenture governing the Notes will contain only limited restrictive covenants. Among other things, it does not:
        •require the Company to maintain any financial ratios or specified levels of net worth, revenues, income, cash flow or liquidity, and therefore, does not protect holders of the Notes in the event that we experience significant adverse changes in our financial condition, results of operations or liquidity;” Clearly, the Z and L indentures DO require the company to maintain financial ratios and NEWT acknowledges that in the most recent 10k and 10qs. “As of December 31 2022, our asset coverage was 169%. Although we are no longer regulated as a BDC, certain covenants in our outstanding 2024 and 2026 Notes require us to maintain an asset coverage of at least 150% as long as the 2024 and 2026 Notes are outstanding.” From p 59 of https://www.sec.gov/Archives/edgar/data/1587987/000158798723000171/newt-20230630.htm

        I see no effort on their part to apprise noteholders of their current asset coverage ratio nor do I know enough on how to accurately calculate it to know if we have the data within this new 424b2 to attempt to calculate it on our own. NEWT seems to stonewall any and every attempt to clarify this point in their conference calls. There has been no update or willingness to publicly update this asset coverage ratio in the first two quarters of 2023 other than referencing the yearend 2022 number and saying vaguely, “we are in compliance.” I wonder if being in compliance still means maintaining a 150% asset coverage ratio for as long as these two notes are outstanding or if they’ve uncovered a legal away around it.


        1. The calculation to produce the 150% is quite clear from the 2022 10-K:

          “The ratio of our total assets (less total liabilities other than indebtedness represented by senior securities) to our total indebtedness represented by senior securities plus preferred stock, if any, must be at least 150%”

          We can calculate this ourselves, each time they produce a set of financial reports, such as each 10-Q or this new bond offering. I will do this this evening.

          1. Are you going to do pro forma taking into account $35 mil for this new issue (probably more)?

            1. Yes. Here is the whole paragraph. Note the word “after”

              Under these requirements we are only permitted to issue multiple classes of indebtedness and one class of shares senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after each such issuance.
              The ratio of our total assets (less total liabilities other than indebtedness represented by senior securities) to our total indebtedness represented by senior securities plus preferred stock, if any, must be at least 150%. As a result, if we were to redeem all of the outstanding 2024 Notes and 2026 Notes, we would no longer be subject to the above requirements.

  17. Interesting activity today on REGCO – the preferred created when Regency completed its purchase of Urstadt through an all-stock combination.

    For two days after REGCO appeared on my FIDO it was valued at the old Urstadt value of $21.36. FIDO did not allow trading “as there was not an established market price”
    Then yesterday FIDO allowed trading and it hovered between $21.56 and $21.70 with little action until 3pm today..
    From 3 to 4, 17,800 shares traded in modest sizes (one trade of 1,000, three 5-700’s, everything else small lots).
    Price jumped 6%, ending at $23.50

    1. (Reuters) – Hawaiian Electric Industries (HE.N) on Thursday said it would suspend its dividend starting in the third quarter and announced other measures to strengthen its balance sheet, following scrutiny over the its role in the Maui wildfires.
      The Honolulu-based company also said it plans to take the $170 million and $200 million that Hawaiian Electric Industries and Hawaiian Electric withdrew from their credit accounts, and invest it in highly liquid investments to strengthen its balance sheets.

  18. HE is apparently suspending its quarterly dividend. Not sure if it is suspending just the common or not.

    1. I read the articles not behind paywalls, all mirrors of each other, taken from a press release I can’t find on the HE site. None of them mentions preferred, just refers generally to ‘dividends’. I’ll take the under if anyone is betting…

    2. HE is Hawaii Electric Industries. Hawaii Electric is the subsidiary that is owned by HE. Hawaii Electric owns Maui Electric. That press announcement came from HE. All that to do be said, Im with Bur on it all being suspended. Top to bottom in total cash preservation mode now. Same exact playbook as PCG now is being used.

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