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Ready to Buy–But What?

So I have cash in my pocket from bond and CD maturities and plan to make a buy in the next couple of days. I need to review portfolios to see where I have room to add to current positions–a number of my favorite securities are already at full–or above full positions and I have to resist adding to these in the interest of diversification. One of my largest positions is in the 6.50% XAI Floating Rate (XFLT-A) term preferred–I could just keep buying it, but am totally overweight and one has to resist getting carried away–‘stuff happens’ which can destroy values. I am also overweight on the RiverNorth Opportunities Fund 6% perpetual (RIV-A)–can’t buy more of this one. I will review the new issues for potential buys, but likely will end up buying a ‘high yield’ issue that is already in the portfolio.

Yesterday I redeployed some capital into 5.45% 3 month CDs–still ‘addicted’ to CDs. I am targeting a 60% weighting to preferreds and baby bonds so as CDs mature I reinvest some in CDs and then make modest purchases in the preferreds and baby bonds. This is a slow process–what’s the hurry?

The 10 year treasury is trading at 4.29% this morning–a few basis points higher from yesterday. Mainly rates are awaiting the release of the personal consumption expenditures (PCE) inflation numbers later this week–a giant sized 15 basis point move is possible–up or down, as the debate on rate cuts for this year continue. For a rate cut in September good inflation numbers need to start coming in NOW.

Yesterday we saw the new New York Mortgage Trust (NYMT) baby bond price at 9.125%. As of now we haven’t seen pricing on the new Dime Community Bancorp (DCOM) baby bonds announced yesterday. Additionally we have not seen any pricing on a new Sachem $1000 bond issue which was announced initially on 6/17–negotiating for coupon must be difficult.

30 thoughts on “Ready to Buy–But What?”

  1. Tim, I haven’t seen anything lately that I have been itching to buy, Seems like a lot of issues coming to market are these companies that need to roll over debt that is coming due and they have to offer these high rates to get investors to part with their money. I will continue to stick with cash in SPAXX backing up some low ball bids on existing Preferred and BB that already have a track record.

    1. Charles M, that can work out well but certainly a risk and need to decide how much trust you have in the company. GEO did that by calling with some given as cash and some a 10.5% bond. A year later they called the new bond so I received 6.5% for a few years and then 10.5% for another year.

  2. KIM-L 6.32% YTC 18.96% Kimco Realty, One of the biggest shopping ctr REITs….You get that 199A (b) 20% reduction off the taxes….BBB- rated.

    1. What is the call date on which your calculation is based? Quantum Online says the issue was callable in 2022 but is perpetual. Closed yesterday at $20.26.

  3. HAUPPAUGE, N.Y., June 26, 2024 (GLOBE NEWSWIRE) — Dime Community Bancshares, Inc. (the “Company”) , the parent company of Dime Community Bank (the “Bank”), today announced that the pricing of its offering of $65,000,000 of its 9.000% fixed-to-floating rate subordinated notes due 2034 (the “Notes”) in a registered public offering (the “Offering”). The Company has granted the underwriters a 30-day option to purchase up to an additional $9,750,000 aggregate principal amount of the Notes to cover over-allotments, if any.

    The Notes will initially bear interest at 9.000% per annum, with interest payable quarterly in arrears, commencing on the issue date, to, but excluding, July 15, 2029. Commencing July 15, 2029, the interest rate on the Notes will reset quarterly to a floating rate per annum equal to a benchmark rate that is expected to be Three-Month Term SOFR (which is defined in the Notes) plus 495.1 basis points, with interest payable quarterly in arrears. The Company may redeem the Notes, in whole or in part, on and after July 15, 2029, at a price equal to 100% of the principal amount of the Notes being redeemed plus accrued and unpaid interest. The Notes will mature on July 15, 2034 if they are not earlier redeemed.

    The Company expects to close the transaction, subject to customary conditions, on or about June 28, 2024. The Notes are intended to qualify as Tier 2 capital for regulatory purposes.

    The Notes are expected to be listed on the Nasdaq Stock Market® within 30 days of the original issue date under the trading symbol “DCOMG”.

    The Company intends to use the net proceeds of the Offering for general corporate purposes, including supporting organic growth initiatives, and to support the Company and Bank’s regulatory capital ratios.

    Raymond James & Associates, Inc. and Keefe, Bruyette & Woods, A Stifel Company are acting as joint book-running managers for the Offering. D.A. Davidson & Co. and Piper Sandler are acting as co-managers for the Offering.

      1. Can’t understand why in the world they would issue such a small amount. I mean they have $1.2BB in shareholder equity and $13BB in assets. Go big or go home!

  4. Tim – Have you looked at the Virtus Convertible /Income II preferred?
    Yield is in the near 6.70% range.

    1. theta–will take another look at it. Used to own it and they once had to suspend dividends for a few days as they broke leverage.

  5. Tim,
    I would be interested to know how you define a “full position”. Some make it % of portfolio (2%? 5%?). Others make it a dollar value of the issue, or the dollar value for a given company. Your definition would be very educational.
    Thank you,

    1. Jay–I try to stay at or below 4%–but some I have now crept up to the 6% area. So when I say 1/2 position we are talking 2% etc.

  6. @Tim – the 6.5% ATH-D you mentioned a few days back has a sporty 6.5% yield …are you overweight this one also? What about some good old solid BDC activity like ARCC and GBDC???

  7. Check out OPINL. It’s a small baby bond very high yielding and they just completed a debt exchange and cut almost $300 million off their debt. It’s a misunderstood asset class and they are not the best run but do own assets with burn down value / make money.

    Great risk reward at this $10 level while it lasts in my opinion

      1. OPINL – FWIW

        S&P D Rating
        Moody’s CA

        Per FIDO

        “Newton, Mass.–(BUSINESS WIRE)– Office Properties Income Trust(OPI) today announced the final results for the previously announced private exchange offers (as amended, the “Exchange Offers”) to exchange its outstanding senior unsecured notes due 2025 (the “Existing 2025 Notes”), 2026 (the “Existing 2026 Notes”), 2027 (the “Existing 2027 Notes”) and 2031 (the “Existing 2031 Notes”, and together with the Existing 2025 Notes, Existing 2026 Notes and the Existing 2027 Notes, the “Existing Notes”) for new 9.000% Senior Secured Notes due 2029 (the “New Notes”) and related guarantees pursuant to the terms and conditions set forth in an Offering Memorandum, dated as of May 1, 2024 (the “Offering Memorandum”), as amended by OPI’s press releases dated May 20, 2024, May 23, 2024 and June 10, 2024. “

            1. I think the debt load is too much to pay off for opi. Each cycle will be selling assets, reducing dividends, reduction in income. Wash rinse repeat. I dont see them surviving in the long run. It is not even worth a gamble in my opinion.

              1. Whats going on Mr. C? I read Moodys credit report. That was pretty scathing. Of course with a CCC rating, its not going to be a glowing one.

                1. in the ‘office yuck’ space, a small Canadian REIT Slate is basically bust, in default, some US mostly CA office.. I guess thru BF Saul pfds I have some office exposure in their mixed use developments, but they are mostly strip/grocery.. then my SLGreen Pfd I shares.. and would nibble on AHH pfds for a trade, but otherwise have no ofc exposure. I think SL Green is the only company, maybe Boston Properties, where office is ‘investible’ in the common shares, but not for me anymore. https://www.msn.com/en-au/money/topstories/slate-office-reit-faces-158m-debt-default-amid-challenging-market-conditions/ar-BB1oWRgU?ocid=BingNewsSerp

                    1. kind of, Slate like Dream in Canada (the old Dundee group) has different REITs so the Grocery REIT is separate. I don’t own any CA r/e these days Trapping Value on SA covers most of them well if anyone has interest. I guess this should go in Canadian Chat, but personally I see CA cutting rates faster than US which puts pressure on the Loonie, so the CA divs would be less when converted, then CA REITs are obviously pass-thru’s so you don’t get the 15% tax break in IRAs as you do on common. The only one on my radar which I have traded is BSRTF which is US apts, paying dist in US$ and they are ROC, so it cuts the basis and is good in a taxable.

                      Really I find myself over the whole r/e space other than a few REITs, and just liking pfd stocks these days where my allocation has crept up to 24% of portfolio. This increase has come out of common stocks, booking gains on ‘trading shares’ and SGOV cash which is down from 45% to 35%. Bea

      1. Yes. Am aware of these. They got downgraded because the debt exchange was tantamount to a default in the rating agencies eyes.

        Ultimately they paid a premium to to spot value and converted unsecured bonds into secured bonds. And got a discount mostly on the 2031’s which amounted to almost $300 million in less debt. This wasn’t free. They paid off 2-4% bonds with 9% secured issuance. But they are within their covenants to do it. I view this as a positive.

        OPINL – has a requirement to keep total unencumbered assets of not less than 150% of unsecured debt. This is in my personal high risk bucket. But overall it seems it’s being shorted aggressively. The borrow rate for OPINL is in excess of 200%! So I wonder whose trying to push the values down while I clip my 15%+ coupon

        Not for the faint of heart but a decent risk reward setup as management is trying to create value by getting creative around their debt. Ultimately making the business more viable. Their assets are good. They are office but most are net leased with long term leases. Just my 0.02

  8. I have my largest CD’s maturing in the next 30 days starting Monday. I am going to sit in SGOV. At 5.25%, it is not much different than CD rates (when I consider the actual $$$ in my pocket). I am looking for opportunities also. However, I only invest in Moody’s or SP investment grade issues (prefer both) with a few rare exceptions.

    Even with new Investment grade ratings, I find myself having to pass on issues like Bank of Hawaii. I have too much banking exposure and the CRE issue is a consideration.

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