Recent New Issue Update

Just a quick review on the recent new issues now trading.

The new Allstate Corporation non cumulative 5.625% preferred began trading on the OTC Grey Market yesterday and is right around $25/share. We would expect (as would some of our readers) that the shares will have a shot at $25.50 once they get to the big board–maybe a 50 cent flip is in order for those so inclined. When this 20 million share offering was announced the other 5 preferreds outstanding from Allstate took a bit of a tumble.

Insurer WR Berkley issued 5.70% subordinated debentures (NYSE:WRB-E)  recently  and they have not yet begun trading.  There are 3 other WRB debentures outstanding and the 5.625% issue is trading at $25.12–down from $25.50 when the new issue was announced.  We expect the new issue to trade up toward $25.25 when trading begins.

The Tristate Capital Holding 6.75% non cumulative fixed to floating preferred offering has been trading strongly up near $26 and closing today at $25.88.  The issue begins trading tomorrow on the NYSE.

The investment grade Apollo Global Management 6.375% issue (NYSE:APO-B) has traded weakly and is now at $24.82

The 7.125% QTS Realty cumulative preferred (NYSE:QTS-A) has traded around $25 closing today at $25.28. QTS is a data center REIT.

The Compass Diversified  LLC 7.875% fixed to floating preferred (NYSE:CODI-B) continues to trade very poorly at $23.70 3 weeks after issuance.

Lastly utility CMS Energy 5.625% subordinated debentures  (NYSE:CMSA) have traded right around the issuance price of $25.

So what does this tell us?  The most obvious is that any issues with a K-1 attached to ownership (Apollo and Compass)  are truly unloved.

And as we have noticed before any banking issue with a coupon up in the high 6’s have traded strongly in the last year.  These are typically junk rated issues.  Those such as the low coupon Webster Financial (NYSE:WBS-F) which is slightly higher quality than the Tristate Capital Holding mentioned above, but has a meager 5.25% coupon has traded poorly at $24.15 3 1/2 months after issuance.

It would appear whether an issue has cumulative dividends or is non cumulative and whether dividends are qualified or not has little impact on the trading strength of a new issue.

This short bit of history may help investors to choose which issues to buy on the OTC Grey Market in the coming months.  There is nothing more disheatening than buying a new issue at $25 and watching it fall to $24 within a month (we have experience in this as have most investors that have been active in the new issue market).

13 thoughts on “Recent New Issue Update”

  1. The REIT preferreds are getting pretty hammered, too… PFFR is down 4% YTD. More surprisingly (to me at least) BRG-A and BRG-C, which have coupons over 7.5% and eventual penalty rates climbing 2% a year, are down even more. I have a moderate-sized position in those; I liked the penalty rate option and figured residential real estate would hold up better than commercial in a downturn. But I guess the market just tarred them with the same REIT brush.

    As an aside, I’ve been reading your stuff for years and should have thanked you sooner — for the great new site, but especially for sharing your insights so freely. More important than each individual call is the way you share your thought processes with us. It has really helped me learn.

    1. Hi Mike–thank you for your kind words. We all learn together. As I have said it is going to be a rough year for trying to stay in the plus column with income issues–my expectations for the year are very modest returns.

    2. Mike, you have any additional insight on BRG? I owned the preferreds awhile back and flipped a few times for small profits. Always had an itchy trigger finger on this company. When the divi trouble was brewing I bailed before the preferred fall. I would love to trust and reenter as you stated I love the preferred protections in this. But, as we know they dont mean squat if equity is ever wiped out. They seem to try to make a bunch of their money flipping their inventory. I just dont know how good their numbers are, or whether even this year they truly are making enough money to cover dividend this year.

    3. I have not owned because the #’s i’m looking at… they are not good. Their expenses exceed their income and have a negative operating income. Selling/Admin costs are high, and until you can cover the costs of dividends with operating income, it is a no for me.

      1. Also, looking at the common stock picture is not pretty. 7$-13$ range. When the common is spiraling down, and hasnt found a footing, it is generally not wise to invest in preferreds. There is always a reason why, and in this case, the operating income is poor.

      2. Mr. Lucky, I am stepping into my lack of knowldege area, but GAAP accounting is largely meaningless for Reits. And they incurred costs last year of going internally managed as opposed to externally mananaged which constantly fleeced them. So that expense will be gone. They are projecting covering the divi this year….But, if and nuts and candy and buts, etc….You havent helped to convince me to buy, lol…So I will refrain…

        1. The consistent thing is that I apply my analysis to all the companies, and when the #’s are this poor, 10 out of 10 times they will have a very high % coupons. I just looked, and what do you know… they have an 8.25% coupon. Way too much risk. Also, they are roughly a 200mil equity worth in common stock, and they have almost as much in preferred coupons. Again, way too much risk. But hey, everyone has some appetite for gambling, and this one fits the bill nicely if you decide to add some spice to one’s portfolio. 🙂

          1. That is a good additional point I usually look at (but either didnt, or forgot because it was 6 months ago, lol). Call me chicken, but I do usually share the same concern of too much preferreds in relation to equity….Good point and thanks for reminder….My biggest holding has preferreds that equal less than 1% of company capitalization.

        2. Gridbird,

          You mentioned that the external management “constantly fleeced them”– well, the internal manager consists of the same bunch of insiders, who now collectively (in some cases through personal LLCs) own 3.75 million shares’ worth of “LP units” and non-traded Class C common shares convertible into the regular Class A common, about a 15% chunk of the company. But it is worth reading BRG’s most recent 10-K to get a sense of its complicated structure; there are enough of all sorts of partnerships, subsidiaries, and LLCs to provide ample opportunity for the insiders to engage in self-dealing. On the other hand, maybe their collective stake in the common shares is enough to make them want to keep them afloat and paying dividends. I would be inclined to think yes; but maybe there is another angle that I have overlooked.

          1. Thanks for the addtional color, Mike.. I will sit on the sidelines here. The inner guts is beyond my limited comphrehension.

    1. Thanks Wedgehead–with luck, time and money it will get to be a great site.

      Tim

  2. I must have gotten lucky as of that list of names, I jumped all over TSCAP as soon as I could get my hands on it. Straight up it went to a quick profit of 70c per share. I plan to hold and not flip. I believe in the underlying company.

    I second and third and fourth everyone’s comments, Tim. Your wisdom is very helpful and the site is great!

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