Real estate finance REIT Sachem Capital (SACH) has announced a new issuance of $25 baby bonds.
These notes will have an early redemption starting in 12/2023 with a final maturity in 2026.
The company has placed this in the prospectus–
We intend to use the net proceeds from the sale of the Notes offered under this Prospectus Supplement for working capital and general corporate purposes, i.e., to fund new real estate loans secured by first mortgage liens. We may also use the net proceeds from the sale of the Notes to redeem some or all of the June 2024 Notes and/or the December 2024 Notes, to acquire other real estate finance companies or mortgage loan portfolios, although at this time no such acquisitive transactions are pending.
The preliminary prospectus can be found here.
730Cap was right on top of this new issue with EarlyBird chiming in yield talk in the 6.00% to 6.25% area with BBB+ rating from Egan Jones (don’t confuse this rating with those from S&P, Moody’s or Fitch).
Why would companies use them? Are they cheaper, more friendly in their ratings? Have any strong companies like Public Storage used them?
JB – It’s probably no coincidence that you see Egan Jones ratings most frequently when they are in the BBB range, + or -. companies on the cusp of IG will go ratings shopping and lo and behold, who frequently comes thru for them when the Big 3 won’t? It’s Egan Jones…. So they’re used frequently when they’ll generate a rating the others will not and that rating is high enough to have them crowing that they’re now an IG rated company….. I also suspect they’re less expensive to hire than the others.
Shopping for the ratings they want. Doesn’t sound like a good service for the investor. Maybe the SEC should look into this rather than handcuffing my KTBA shares.
Thank you for your response
This situation reminds me of companies that grade rare coins. PCGS keeps telling you the coin is AU58 so take it across the street to NGC to get a MS62. If not happy with that walk over to IGC, ANACS, or whoever will give you a MS63. Now you are able to market the coin in a way that pleases you. On top of that each drop in consistency and quality of the grading company the price drops for the service.
So here we have no true standards in place for the industry and a ratings company can stretch reality just far enough to give the result the customer wants. And we are not the customers. The dealers are of the debt combined with the rated company. If they did not need to borrow the company would not care about ratings.
BRANFORD, Conn., Dec. 14, 2021 (GLOBE NEWSWIRE) — Sachem Capital Corp. (SACH) announces the pricing of a registered public offering of $45.0 million aggregate principal amount of 6.0% unsecured, unsubordinated notes due 2026 (“Notes”). The net proceeds of the offering to Sachem Capital Corp. are expected to be approximately $43.3 million after payment of underwriting discounts and commissions and estimated offering expenses payable by Sachem Capital Corp.
The offering is expected to close on December 20, 2021, subject to customary closing conditions. Sachem Capital Corp. has granted the underwriters a 30-day option to purchase up to an additional $6.75 million aggregate principal amount of Notes to cover over-allotments, if any.
The Notes will rank pari passu with all the company’s unsecured, unsubordinated indebtedness, whether currently outstanding or issued in the future. The Notes are expected to be listed on the NYSE American under the trading symbol “SCCD” and begin to trade on or about December 22, 2021…
https://seekingalpha.com/pr/18601083-sachem-capital-corp-prices-registered-public-offering-of-45-million-of-6_0-percent-notes
“We may also use the net proceeds from the sale of the Notes to redeem some or all of the June 2024 Notes and/or the December 2024 Notes…”
Damn I own a lot of these too!
The June 2024 Notes are the 7.125% SCCB – which has been callable since 6/30/21. Has only 948,000 shares outstanding.
Looks like I will be welcoming the New Year by putting another rock-solid high yield soldier down.
But a smart move by this small-cap company. If they can truly get 6% on this new SCCD issue, they should raise as much as they can to retire SCCB and SACC.
To Tim & others; I have seen many comments on Egan Jones and their ratings. Are you saying that their rating system is not credible??? Just asking for a friend…………
Chuck–I think the answer is we don’t know for sure. They have become big raters in recent years and not sure what to think for absolute certainty. For sure one doesn’t want to extrapolate their ratings to the other long established agencies (i.e. a BBB is investment grade for S&P, but whether that is equivalent to Egan Jones is highly unlikely). You can see their explanations of ratings here–
https://innovativeincomeinvestor.com/credit-rating-info/
The stat Egan Jones likes to tout is their “Hits and Misses” It a calculation of how many times ratings from the other rating agencies have ended up converging toward theirs. It’s explained on their website like this –
Egan-Jones’ accuracy has been proven by our record of Hits and Misses [1]. Over time, major NRSROs’ ratings have converged upon ours, displayed below as a hit.
The “Hits and Misses” aims to measure the extent to which the major rating firms converge toward our rating. For example, if we rate an issuer “BB” and another rater moves from “BBB” to “BBB-“, such an action would be considered a “hit”. If the rater withdraws a rating, then such action would be neither a “hit” nor “miss”. Additionally, if we rate an issuer at a different level than the other raters and warn that they might take a divergent action and subsequently take a divergent action, then such is not counted as a “miss”.
There’s a chart on the website showing their stats annually on https://www.egan-jones.com/about-us/company-overview/
Thank You Tim & 2whiteroses. That definitely helps.
“Are you saying that their rating system is not credible??? ”
In a word, no. Sometimes their ratings are in the ballpark of sanity. And sometimes they do something like rate Chicken Soup of the Soul’s 9.5% bonds BBB.
There is also no way SACH bonds should be rated anywhere close to BBB+. I’d give them B+.
Thank You Landlord Investor. I appreciate your input.