Hard money lender Sachem Capital (SACH) has announced they will be selling a new issue of baby bonds.
SACH has many issues of baby bonds outstanding and 1 issue of perpetual preferred which can be seen here. They last sold a baby bond in May with a coupon of 7.125% which is trading at $24.98.
The new issue will have a maturity date in 2027.
The preliminary prospectus can be found here.
EarlyBird was right on this one.
I stick with their term bonds.
Maybe (we all get to guess what a raised eyebrow means) they see the market as possibly unapproachable going forward and they are ‘getting funds while the getting is good’. Maybe it’s a bit of liquidity insurance? The banks are lending so they do not look like a resource of only resort for companies.
Six of their seven outstanding Exc Traded Prefs and BBs are within about two years of callability, so they have the ability to refi or allocate if they are wrong about the interest rate trend.
I see the interest rates as being slow and sticky to the upside unless the Fed re-hires Greenspan.
Anybody concerned about Sachem having too many preferreds?
On the last CC the CEO was saying they are paying too much on these little note issues and might have some other source of funding lined up. But now they are doing another one at maybe the highest coupon yet and total cost north of 8% after the underwriters discount lol.
730:
It is a little bizarre that they are going to issue more debt at maybe their highest rate yet. They did just raise the common dividend in July by 17% to $.14/quarter.
During the first 6 months of 2022, SACH produced $7.3M in operating cash flow. However, from this they paid out $1.8M in preferred dividends on the 7.75% SACH+A and $8.25M in common dividends. The common is yielding 11%.
They seem to have no problem raising money. Besides the never ending baby bond issues, SACH issued $22M in common stock at average price of $5.63 during 1st 6 months of 2022, and then another $11M since 7/1/22 at average price of $4.77.
Not sure why they increased the common dividend so much last month. It really was not necessary. Maybe they believe they will grow into fully covering it, but that remains to be seen.
I’m keeping a small position in some of the SACH baby bond notes. I see that the very influential Seeking Alpha group we all know about put a BUY on 6% SCCE last Sunday.
They have also been bullish on the perpetual preferred 7.75% SACH+A and reiterated their BUY in July.
With their large flock of mindless sheep driving up the shares of SCCE by 4.5% in the last few days, I was able to get out at a profit, right before this new SACH baby bond issue was announced.
Truly wish I could send Rida a dozen roses and/or Krispy Kreme donuts for that one.
BTW – has anyone else noticed that a dozen KK donuts now costs $19? Good grief!
Rob–I did see they have now launched a nationwide platform for lending so maybe they need expansion capital–but I agree is it a bit weird that they keep coming back to the well. I need to closely review there financials–it has been on my list.
Agree I am a little surprised at issuing more bonds, but CEO did mention on the call they are seeing a lot of attractive deals right now, and able to raise rates on their loans. If they are able to originate loans at 13%, and raise capital at 8%, that must still be accretive (maybe last year it was 11% and 6%, so approximately the same spread). But their cash flow looks good, low levels of defaults and REOs, and their loan book does turn over pretty quickly. They also did a smaller issuance than last December ($25 million vs. $45 million in December), so they seem to be getting just enough capital as needed with rates higher right now.
I still prefer the shorter term bonds here, since I like the chance of liquidity in 2023/2024 when they are called or redeemed, and the chance to reinvest during the potential recession when more bonds/preferreds could be trading at a discount to par.
JMeek–yes I had read the same thing that with the new platform on the web they were seeing good demand.
I was curious the other night and dug around to find out how they were lending–they are lending on the ‘as improved’ value. This is a little dicey as a borrower could borrow and improve the property and then be unable to execute a sale at the ‘as improved’ value because of the falling real estate values. Hopefully they are sticking to decent lending standards. We’ll see how they do in the current quarter
I, too, am surprised and confused. They must be quite confident of future earnings. They just raised the common divi by ~15% IIRC. I also vaguely remembering there was chatter here about their calling the 6.875 SACC (but that was before the Fed started raising). I figured they decided to wait and call the 7.75 SCCC in Sept. when it’s callable, and maybe that’s why they issued F at 7.125. And now 8% fairly short term?? Beyond my understanding.
Rob…my jaw dropped when I saw your post that a dozen KK donuts were $19. I checked my local KK website and see that a dozen “original glazed” were $11.49 for pickup.
Can’t remember the last time I had a KK donut.
Rob, here in Ft Lauderdale I got a text from KK this AM that said I could get 2 dozen for $19. I am a decent sized KK shareholder as I bought the equity with my large payout from the takeover of Dunkin’ Donuts. I also use to have a stake in a chain of DD stores that I sold some time ago (pre pandemic) because my partner that was running the operation got sick and wanted out. The markup on coffee is insane and I believe KK has an incredible management team that will eventual drive sales and growth much higher 🍩
Azure:
DNUT down 11% today to $13 and nearing a one-year low. Company blamed strong dollar and “softening” consumer demand. $19 for a dozen KKs in New York City.
“Looking ahead, DNUT sees full-year revenue of $1.49B to $1.52B vs. $1.53B to $1.56B prior view and $1.56B consensus. EPS of $0.29 to $0.32 is expected vs. $0.38 to $0.41 prior and vs. $0.41 consensus.”
Does DNUT really sell at 40X EPS? My goodness. This thing makes SBUX look like a value stock.