In one of the biggest disappointments of the year Selective Insurance (SIGI) has priced their new non cumulative preferred issue.
The issue is rated Ba1 (below investment grade) by Moody’s and has priced with a coupon of 4.60%—-yes 4.60%!! To say I am disappointed in this pricing would be a understatement–while we all knew it would be low–maybe 5.25%—but 4.60%. I had planned to buy a position tomorrow–but it would have to trade very weak for me to be interested.
The SEC pricing term sheet has NOT been filed but the company press release can be read here. When the official details are released I will publish them.
One can buy IG utes at better YTC. And a whole lot of other things.
YTC 3.92%.
How many investors are old enough to remember the Boskin commission in the 1990s? They changed the government inflation formula. I saw a post from a paid subscription service I have. It had a chart from shadowcharts.com. Unfortunately, I cannot paste it into these comments.
If you measured the inflation rate from 2000 the way it was measured before it was changed, inflation is running 4% – 6% per year. Overstated? Perhaps, but it sure is not 1.2%.
4.6% for non-investment non-cumulative. Horrible.
SteveA–I read a similar article–and anecdotally from my own shopping there is no way that inflation is what is reported.
People at the Fed should be required to do their own shopping. Then they would see what the real inflation rate looks like.
Looking at wages, which is the biggest input into the economy, I don’t see any inflation.
Landlord, I dont see any inflation at all at the spending level either. My breakfast oats at Walmart have been $2.48 for years, lol. The only thing really inflationary I have had in recent years is health premiums, and even there I got a break as its going down $2 a month on exchange next year. But sometime this year it will drop 75% when I jump on GFs plan and let her company pay for it. Restaurant prices have creeped up a bit but that is a pimple on my rear in monthly costs. Commodities are rising so some pricing pressure could be coming.
Inflation is all personal though as it depends on where one is spending their dollars.
Grid,
My inflation experience mirrors yours. Health care – up, also higher ed up.
I’m 73 yo and all my life I can’t remember anyone ever satisfied with gov’t calculated inflation rates. Most folks have always maintained it understates inflation.
But to a significant extent, inflation is a personal situation.
Razor, Thank God my Higher Ed costs long ago went in the rear view mirror, ha. Its definitely personal, maybe regional and ones housing/rental situation factors in also. I aint moving, so mine is not going up.
The premise of hidden 4%-6% annual inflation just isnt there for me. I have been retired for 10 years. That would mean my monthly costs have went up over 50% since then. Back out healthcare, and its maybe 5%-10% higher in total since 2010 for me. I get inflationary COLAs and I have more money leftover at end of month now than I did then. And I live now just like I did in 2010. A few things up, and few things down.
Grid,
I’m thankful my higher ed costs are also in the rear view mirror. For me
and for my kids.
However, I have 2 great grand children who cause me to keep an eye on those type of expenses.
“when I jump on GFs plan”
Grid, does that mean that she has lost her mind and is going to let you you finally make an honest woman of her?
I’m not going to claim the inflation calculations are perfect, but stuff like shadowstats is pure garbage. I haven’t looked at it in a long time, but all they did was take the stated inflation rate and add something like 7% every year. They didn’t even pretend to calculate a true rate.
And just take a moment to think through the consequences. If the stated nominal GDP rates have been accurate at 4-6% over time, but inflation has “really” been 8-10% for the last few decades, that means the U.S. has been in a devastating depression (i.e., real GDP has been falling) for 30+ years. Doesn’t pass the smell test, does it?
Hi Tim, first of all, thank you for this great website, I discovered it recently and checking constantly.
Look, even EPRF [Innovator S&P Investment Grade Preferred ETF] yields more than this single issue.
Welcome Artak–glad to have you here.
Not going less than 5% for anything less than investment grade. This new issue is sick.
LTVS–I was quite confident it would price over 5%–this is crazy. Maybe it will trade down–wishful thinging.
I recently picked up some BAMH at a little over par with a coupon of 4.625%. But at least it’s investment grade. Alas, I’m afraid investment grade sub 5% may be the new normal. Maybe the SIGI offering will trade weak being it’s not ig.
Jerseyvinny–it deserves to trade weak, but with the yield chasers out there I suspect it might trade down to 24.75 only–far above where I would need to see it.
The other option is that more and more investors have discovered our preferred playground. They like what they see and are showing up in ever greater numbers willing to buy these new IPO’s at ever lower coupons. Might be a sign of things to come. Either that or it is a one off. . . but that does not seem likely to me.
I kind of think this is a one off. Look at BAMI and CFR-B which are both IG with similar coupons to SLIG.
I just bought some BAMI for $25.05. CFR-B is around $25.30. It doesn’t make sense that SLIG is at almost $26 right out of the gate. Just my opinion but something with SLIG seems off.
Dick W.
The two you cite with IG or near IG ratings should not be! This is definitely where the price is warning you why this IG trades so close to $25!
BAMI is a REIT with lots of exposure to NYC. It may be a good REIT but still I think they deserve a lower rating than in Jan 2020 when their business was great and very different than now or few years for now.
CFR-B is from small a Texas based bank (likely tied to Oil a lot). Surely you don’t think their rating just a bit under the mega-banks like JPM / WFC is justified?
So in this yield chasing environment with the Fed kicker of wanting to buy fallen angles etc, I tend to pay more weight to price than the ratings…
i think what is needed is one of these large below 5% below IG prefereds to go bust.
JV, Look at history, the ‘new normal’ always ends up normalizing (reversion to the mean).
We are restless creatures sometimes.
Sometimes, the best part of being a man is watching the parade, the clowns and the drama go by!