Sock Drawer Discussion

The intent of this area is to include items that all of us consider “sock drawer” holdings.

My definition of “sock drawer” is those issues I own that I consider extremely safe and don’t have to be watched to closely. Normally they would have more modest coupons, but you can sleep well at night (relative to safety)–you know the income stream is extremely safe, althought the share price may move around quite a bit.

Others may have their own definition–in fact I know they do–that is fine

For instance, I have held the Tricontinental 5.00% preferred (TY- or TY-P) issue for years and years. Tricontinental is a closed end fund managed by Columbia Threadneedle. TY was formed in 1929 and this small amount of preferred stock is the only leverage the fund uses–2.2% leverage. Because it is a CEF they must maintain a 200% asset coverage on the preferred stock–the last time I calculated the coverage it was over 4000%. This is a $50/share issue and last traded at $54.66. The issue is callable anytime at $55/share. Shares were issued in 1963.

347 thoughts on “Sock Drawer Discussion”

  1. Hello, I’m new to this site, and find it super informative. I used your spreadsheet to find what I think is the best safe BB/Preffered out there. Allstate series B.

    I bought 1,000 All-B a few days ago. Goes to float @ LIBOR +3.1% next year and its investment grade. So, to me it has very little interest rate risk, I just wanted something that earns a bit and is safe for my 1 year emergency fund. In my mind the idea of Allstate defaulting is pretty far fetched.

    Wondering if anyone has thoughts? Is it as safe as I think it is, or am I taking on too much risk?

    I also have a bunch of Citigroup Trust preferred , series N thats LIBOR + 6.something percent. I bought early this year seeing as how interest rates had no where to go but up. Its done really great so far. But, they could call it at anytime and despite an analyst at SA who says they won’t ever call it, theres always a chance! And its around 8% over call price!

    1. MHS, if you are looking at IG and FTF, you might also consider the following: PNC-P, RZA, and RJF A&B.
      A notch or 2 below ALL-B in credit quality, but better spreads to LIBOR.
      Also CBKPP and CKNQP, which don’t trade much.

  2. Picked up TY-P for under $51 yesterday. Only a very small nibble as I feel like I’m going to have better buying opportunities in the future, but it hasn’t been this low in quite some time. My next nibble will be at $48

  3. SJIJ baby bonds. Company going private what would be a concern of continueing to own this one?

    1. David, we have info here somewhere but I cant direct you to it. Largely the risk is, you buy it, you swallow it, and its staying in your belly until you die. They have already declared the issue will be delisted and deregistered. That is a flag that you have to base case assume its going to experts market and wont get an honorable exit price ever….Or it is completely untradeable,ala, WTREP, and you are an owner of private debt with no recourse to sell at all,until it matures 50 plus years from now.
      I have toed in a few and want 8% before I start getting a small mouth bite of this. But Im cool with size I will buy to hold as an unsaleable annuity. Of course the acquisition has to be approved though, but market isnt taking that chance it doesnt happen.

  4. The ole sock drawer area might need some more posting action soon. What are people wanting now days to consider it sock drawer yield and quality?

    MET-A yielding 4.5% without even considering the libor bump?
    DUK-A getting closer to par?
    Some PSA-x/USB-x?
    JPM-K paying basically 5.75%?

    Seems to me when IG is getting close to 6% in some cases it is time to start making a list and checking it twice! Any comments are welcome for ideas.

    1. A number of bank preferreds getting close to 6%. I started inching in and will gradually add as the divvies rise. Switching my taxable account out of Unqualified Dividends.

    2. Fc, I have been hugging mostly the call anchored, term and adjustables. But what I am eyeing is those sub 5% issues that have been torched. I want them to drop a little more and maybe get in high teens. At that point I would give up a small bit of yield to have potential for a cap gain down the road possibly.

    3. fc, thanks for all your posts. You may have spotted the 5.75% yield for JPM-K in the “Sortable Sheet.” If I am not mistaken, and not considering accrual, it would have to drop to approx 19.78 to be 5.75%. So Sortable Sheet appears to be showing wrong yield for this one.
      Best regards, No. 12

      1. You are exactly correct I was using the sortable sheet and did not verify what I was posting was correct. Good catch. The calcs above was using a div of .30 instead of .284. JPM-K is yielding 5.44% with today’s price. Quite the difference!

        I am slowly buying and added some DUK-A and SR-A. I wanted to add some utes for their predictability and quality. I cant always be stretching for yield. I have no idea if either will be called in 2024.

      2. That “Sortable Sheet” may be more than just a sheet, it may be a forecaster of the future. What do you know, as of 4/22, just over a month later, JPM-K closed at exactly $19.78 for a 5.72% yield. Now, how low with it go? Maybe time to load “SS” once again 🙂

    4. I know it’s a month later, fc, but noticed today that MGR is just under par, yielding c 5.9%. Rated BBB- a/o past October. Not QDI, sadly.

  5. Bought FRC-H today. Trading below par, 5.125% and callable in June.

    Seems like a decent short term play. Worse case I am stuck with a 5+ Bank issue. Am I missing something?

    1. I’m curious what makes you consider this a possible short term play? Just because it becomes callable??? Is that why you’re suggesting it to be a possible short termer or is there more to it?

      1. No simply that it becomes callable and they have called every expiring preferred up until now I believe.

        I’m sure you can get a higher rate but with that always comes some risk even if it’s minor in the Bank space.

  6. Any thoughts on FTAI-B. Hit par today with an 8% yield. Callable Dec. 2024.
    Past financials don’t look good, but they were spending on large infrastructure projects. Some of those projects are completed, so there is a big spike in 2022 revenue and earnings.
    Thanks in advance for comments.

    1. Just bought 200 shares on the price drop and upcoming div. Don’t know enough about it to risk much more.

    2. It is one of the guaranteed use of capital partnership securities.
      So as long as you don’t mind getting a fairly simple K-1, the income stream should be fairly secure.

    3. I’ve owned it since 11/26/2019 and this is the only preferred I have which I watch like a hawk. As you say, earnings are not good, but changes may be underway. I subscribed to their news releases and they have won a few new aircraft maintenance contracts recently. If the price ran up a bit I’d sell it and sleep better. If earnings improve I’ll keep holding and worry less. I have a small stake (1.4%) but it still concerns me. The yield is too good to dismiss, but the company is not on stable ground. It’s certainly not in my sock drawer…

      1. Bruce–FTAI is a B Riley deal–they have done so many marginal financial deals that I stay away from their junk.

        1. I never said FTAI was a sock drawer stock! On the contrary, I said it was NOT in my sock drawer. Please read the thread I posted in, (started 2/8/22), which I was following up on.

          This is the only problem with reading comments via RSS- you lose context.

  7. With the recent drop in prices I am wondering what folks are buying in the “Sock Drawer” – i.e buy and hold category these days? I am looking at the Bank preferreds in the 4.25 – 4.75 coupon area myself.

    1. some bank preferreds are approaching 5.5% yield. I’m holding out for at least that much before nibbling now.

    2. Bill W, I bought a couple jpm’s recently and a investment grade no leverage closed end fund NXP. today I added GDV-k @23.39 really big volume after this am. This is about as safe as a cumulative qualified div. comes to bad it’s only 4.54% ,but that takes me to the house.

      1. I bought quite a bit of the JPM/K when it hit around 4.8-4.9%. Happy to just forget about this one. If it heads over 5 I’ll buy more.

        1. WFC-L, 7.5% coupon. Some downside risk like everything in a rising rate environment. Yield around 5.4% (it’s a busted convertible and can’t convert unless Wells common gets to about $203, in which case the world is ending). It’s a $1000 issue trading at around $1400, but the price doesn’t matter if the yield is satisfactory (noncallable!). The only fly in the ointment is that it’s non-cumulative.

          1. Already had some BAC-L. Looking to add WFC-L after further drops. Patience is the key. If this is the bottom then all my other issues will be doing fine.

            1. A small bank with an unusual preferred (FIISO). Very thinly traded. Non callable and cumulative with an 8.48% coupon. Can buy with a yield of about 5.5% the few times it’s available. Is this “Sock Drawer?” It’s not rated but the bank (Five Star Bank) seems well run and solvent (as are all banks when times are good). May meet all of you criteria other than investment grade. This issue was part of a TARP settlement with the FDIC back in 2008 or so. But, it seems secure.

              1. OldmanRb,

                I was this close to calling Ally and buying it but I have no wish to overpay in this env. I have a GTC bid of 145 sitting there for months and after thinking it through I think it should be lowered to 135. I passed on it.

                It is definitely sock drawer material but I don’t feel like seeing 300 shares being sold 3 months from now for 130. On top of that there might be more liquid choices coming up with a 5.5% yield. Can’t hurt to be slightly more mainstream now days even if you never plan to sell.

                1. FC, FWIW I agree with you. I bought 300 of this at $92 several several years ago and could have bought 500, but screwed up. Sold at $150 a couple years ago. The best time to buy these at this current yield is when market expectations are for lower yield and you are wanting to hang onto the yield you have without a call taking it away from you.
                  This issue is largely owned by one of the founding families. The bank gets rumors every now and then of someone wanting it. Though the issue is uncallable, I dont know if that extends to a takeover from another company if that ever would happen.

                  1. As an aside on this, this was issued by the holding company and not the bank, so it is cumulative, unlike practically every other bank preferred.

                    1. Actually the reason its cumulative is it is grandfathered Tier 1 capital as it was issued in 1990s when this was allowed. This was genesis capital from the banks creation. This is because its under that $15 billion or whatever it is now threshold. That allows grandfathered status. But I assume it would just have shifted to tier 2 cummulative unless terms dictated a change clause. I have only seen smatterings of the issues guidelines, so I dont have clear answers of any change of control or tax implication changes.
                      A nice issue would love to own again around $125 which means I wont, ha.

  8. FLC trading at 6 month lows with 3x of avg volume. Do not see any news so perhaps some big investor or fund trying to exit for year end tax loss / re-balancing.

    Not quite a stock but a good actively managed CEF holding preferred shares with over 6.7% yield past few months and trading at relatively lower premium for FLC

  9. AATRL – anyone know what’s up with it? I was trading it but eTrade is “warning” me about it now. And, I get no bid/ask quote. Ideas? I have a few shares left but am wondering if I should sell them or just leave them be at this point.

    1. I can’t find any news on it. I entered a test trade for 10 shares offered at 62 at Vanguard and the order went through without any warning, although no bid/ask showing.

  10. WFC-L the busted non-callable Preferred making new high today. Still yields 4.88% at current $1545-ish price, so still attractive for some but I see more downside risk than reward at these highs

    Sad, but selling some here and hope to buy it lower …

    1. MSquare, exactly my thinking.
      Great (or dumb?) minds think alike?
      I Had to sell some I bot @ $1318, and left open orders to sell more if higher and buy back some when lower. Things begin to not make sense to me anymore.
      Sell WFC PRL 10 Limit$1,544.00 Executed 7/14/2021 12:58 PM
      Sell WFC PRL 10 Limit$1,588.00 Open
      Buy WFC PRL 10 Limit$1,455.00 Open

      And like wfc-l, I have a few others that I know I should sell,…
      Notice also that the similar bac-l which used to trade quite in tandem with wfc-l, is now @ $1441 (yielding just > 5%), so I bot some of these to offset the increasing % of cash in my acct.

  11. The 20-year trend on a 10-year Treasury yield has steadily declined (https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart). There have been periodic spikes but the trend line is clearly down. Early in the last decade the rate hovered between 3% and 3.5% and rarely approached this level since. Even when the Fed “tightened up,” increases in rates were short-lived and low in terms of absolute rate. Coupled with this is a national debt that’s increased to formerly unbelievable levels (https://www.statista.com/statistics/187867/public-debt-of-the-united-states-since-1990/). The key beneficiary of low rates is the U.S. Government. Significant spikes in rate will further increase debt, so there is a whole lot of self-interest in keeping rates low. Immersed in all of the Fed’s gobbledygook is the notion that we will make our debt far less appealing to buyers if the nation’s solvency deteriorates (a truism if ever there was one). A Catch 22! Higher rates should attract Treasury investors but higher rates could catapult our debt and materially injure the market for our “newly created” capital.

    My concern is that few of us recall owning preferreds, particularly “sock drawer” issues, in a high-interest rate environment. Over the past 10 years, part of my sock drawer holdings have been in the traditional, illiquid utility utes, mostly from Ameren, Connecticut Light and Gas, Pacificorp, Etc. I’ve been content slowly accumulating positions a few shares at a time with an overall “illiquid portfolio yield” of between 4.9 and 5%. Like most, I own these issues to supplement a reliable income stream. I can tolerate a correction in pricing because my income won’t suffer. Nevertheless, I’m wondering about the level of pain likely to be inflicted if the 10-year went to 4 or above and stayed there. Rates are beginning to rise and I ask myself the question: Will this time be different? Could my sock drawer portfolio value suffer a 40%, 50% loss? Most of my ute illiquids have been around for more than 50 years, so I’ve looked at pricing from long ago. It wasn’t pretty, with some issues now trading between 100 and 110 getting into the 70s. Is that apt to happen again with a real spike in rates? Common sense would say yes. But, with the permanency and reliability of the illiquid utes, something that may not have been fully understood 40 or 50 years ago, I think there’s a possibility that they (particularly those not subject to redemption) will hold up much better in a higher rate environment than do more traditional preferreds . I’d like to hear readers’ thoughts about this. My comments about what might happen are purely speculative. Thanks.

    1. OM – I believe that in the long run the math wins. If rates were to go high and stay high you can see low coupon sock drawer issues go to the teens. The income as you point out won’t change but if you have a mark-to-market mentality it can be bothersome to see values decline.

      And if rates go low and stay low more of the “uncallables” will get called. Assuming, of course, they are callable. My fingers are still singed from AILLL and I have unloaded some sock drawer issues that were past call and trading a year plus over redemption.

  12. In the spirit of the sock drawer today I bought some SCE-L, 5% coupon, trading below par and with a call date of 9/22. A tick below investment grade but I believe a pretty safe place to park cash for a bit.

      1. Good point on the G. Nothing would make me happier than a qualified 5% for longer period. If it hangs under par for awhile longer I may up my stake.

    1. It did dip to over $1.55 (6Q worth of dividends) in end-March not that long ago. So not exactly a good ‘sock drawer’ ?

  13. A simple question on IPLDP. I was airing out the sock drawer today. Why are these considered socks when the call date is 2018? What normally happens to these type issues? Even if they are socks, we still have to look out for another issuance at a lower rate for possible redemption?

    (I scooped up a few handfuls during the last interest rate spike, wondering if I should continue to do so…)

    1. Hster. About a month ago, someone posted here that IPLDP was getting close to par on a selloff. I bought a ton, and was happy to put it in my sock drawer. I looked at the price today, and was shocked, I let them all go today for $26.40. Very big capital gain. I let my STL-A all go today as well. That one is not a sock drawer issue… but i bought that a month ago at $25.50, and have sold all of them this week and last week for $26.60. Im building up too much cash. Lots of high flyers and lots of cap gains in the last few months.

      1. Dear Lord another forced name change. The tickers of Indianapolis Power and Light wont change, but now they are called AES Indiana now. Kind of odd since AES doesnt even own 100% of IPALCO anymore as they sold about 20% of the shares off a few years ago.
        Seems like “Power and Light” is another politically incorrect term added to the long list.

          1. Howdy stranger! Glad to see you finally paid the electric bill that was in arrears so you can plug back into the grid and post again! 🙂
            I tell you what Azure, its tough out there now. If they would allow unlimited IBond purchases this year, all my jack would be in them and there would be nothing to discuss! You arent going to disappear again for 2 years are you?

            1. I truly have been extremely busy in my early retirement. I just sold a few of my properties and businesses just before the end of the year to lock in the capital gains taxes for 2021. I’m sure with our fools in Washington pushing us past $30+ trillion of debt all of our taxes will be going much higher. Truly have missed you all and hopefully you will all welcome me back into this brilliant and helpful community again ⭐️⭐️🥇⭐️⭐️

            2. BTW, I’m guessing you still own our little Phoenix? I keep hoping they will call it, but am happy to take their quarterly distribution another 10 years 💎

              1. Ha, yes I still do! I guess I have had it 5-6 years by now. At this point being its private and an insurer which makes truly understanding the financials impossible, I dont even think about it until the quarterly interest payment shows up. And I hope it does until maturity early next decade!

                  1. Insurance companies know where every dime is allocated. I’m always surprised that they wouldn’t call a $300MM bond and refi at a better rate. I’m happy to hold as it’s so far under par and collect the quarterly distribution. Viva La Phoenix 🥳

      2. Mr. Conservative, Congratulations on being on the winning end. I myself being a more retentive sort can’t seem to take the gains and run even at $26.50 as I don’t see a better place to store that cash.

        1. i continue to sell. I sold 6,000 shares of MNR-C today. It should be called this Fall, and there is not much meat left to make on it if held to a potential call. Maybe .15. This is another one i wanted to hold, and bought much of it under par, and large gain. I will be upping my qrtly estimate payments with uncle sam, as i am well over 6 figures this year and it is only April. But… i think I am getting close to 40% in cash. eeeh. I like to be fully invested, and I dont feel good about sitting in a lot of cash.

          1. Mr. C – See this is what I don’t get about what you’re saying….. You’re saying you’re close to 40% cash and you don’t like it, but you sold MNR-C anyway… Where do you stash your cash???? If you believe MNR-C is going to be called on Sept 15 as I do too and you sold today at let’s say 25.61, that means holding instead of selling would be the equivalent of having your cash earning 1.5% give or take instead of moving it over to truly earning nothing in cash? If you believe in the call, then you also figure the price will not fluctuate much between now and then and will gradually appreciate toward the next x-div date, so why not just keep it until you’ve identified that vehicle that will make you get over your bad feeling about sitting in a lot of cash… Having said that, admittedly, 1.5% YTC is pretty stingy even for a sitch like this, so thanks for mentioning it…. If nothing else, it is time to at least put a throwaway sell order out there at a near 0% YTC…. BTW, I’m always sitting on way too much cash so that’s why I ask the question as to your rationale for selling instead of holding until you’ve found the alternative you’re looking for.

            1. 2wr. Everything I bought in the Fall all the way through Feb just went through the roof.

              It does seem like every once-in-awhile an opportunity comes up however for a need for cash. Since I am way up for the year, I think i can sit with patience and wait for rebalancing, or false calls, etc.. Ex. I threw some money at the dip in ET-x preferreds the other day. If I was fully invested in things like MNR-C where I already have some gains and very little left to gain, I could earn more by these opportunities. That is a 9% return in a week. It seems like the dips that are pointed out here and other places, it has been very worth while to use the cash for that.

              This weekend I will research more on pinned to par issues and re-invest more. I guess I have been selling 2-3 times more than buying. It is not like I am not buying at all. I have done some buying… I bought some SESCF, AFINO, STAR-I, UEPEP, PRIF-B, ET-E based on all the discussion here. I was a lot more in cash :-).

        2. A few that I still sit on with large gains is ET-E, ASRVP. I bought ET-E on the recent selloff to $23 and it is higher than ever. Picked up 7,000 shares and should have bought more. I could sell, and be close to my avg tax reporting for int, div, and gains for the year. I continue to hold on that one. ASRVP i picked up last spring in the covid sell off at a great price as well. Looking for pinned to par…

  14. PPWLM selling for $155 today, lowest price in months. Pacificorp, 7% coupon, not callable, 4.5% yield (looks good now; in the future, who knows). Company is AA-rated and owned by an affiliate of Berkshire Hathaway.

    1. Apparently Pacificorp is defending a class action lawsuit alleging negligence that resulted in some of California’s recent fires. Anyone know more? Real risk? The company is far better capitalized than was PG & E. It’s two noncallable preferreds are mainstays in my sock drawer.

      1. Oldman,
        Is PC part of PGE ? or a part of a holdco? There was so many fires last 2 years across Northern Calif, Southern Ore. and all the way up to Portland.
        Locally Sonoma county DA got a warrant to search PGE offices and seized files as part of a lawsuit.
        Hard to keep track of all the investigations going on.
        Between individuals, businesses, cities, counties, State etc. is why I am holding SCE preferred not PCG

          1. Thanks Grid. What’s your risk assessment? Berkshire tries hard to camouflage individual holding’s financials. Difficult to evaluate actual risk. Have held the two non-callable Pacificorp preferreds for a long time and my greed prevents me from exiting and taking a profit. Yield on basis is about par and that cannot be duplicated. Company’s bonds remain Aa rated. Didn’t the agencies quickly downgrade PG & E bonds after the fire-stimulated class action filings?

            1. Oldman, if memory serves agency’s were painfully slow to truly down grade PCG debt where it needed to be. But of course there is so many moving parts to it all, it was just a guessing game as the end game came out differently than many thought.
              Pacificorp is a bit different. That newspaper article suggested a billion potential. PCG was around $30 billion but its also a bigger ute. Its just at the guessing game stage as this takes a while to unfold. But Pacificorp is acknowledging the risk setting aside some money in addition to the insurance they have..
              California and Oregon 2020 Wildfires – Contingencies – See Note 16 to the financial statements
              Critical Audit Matter Description
              The Company has loss contingencies related to the California and Oregon 2020 wildfires (the “2020 wildfires”). The Company has recorded estimated liabilities, net of expected insurance recoveries, of $136 million as of December 31, 2020, which represents its best estimate of probable losses, net of expected insurance recoveries, as a result of the 2020 wildfires.
              We identified wildfire-related contingencies and the related disclosure as a critical audit matter because of the significant judgments made by management to estimate the losses. This required the application of a high degree of judgment and extensive effort when performing audit procedures to evaluate the reasonableness of management’s estimate of the losses and disclosure related to wildfire-related loss contingencies.
              SCE had billions in wildfire claims and has still been able to raise common stock dividend. Pacificorp doesnt have inverse condemnation in Oregon like what is in CA. So that is a different variable also.

              1. Hi Gridbird,any thoughts on the Pacificorp`s preferred dividend safety with no common to cut?
                Thanks in advance B/L

                1. Big Lou…Hey have you ever heard those “Big Lou” life insurance commercials? Hilarious… Big Lou is like you as he is on meds too.. Or Big Lou is like you and is divorced too. And my second trophy wife wants a lot of insurance on me too.
                  I hold Pacificorp preferreds all the time. The trouble is I cant keep them as somebody will bid them $8-$10 higher so I have to sell. I recently bought last month at $134 and sold off at $142 a week or so later. I have been well aware of these fires, but it hasnt concerned me. Buying and selling at right prices have been more of a concern for me.
                  As far as paying common dividends, that is complicated and probably not relevant like a public company…Technically Pacificorp is a holding company, owned by holding company, and in turn that holding company is owned by hold co Berkshire. Holding companies dont typically ask or need quarterly dividends from subsidiary. In fact at times they are pumping money into them instead of extracting cash and may go years without extracting a cash divi.
                  Granted Oregon is an eco state like CA, but they dont have inverse condemnation like CA does. So that means anyone who claimed to got fat and diabetes over the stress of the fire cant collect also. So its not the same. Personally, if I get a satisfactory entry point again, I wont hesitate to buy. But I make no claims of expertise here. This fire risk isnt near what EIX had and they have kept on ticking even with annual divi increases.

  15. GDL-C

    Having not seen the official announcement as I thought was due, this was received from IR – no surprises. BTW – Can’t post to Reader Initiated right now

    The Board has determined to continue the annual rate of 4% for the Series C Preferred Shares, effective for all remaining quarterly dividend periods. 

    The Series C Preferred may be put back to the Fund during the 30-day period prior to March 26, 2020 and March 26, 2022 at the liquidation preference of $50.00 per share, plus any accumulated and unpaid dividends, and redeemed by the Fund, at its option, at the liquidation preference of $50.00 per share, plus any accumulated and unpaid dividends, on March 26, 2021 or March 26, 2023.  The mandatory redemption date for the Series C Preferred is March 26, 2025.

  16. @GridBird or anyone else, any reason why AILLP went down big today? Is it just of interest rates spiking? Thanks in advance.

    1. Rajn, it went down on a recent 100 share purchase. This one trading down though isnt surprising. Its only a 4% par issue. As rates rise more pressure will come. It was at top end pricing. Its longer term more recent home is more in $94-$96 range

      1. “Why did my $100,000 Cadillac Escalade drop in price to $90,000?”
        The MSRP is $75,000, and people are still paying $90,000 for it. ¯\_(ツ)_/¯

        Another analogy… 2 guys take a 1 foot rubber band and one of them walks out 10 feet, to stretch it out. Now, the guy on one end walks 3 feet closer to the other guy. The 1 foot rubber band is still stretched to 7 feet.

        Pricing is much like that. You dont see very often a 1 foot rubber band stretched to 50 feet, and you shouldnt expect it to stay there very long if it does. This is why you look at several years of pricing history through different financial cycles, and not just the last month or two of pricing.

        1. @Mr. Conservative – A lot of words to say prices fluctuate.
          @GridBird, @Bob-in-DE thanks for your help as always.

  17. AATRL – We’ll see if it was a good move or not but just sold 300 of my 400 shares of AATRL at $54.49. My average buy was just a tad over $40. Seems to be a bit rich at this point but I guess it can get richer!

    1. Nice price–looks like someone paid top tick for them. I need to re-look at this also.

      1. I stuck all 400 shares out there at $54.49 on the ask and got 100 hit and then 200 more. Now the ask is lower – I’ll keep the remaining 100.

        1. Oh, so I have you to blame, huh, yazzer??? I’ve had a sell in daring someone to pay 54.60 and it didn’t quite get there yet because of you! Booo hiss………:)

          1. oh – hahaha – sorry – I was just thinking to sit it at 1c under $54.50 and someone might bite! Sorry to front run – had no idea!

            1. Posted on this on RIA. Is the run-up because the “busted” convertible not completely busted now?

              1. Assuming original conversion price hasn’t changed for any reason, AMG still has almost 40% higher to go to make conversion economic. I’m no expert on convertibles, but I’d guess that if there’s a norm for issuing convertibles they’re probably issued with a premium about 20% above current price when issued, right? So imho, convertibilty is still a little bit too far off to be a major factor.. HOWEVER, what about this little feature in the prospectus as well????

                “The trust will pay contingent distributions to holders of the trust preferred securities during any quarterly period commencing on or after October 16, 2012, if the average market price of a trust preferred security for a ten trading day measurement period preceding the applicable quarterly period equals 130% or more of the liquidation amount of $50.00 per trust preferred security. The contingent distribution payable per trust preferred security in respect of any quarterly period in which contingent distributions are payable will equal an annual rate of 0.25% of the average market price of a trust preferred security for the ten trading day measurement period.” I wonder why that was inserted into the language? AATRL would have to hit 65 for that to happen and that would seem hard to imagine when they’re currently callable, but this one’s got such a crazy structure, who knows???? Justin, what would be the tax consequences to the company if they called this one??? Would the consequences be any different than on a normal plain vanilla issue?

                1. Conversion rate has changed at least a little. .2558 per last year 10-Q. Still a way off but probably not worthless feature either.

                  1. Thanks, nhc… Glad to know the current figure = $195.46 now, not $200. I should have said “too far off to be a major factor QUITE YET.” That would have more clearly stated my point. In other words, personally, I wouldn’t think conversion factor would be a strong influencer of market price for AATRL until mkt price of AMG gets within 20% of the conversion price, i.e., 156.37. So we agree, it’s still a little way off at least, but certainly worth noting now after AMG’s strong run up from $112 in just the last 8 trading days since the quarterly earnings report on 2/8. It would only take another 3 trading days at the average rate of increase AMG has had over the last 8 before we’re in the major influencer range. Well worth noting.

                    1. Good to know 2WR. I let mine go. Gigantic run up. Usually investments stay in a range, and since this is out of its normal range. Can it run up another $5+ … it could. I’m fine with the big cap gain and sending more helicopter money to Uncle Sam. I let winners run… but when they have been racing for awhile I cut them loose. Plowing money back into things like MNR-C and other pinned to par ones. I’m happy with the gain since Tim posted the recommendation on this one. If it runs up more, I wont be looking back and playing Monday morning quarterback.

                    2. So I get to blame you, too, for my mistake of setting my dream sell price just a tad too high, huh, Mr. C? …. It’s your fault… lol. I guess my AATRL is going back in the drawer for now…..

                    3. Some more food for thought on this one.
                      Let’s say the value of AATRL consists of two components: 1) the value absent the conversion feature, plus 2) the value of the conversion feature.

                      Given the $2.575 coupon, low IG rating, and roughly 16.7 year maturity, I would put the value of AATRL absent the conversion feature at right about $50 in present market if held in a non-taxable account, maybe a tad more.

                      Valuing the conversion feature is even more subjective. However, I note that JPM is now trading at about the same price as AMG. A January 2023 JPM call option exercisable at $195, about 35% above the current JPM market price, is around $7. I would think that the AATRL conversion feature is worth at least as much, given that: it is out there for 16.7 years vs. about 2 years for the JPM option, AMG dividend is much lower (meaning shareholder return has to come from price increase), and AMG is (I think) more volatile than JPM. On the other hand, AMG can limit the upside by forcing conversion if the AMG common goes above $254, with no such limitation on JPM the call option, but I would say that this is less of a concern.

                      This subjective and highly theoretical analysis implies a value of at least $57 for AATRL. I lightened my AATRL position over the last couple days, but I’m having some second thoughts now.

                    4. nhcoast,
                      I’m just relying on your comments as I haven’t looked at the details of AATRL itself, but it sounds like holders of AATRL are long a call option with a strike price of about $195, but also short a call option with a strike price of about $254. The difference between those is the net value you would apply to the conversion component of the price. As you have found, you can’t get a market price for any 16 year options, but you can use the Black-Scholes model to come up with theoretical values.

                      See https://www.mystockoptions.com/black-scholes.cfm

                      For such a long-term option, the value will be very sensitive to the volatility assumption. In this case, since you have a long and short call, that issue will be less problematic than usual because the two cancel each other out to some extent.

                    5. KC – Thanks for this.
                      If I plug in a 40% annualized volatility, which seems consistent with AMG call option pricing, I get a net value of about $8. Still trying to get my head around whether ability of AMG to force conversion is equivalent to being short a call option with $254 strike price. Whatever, it’s still pretty much just theoretical.

                    6. nhcoast. yes it’s a short call. Think about it this way: you have a call option with strike of $195 and the company has a call option with a strike of $254. You get the upside between those amounts.

                      But it’s not exactly a strike price of $254 because the price actually has to be higher than that and it’s not known exactly what the conversion price would be. So you could use a somewhat higher number as a guess.

                2. If they called it, any gains or losses are ordinary, not capital regardless of your holding because of the below market interest rate they got when selling it initially triggered a special tax code provision.
                  That is the biggest difference.

                  1. Justin – What I was asking was not the implications for the AATRL shareholder but the implications for MGR should they call…. I suppose they’re involvement is the 5.15% Junior Subordinated Deferrable Interest Convertible Debentures due 10/15/2037 that’s the underlying and not the preferred created by the Trust, but that issue has all the unusual tax implication that generate the same for AATRL, doesn’t it? So I was wondering whether or not you have an opinion as to whether or not all those tax issue could possibly act as a deterrent to MGR for calling the Debenture.. I know it’s callable 3/30/24 but don’t remember if that’s merely a plain vanilla call option.

                    1. 2WR – Justin will correct me on this if I’m wrong, but as I understand it, if it gets to the point where they can force conversion, it’s in their interest to do so as far as the income tax consequences go. If the debentures are ultimately redeemed at $50, AMG has a major tax bill. They have been accruing a deferred tax liability to recognize this. On the other hand, if the debentures are converted, AMG can mitigate, or even possibly eliminate, that income tax liability, as they will be deemed to have surrendered something of value in excess of $50 per unit to extinguish the debt.

                    2. He is correct. They will face a significant tax liability when the conversion occurs.
                      Long story short. Standard redemption language in case of an unplanned event outside their control with an add-on for the market price of the common trading at a particular level.
                      Here is the redemption language from page 5.

                      “AMG may elect to redeem the junior subordinated convertible debentures prior to maturity, without payment of premium, for 100% of the principal amount plus accrued and unpaid interest and other amounts to the date of redemption:

                      in whole at any time or in part from time to time on or after October 15, 2012 if the closing price of AMG common stock for 20 trading days in a period of 30 consecutive trading days ending on the trading day prior to the mailing of the redemption notice exceeds 130% of the then prevailing conversion price of the trust preferred securities; or

                      in whole, but not in part, at any time following certain specified events relating to a change in the investment company or tax laws that adversely affects the status of the trust, the trust preferred securities or the junior subordinated convertible debentures.”

                    3. Thanks, Justin, however if I’m reading correctly, you’re not really agreeing with nhc, you’re saying the opposite…. where am I going wrong? nhc says “if the debentures are converted, AMG can mitigate, or even possibly eliminate, that income tax liability,” while you’re saying, “They will face a significant tax liability when the conversion occurs.” As per usual tax treatment simplicity just doesn’t ever seem to exist with AATRL under any circumstances or at least tax consequences goes far over my head for sure.. lol

                    4. 2WR – I don’t want to put words in anyone’s mouth, but I think that Justin may have intended to say “when the redemption [at $50] occurs” rather than “when the conversion occurs.” As I recall, I had asked about this same matter some time back, and Justin confirmed my understanding. Maybe he can clarify here.

            2. I bought back 200 of the 300 shares I sold yesterday for $54.49 for $51.80 for $2.69 turn-around profit – it’s like get a year’s worth of divvy in a day! Now back to 300 shares – will look to add another 100 at 50-ish.

              1. Nice trade. I sold AATRL at 54 just now, interested to see if you get your next purchase near 50.

                1. I went ahead and bought that last 100 shares at $52.00, so back to my 400 share allotment. Those 300 shares traded yielded a +$2.56/share profit in my tax deferred account – almost a year’s worth of divvy. I just noticed AATRL traded at $57.01 today!

                  1. I saw that trade on AATRL at 57.01 and thought it interesting, since earlier today I put my last 100 out at that price that (picked at random), even more interesting that the market maker selected someone elses lot and there are shares available cheaper.

  18. Folks, I am reviewing discussion on AATRL below and don’t understand why it has (practically speaking) no risk of call.

    The prospectus at https://www.sec.gov/Archives/edgar/data/1004434/000104746907009976/a2181124zs-3asr.htm says

    “Convertibility of the Trust Preferred Securities … At any time prior to the maturity date of the junior subordinated convertible debentures, AMG has the option to unilaterally and irrevocably elect to settle its obligation to deliver shares of AMG common stock with respect to trust preferred securities converted following such election in cash, and, if applicable, shares of common stock. If AMG makes this election, upon conversion of a trust preferred security, a holder will receive an amount in cash equal to the lesser of (i) the liquidation amount of such trust preferred security and (ii) the conversion value, determined in the manner set forth in this prospectus.”

    Based on subsequent reading in the prospectus, it appears that the conversion rate can somehow vary from the nominal 0.2500 shares of AMG common stock per trust preferred security. So that (and the ‘lesser of’ wording above) implies to me that the conversion rate could be set in such a way that AMG has the right to call at less than $50/share.

    What am I missing (apart from the chance to buy AATRL back in March;-)?

    1. @Bur Davis -The paragraph starts with ” Holders may convert their trust preferred securities at any time into 0.2500 shares of AMG common stock per trust preferred security (equivalent to a conversion price of $200.00 per share) subject to adjustment as described in this prospectus.”
      I think the rest of the paragraph that you quote applies the the situation where the holder initiates the conversion not when the trust initiates the call. I may be wrong so hopefully someone more knowledgeable than me will answer.

      1. danzeb, I think you’re right: Holder chooses to convert, then AMG has an obligation to settle the conversion request. I read “unilaterally” too quickly and thought that meant they could initiate the conversion, but on rereading I think it just means they can choose to settle in cash if they want (it says “cash, and, if applicable, shares of common” but I assume they mean “and/or”).

        I still am confused about how conversion rate is determined, but if the conversion is always and only initiated by the Holder, I guess the question is moot.

  19. Would readers view CBKLP (CoBANK 6.125% non-cumulative preferred Series G; currently redeemable) as having “Sock Drawer” characteristics? I’ve not read the prospectus; any idea why it hasn’t been called? Thanks.

    1. I do, but it is past its call date and not likely to trade at a level where you don’t risk something. It is possible, but would be difficult to pick up shares where you don’t risk something.

      I picked up another 300 shares under par during the dip.

    2. You have to be careful which brokerages you use for CBKLP.
      If you are at schwab, for example, they will let you buy it (if you are jump through hoops to be a qualified investor), but (for practical purposes), they will never let you sell it. To sell, they will require you to go find another qualified investor (on your own), then they will process the transaction for you.

      If you plan to hold it until it is redeemed, this may not be a big big problem – but if you ever want to sell, you are in trouble.

      1. RE: Private on CBKLP.
        That’s curious. I’ve seen plenty of examples the other way around (you can transfer a security into a custodian, but can only sell it once you get there), but have never seen a “buy only” restriction.

      2. This is exactly why I am moving everything out of TD. Their site already states on the opening page (paraphrase) ‘a subsidiary of Charles Schwab’
        Free candy trades are for the general public and the Big 1000 American Listings Fodder. Good luck pivoting toward the rest of a globalized world when the basic menu of American Issues is getting smaller and smaller, esp just when you may need to make a move. Who wants to go through a work-through?
        ADRs? OTC? ETFs? CEFs? ETNs? Curcuit Breakers? Brokerage/Clearing Liquidity? These are real Investment Risks too.
        Alan Parsons: “Just when I need you, you won’t be there…”
        Never forget who wrote the regulations and who they are in ‘business’ for.

  20. Loaded up on FHN-B today after it fell 60 points. Only reason I can see is it fell with the tide because of the news cycle. Fell too far on high volume typically means an institutional investor dumping shares. Could be a 5 year sock drawer holding though that’s not my intention.

  21. Anybody know anything about the HOWMET AEROSPACE INC $3.75 Ticker is HWMpr
    It seems to have been a very old Alcoa issue.
    I got this from a 2007 Alcoa filing.

    “Alcoa’s Articles of Incorporation, as amended, authorize Alcoa to issue two classes of preferred stock:
    660,000 shares of $3.75 Cumulative Preferred Stock, par value $100.00 per share (“Class A Stock”);
    As of November 30, 2001, Alcoa had 557,649 shares of Class A Stock outstanding and no shares of Class B Stock outstanding. No additional shares of Class A Stock may be issued. Alcoa initiated an ongoing program to purchase and retire shares of Class A Stock in 1989.

    Since it is trading at 68, I am guessing Howmet isn’t actively trying to retire the shares.

    1. I am too have took a closer look at them when they were about $ 50, but they’re junk rated. Therefore, it does not fit to the sock drawer stuff, IMHO. So I bought some HWM 5.95 notes which was below the par then and which are the IG rated. Today these notes are trading at 111/113 (bid/ask) and are about 4.8% YTM.

      1. I wont go there either…They are the aerospace version of a hospitality preferred. If it was closer to 7% now, my attitude would be different. Its a small $55 million float, but company despite present adequately capitalized is a new spin off in a horrible sector now. The 5.5% ish just isnt there risk reward for me.
        Fitch believes the coronavirus pandemic will negatively impact 2020 and 2021 revenue, profitability and cash generation. However, Fitch expects the company will return toward metrics consistent with the rating by around 2022. The risk of supply chain disruption exists, and many of the company’s customers, including Boeing, are also experiencing difficulties. The magnitude of a potential impact is unknown and will largely depend on the return to service of Boeing’s 737MAX, the duration of the coronavirus’ disruption to the aviation industry, and whether HWM has any facility closures that persist for an extended period of time.

        1. Hi Gridbird, I know you have held SCE preferred in the past they called the SCE-E.What is the capital stack trust issue SCE-H verse the SCE-E?
          Thanks in advance B/L

          1. Hey Lou, I went digging on this several years ago as I was curious then also. If my memory serves the old legacy ones redeemed actually sat above the trust preferreds in priority. I would also suspect being these were very old they also had more specific protections afforded them than the “current generation” trust preferreds have.
            As I have been around in general these preferreds, trust preferreds, and subordinated debt more and watched from a distance of failed or stressed ones; I have come to the conclusion these types of protections, are of only mostly theoretical importance. Because when crap hits the fan, these things would all most likely go down as unrecoverable. It doesnt scare me as I know the realities. I just wince anytime I see SA writers call a preferred reco “safer”. That is a very relative term. They all will most likely get zero in a reorganization. Look where the CBL preferreds are at now.

            1. Morning Grid,
              With Edison calling almost 1/2 the outstanding SCE preferred doesn’t that make what is left a good bet? even if they issue new preferred or baby bonds at lower rates? Interesting comment you made on crap hitting the fan. This market seems frothy. We see examples every day now of how cazy its getting like that Quarte retail giving out preferred stock as a dividend.
              I bought the SCE-PL last week just to park some money but really don’t feel like buying much of anything right now

              1. Hey Charles. My comment on crap hitting the fan maybe wasnt clearly directed. I was just inferring that to mean if a company in general was financially stressed or heading to bankruptcy. In other words buying a subordinated note such as say NSS is really no safer than its lower preferred sister NS-A.
                In other words, I have a deeply receding hairline on my head. Just because I am standing next to Kojak doesnt make me all the sudden have a full head of hair. If one generally plays below senior unsecured of anything, the chances of any recovery is very slim.
                As far as SCE goes. I am relying on posted info from an earlier poster, but he said Edison was going to a 5% preferred stock cap structure from near 10%. Im suspecting the regulators were not allowing full recovery of preferred dividends in consumer rates. SCE was highly unusual in having 9%-10% cap structure of QDI preferred anyways. Most are 0% now and the rest maybe 1%-5% tops. So I suspect going forward owning SCE preferreds is more about your comfort in the company and future long term rates than any reissues or future redemptions. I am presently out but they are certainly still in my rotation list to own though.

                1. Grid,
                  You may have discussed what I’m about to ask b4 and I may have missed it.
                  As far as the oldies but goodies utilities, do you generally consider one about as good as the other. I pulled up a list of 13 with coupons 4 percent or less from QOL.
                  Some haven’t traded in awhile but several have. So for instance do you consider AILLP or UEPEM as good as say UEPEN. All are Ameren issues.
                  Same question on Connecticut P&L issues. Thanks for your knowledge, studiousness and enthusiasm of preferreds in general and especially utilities.
                  And along with what others have said, thanks for being generous on this board.

                  1. Razor, you are free to pick my brain for whatever, and it shouldnt take you long, ha. Short answer, yes those in reference including all the old 4% issues I have no problem owning. I say I own about 50 utility preferreds all the time, its just I only actually have money in 10-15 of them at any given time. I will rotate around for a few bucks if bid and ask and selling price allow to.
                    AILLP/UEPEM are different subsidiaries of Ameren with different credit ratings. Currently Ameren Ill is a smidge higher but 5 years ago it was a bit lower. No material difference. Ameren Mo (Union Electric) is a triple vertical aligned monopoly utility while Ameren Ill is just a Transmission and Distribution electric and gas monopoly utility. Union Electric has Callaway and if it blew up Fulton, Mo ya, I would say the preferreds are toast, ha. But since I watched it be built and could see the cooling towers from my house growing up, I am not too concerned.
                    I generally just go to where I see some movement. If I see an ask being lowered to a “reasonable price”, I will then lay a “reasonable bid” to snag. UEPEN played that way in low $87 range the other day. But some will just sit and then out of the blue have a quick 100-200 share dump and then its over. So in those cases you just set your bid and wait and hope. Make sure you see the past year and multi year pricing so you arent overpaying.
                    Ones well below their redemption price will have some pricing support even if rates trickle back up. They just wont drop to the level of a true ute market yield because the spread of price and redemption price would be too great and people would start buying it up.
                    I like the CLP issues too. You generally have to decide if you want to scrape up a few more basis points and pay above redemption price a bit, or go a bit lower and get some spread between purchase price and redemption price.
                    The safety of these types are off the charts with coverage ratios via profits of over a 100 times for entire series of each of the above. There several people on this forum (not me) that have personal wealth more than the yearly cost of each of the above subsidiary preferreds entire series.
                    That being said, I only own a portion of my stash in these. An entire stash dedicated to low 4% preferreds is just too much for me to stomach! 🙂

                    1. Thank you Grid. I love utilities although i am a buy and hold investor. Currently in my situation a QDI security in a taxable account will give me as good a net as I can get from anything else with quality if i can get a 4 percent yield. . E.G.. these o-b-g utilities @4 percent beat tax exempt bonds which i also like.
                      I’m getting killed with calls from build america bonds which turned out to be a good investment for me – average 7 percent coupons, IG and 10 year call protection. But the call dates have arrived with a vengence. I think some of these oldies will help me if i have some luck and can purchase them. You have been very helpful.

                    2. Razor, there are also a few issued noncallable also. I noticed Uncallable
                      WELPM has current bid of $139 and ask of $142. That is a small 3 millionish Baa1 par float that would net 4.2% or so if that interests you.

                    3. Good morning Grid,
                      A small eureka today I hope. I purchased some AILLP @ par this am and have orders in for several more issues. This will get me the 4 percent I need on this one. Thanks again for your help.

    2. In any case, HWM traded very weakly during the drawdown and took a long time to recover. Wall Street doesn’t like them too much, apparently.

    3. tim, don’t know how to make a general comment? this is a response to your reply to my post of 8/20 “don’t look a gift horse in the mouth”. on usb-h I did nothing but must “You” must have hit a nerve with several folks. usb-h traded that day at $23.48 and is now down to $21.92 off $1638 on my 1050 shares I’m not going “anywhere” cause I got plenty but If what you said was “right”: a buying opportunity was created for somebody? always open to any help from anyone

      1. Mike, it is rotation. When a stock goes up, and up, and up… you ask what is up with it going up? And the yield drops in the 3% + range. It is rotation. You can get better deals elsewhere. Stocks drop and rise as investors figure out the value of them. When the value becomes not aligned, a stock tends to move the other way. If you are a trader, then last month was a good time to sell. If you are a buy and hold kind of a guy, well, just hold onto it. If you are a buy and hold kind of guy, you could ask the same question on hundreds of stocks every month as they shoot up, fall out of value, and then move down. When they fall too far, too fast, they normalize and go the other way. This of course is independent of any news of the company causing the stock to move up/down.

        1. mr. conservative thanks for your thoughts I originally bought usb-h as a potential inflation hedge when rates started up several years ago added some in March, then the FED slammed on the breaks, which may now last awhile, but my average cost still leaves me a 15%+ upside potential and a yield over 4%, there fore “Sock Drawer”. learning from you folks everyday, thanks again

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