Giant utility Southern Company (SO) will be selling a new $25 baby bond. It is noted that the company will be selling a $1,000 series at the same time.
This baby bond will have a maturity in 2060 and proceeds will be used to redeem all or a portion of the 6.25% Junior Subordinated Notes (SOJA).
The issue will be investment grade.
The company has numerous issues outstanding which can be seen here.
The preliminary prospectus can be read here.
EarlyBird got the worm on this one and posits a coupon in the 4.375%-4.50%.
A bit of cut and paste just In case your considering this offering: Georgia Vogtle nuclear report: more delays, $1B in extra costs, flaws. According to their recently submitted written testimony, even if Georgia Power does finish on its latest timeline, the nuclear project will be $1 billion over its current budget, which was already billions of dollars higher than when the project began. Meanwhile, government staff and monitors wrote that they were “shocked” by an “astounding 80%” failure rate for new components installed at the site. The results meant the components, when tested, “did not initially function properly and required some corrective action(s) to function as designed.”
Could Georgia Power drag Southern down if this Nuclear Plant never goes online?. Supposedly there is a firewall between Southern and its Georgia Subsidiary. But it wouldn’t be the first time a Nuclear Power plant has bankrupted a major Utility in the US
Richard, when its all said and done the ring fencing provisions protect more the subsidiary than hold co. And being Ga. Power and Southern are in bed together on this those provisions wont help each other if things go bad. Vogtle has been a disaster, but the regulatory recoveries for mismanagement have been incredibly generous so far. Who knows what lurks below and going forward….
I prefer the Alabama Power preferred I bought 2 days ago that has a higher credit rating, higher present yield, higher YTC, and lower taxed QDI, over this lower rated quality hold co subordinated debt issuance.
I hit this pretty hard and saw after the fact I had done same with SOJD
I think SOJD traded with an OTC symbol (STHNP). I don’t see a new symbol out there yet. It’ll be interesting to see if they use an OTC symbol for this new one.
did it actually trade under that ticker? I don’t think it did
I’m not sure. I don’t think I actually bought it.
This is a case where i can’t see buying this baby bond over the common stock, which is yielding 4.8%+ It’s not my favorite stock and the payout ratio is about 80% but it does have a very low beta and if you are buying to hold and collect dividends (rather than flip) you get a higher yield plus more chance for price appreciation (over a 5+ year time period) imo.
agree
This is of interest. I’ll be curious to see the details on both the $25 and the $1000 series… I’ve never owned any of the SO preferreds or bonds, but have thought about it a number of times.
This one is not for me, they have the right to defer interest for 40 quarters which I think is 10 years. They can do this more than once…They do pay interest at the end of the deferral
Maybe someone with more experience can read it and let us know.
There a quite a few other utility baby bonds that also have this 40 quarter provision (companies such as DTE, CMS, NEE, etc.). I am not sure if an of them have ever exercised this provision in recent history. Regardless, you (or whoever you sell it to) will still get the interest eventually. Contrast that to the non-cumulative dividend provision by a lot preferred stocks.
Hillman Group did for one quarter earlier this year. (they did it before in 2009)
There are less than 5 in history that have done it.
Ford was the most notable to do it.
TEF, this is usually standard operating procedure. Its not done to screw over shareholders. It is done as a method to get credit rating agencies to count more of the bond issuance as “equity” instead of debt, as the deferral allows more “equity flexibility” and agencies treat it as such. This in turn gives company appearance of more equity stack to better preserve company credit profile while still getting the full tax deduction of a bond. So it basically is a reason why utilities don’t offer much QDI preferreds anymore.
Max–pretty typical for a number of baby bonds from utilities. Certainly it is a negative, but if it gets deferred you can be sure that we’ll have much bigger issues than the deferral. I likely will buy some because of the lack of anything quality wise to buy.
Latest updated price talk is 4.20 – 4.25.
Strong demand.
razor–I expected strong demand–there will be no ‘bargain’ here.
priced @ 4.20