What a Beautiful New Issue

It is strange for me to use the word ‘beautiful’ to describe a new issue of preferred stock, but it seems to fit pretty darned well when describing the newer NiSource 6.50% fixed-rate reset issue (NYSE:NI-B).

This issue has acted perfectly from a new issue buyer perspective. The issue came to market on 11/28/2018 with an initial fixed coupon of 6.5%. The issue is rated low investment grade by Standard and Poors and 1 notch below investment grade by Moodys.

The share price of this newer issue has moved higher day after day at a modest pace–a nickel here a nickel there–then a little pop and back to nickels. One could have bought this one on the OTC Grey Market upon issuance for as low as $24.70–we bought some in the $24.80 area if I remember right. Today the share price is at $25.69–closing in on a gain of near a buck.

The demand for this issue has been constant–even during the sharp sell-off of most preferreds in December this issue held firm.

So what is the ‘secret’ with this issue? 1st it was priced at 6.50% which is a strong rate for any investment grade issue. 2ndly it is a utility which is being bought by ‘strong holders’-not by folks looking to flip out for a 50 or 75 cent profit. I believe that the strong holders are the biggest factor in the march higher in the share price. Now if we could just see about 5 more issues just like this one we will be most happy.

It simply doesn’t get any better for the new issue buyer than this issue.

You can see the chart of the issue and further details here.

34 thoughts on “What a Beautiful New Issue”

  1. Lots of high 5’s, and celebration. “Hey I snagged X at $26.10, I got Y at $25.73, xxx. Very cool, and hope that 2019 is very profitable for all of us.

  2. I kind of want to be greedy and keep milking many that have risen $3.00 in price. Me thinks be fearful very soon.

    1. Mr. Lucky its kind of a push/pull thing with me concerning actual prices of preferreds. Yes, I like to do some side flipping with some of the cash. Nice to make a modest score here and there. But a good chunk is in some issues just for the income. If for example NI-B drops back to par or below (and the company fundamentals are the same) I wont fret over it as it is in the income drawer.
      Now if my flipping ones would tank that would annoy me, lol…As they werent long term holds.

      1. Girdbird, I am beginning to believe that I may be better selling my long term holdings if they build up too much of a profit. I was thinking, if I get 4 or 5 quarters of dividends premium on the price I paid, I should just book the profits. For example, a 6% issue, if my gain is $1.5 to 1.85 cents a share sell and move on even for long term holdings (particularly IRA holdings). I am not sure, I consider that a flip or being prudent.

        Do you do similar things with your longer term holdings?

        1. Steve, I am with you, and certainly do that also with some of the issues I own.
          But there are some people who focus on proper entry purchase point and that is it…And just hold and collect income, not worrying a bit about price movement assuming company fundamentals are the same. I respect that also. They are looking for income stream not cap gains.
          So I kind of play the middle on all of it. Trading some, locking in profits some, and holding long term some. I am a fan of it all!

          1. i think, I will establish a sales price based upon each issue. For example, would I sell NI-B, if the price goes to $26.63 ( 4 quarters dividend profit over $25 par). No, too rare an issue for utility floating rate and too young an issue. Would I sell it if the price goes to $28.85 (8 quarters profit over $25 par) ? Yes, I would,

            You are correct, most (myself included) focus on the price we pay at and don’t focus on a price to sell at.

          2. I do the same sometimes. You can always take the gain on some but hold onto some too. I do that to keep in touch with the stock in case it moves back down

  3. I was a big fan of this issue at outset and kept buying into a well oversized position…My last purchase was 25.32 last week. There wont be anymore. The thing has shot over $26 today now.

  4. There is no perfect brokerage I conclude. Vanguard is 2 bucks per trade, with (for me) 100+ free trades per year and zero commissions on most ETFs. But they are slow to list new issues, don’t offer level 2 data, and a few other minor deficiencies. But they don’t screw over their clients, which is worth a lot to me.

    Schwab gives me access to a few issues I can’t get through Vanguard, but only because Schwab doesn’t have as good a compliance group as Vanguard. Not enough reason to move the big money.

    I would go to someone with a stronger trading platform, provided I could get 2 dollar trades, and they operated with integrity. Don’t know who that is.

  5. I use TD Ameritrade, used to be Scottrade. I was able to get CFGLL yesterday about 1100AM and was able to get NI-B OTC. Seems pretty good.

    1. I agree with “timdman” about TD Ameritrade being a good brokerage firm to buy some of these new issues. Also use Vanguard and Schwab, but TD is clearly the best when trying to purchase new issues – although the other two firms have some very good features that TD does not have.

      1. I am a big admirer of ME Merrill Edge (I was assigned an amazing broker in Arizona) I get 100 trades a month for free(!) and they have gone out of their way to make sure I am able to buy all Grey Sheet issues as soon as they begin Grey trading. The only poor issue(s) I have found is on their app when the market opens, it is not real time until about 15 minutes after the open and their corporate news feed is always terrible. I also use Vanguard (mainly for bonds and their money market) but recently they tried to charged me $50 to buy issues that are not US based like EBBNF instead of their normal lower commission rate. Wishing you profitable investing, Nomad

        1. I really liked Merrill Edge too until they stopped holding some of the structured notes I bought from them and I had to find another home for them. They threatened to liquidate them and would not even tell me how they intended to make a market for illiquid assets, or what price I would get for them. They endangered my child’s college fund with their behavior and despite repeated calls where they promised to answer my questions or take various actions nothing was ever done, and they never called back as they promised. You would think they would at least let you hold notes you bought from them in your account, even if they were not going to sell them anymore.

          It was absolutely the worst I have ever been treated by any business and it came at a time when I could not even leave the house due to some health issues. If there is a class action suit against them I will be at the front of the line. So yeah, they have a nice platform and some incentives, and I loved them too, but they can’t be trusted. Oh, and of course the reason they gave for all of this behavior was just insulting — “so you can have a better investing experience.”

        2. Merrill Edge has a streaming quotes feature (in research) that at least lets you see your holdings price action in real time. If they had that for watchlist items also, that would be great. My quibble with ME is the very low interest rate paid on their default sweep fund. If you hold a cash position of any size and don’t trade daily, the low interest paid will more than offset cost of allowing free trades.

          1. CW, thanks for that tip. I will have to check out that feature under Research later (if I can find it). The MarketPro platform can be launched under “Trade” tab; it is quite a comprehensive platform and provides real-time data. I have approx 30 watchlists. I can place orders on this platform as well.
            ME has the “Preferred Deposit” MM that pays 2.07% and it is FDIC insured. To get the this MM, it requires a minimum opening deposit of $100K but lower balance is allowed. It is not a sweep acct and one cannot transfer online from/to it to the sweep account. One must call to make transfers to fund the sweep account. So painful. Reps have mentioned that they are trying to make it accessible for online transfers. But the free trades are nice (as well as a free safe deposit box, free checking, and other stuff).

            1. Hey Aaron…the ME streaming quotes feature also has the ability for you to dynamically create a list of symbols that you want to track. It runs independently in its own tab, so its kind of handy. I had forgotten about the Market Pro application (too complicated), but will take another look now that you mentioned it.

    2. Schwab charged a $50 surcharge to buy CFGLL on each of my IRA accounts. Have purchased on the gray market before with their $4.95 commission.
      Awaiting for their response.

      1. natsbud–that is really weird–sometimes it happens on foreign issues, but never had heard of it on domestic stuff. Let us know if you have it resolved.

  6. I need advice. I’ve been with Schwab for 23 years and they have done a satisfactory job up until I started investing in preferreds and ETDs. They are extremely slow at adding new OTOTC securities to their system, so much so that any initial price below par is long gone on good issues. So where do you folks have accounts that give immediate access to new issue trading on OTOTC?

    1. I have an Etrade account, I really don’t use it to trade preferreds but I cannot recall a time last year when a new issue was not on Etrade right away. Fidelity can be a little slow also. But if you call the fixed income desk, they generally manage to do the trade for you.

      1. However, I HATE fidelity’s nonsense of refusing to allow you to buy existing fixed to floating issues issues online. You can buy OTC fixed to floating rate online. They force you to call and place the order over the phone. One day, I may move away from Fidelity because of this nonsense.

        1. Thanks Steve. I called Schwab bond desk and they have told me to contact them directly in future to accomplish OTOTC buys for new issues. Hope this works out as I would prefer not to open another account elsewhere.

    2. mikeo–we have 4 accounts-2 etrade and 2 fido. NEVER a single issue with etrade, but Fido is a hit and miss. For instance yesterday I bought the Citizens financial OTC Grey market issue at Fido without issue–BUT most of the time it isn’t allowed without a phone call.

      1. Thanks Tim. I’ll try direct contact with Schwab’s bond desk and if that doesn’t work well I guess ETrade is next.

    3. I use TD ameritrade, used to be with Scottrade. They appear to come up pretty quickly with new issues, I was able to get CFGLL yesterday by 1100 AM.

    4. Miko, I use TD ameritrade, and never had an issue with buying any preferred or baby bonds. I have even bought issues on the “gray market” with no problem. I have found they list issues just about as soon as they are released.

  7. Agree with you fully.

    Although, very few seemed to be interested in another smaller utility company issued around the same time, I am equally happy with AQNA. Same BB+ rating from S&P ( not rated by Moody’s), pays 6.875% and 5 yr float at Libor+3.667%. It was not as stable during the selloff as NI-B but was one of my most stable holdings during the selloff. NI-B and AQNA are my core utility holdings.

    Holding AQNA (Canadian company even though they own US utility) was painless in my IRA account avoiding Canada withholding taxes without any additional paperwork.

    1. Hi SteveA–I think maybe it’s the Canadian thing that gets to folks. I have noticed that issues that are seemingly near identical react very differently once trading begins–typically because of something you and I might consider inconsequential.

    2. Thanks for mentioning AQNA, SteveA. I plan on picking some up. I guess one difference between AQNA and EBBNF is that AQNA is not QDI. It will go in my IRA so will work fine.

  8. Thanks Tim. As Bigbear stated, your forum is a welcome voice of reason and moderation among all the hype. Also got in this one early and yesterday got into CFGLL, hoping it’s another beautiful issue.

  9. Tim- thanks to you and other contributors in this community, I bought 500 shares while still in OTC Grey Market.
    Feedback is the breakfast of champions. I want you to know that you are really doing a great thing for us newer conservative investors. I plan to hold and add when opportunities arise.

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