You Snooze You Lose!!

Up until last week I held the Entergy New Orleans 5.50% baby bonds (ENO) in my portfolio–you snooze you lose on this one. Obviously I sold it–I wan’t snoozing, but I might have been dozing a bit.

Everyone wants safety—everyone–plus a decent coupon. But someone is asleep at the wheel on this one.

This issue becomes redeemable on 4/1/2021–just a short 7 months from now. Al things being equal to today this issue has huge call risk.

The issue is trading at $27.12—a yield to call of around MINUS 7%.

As mentioned by Bob-in-DE (and others) there is a lot of silly pricing out there right now.

Investors in this issue should exit immediately–there is no telling when the Rip Van Winkle investors will awake.

30 thoughts on “You Snooze You Lose!!”

  1. In my data which includes all par values, all preferreds, all converts, all baby bonds, etc I show 203/855= 23.7% issues with negative yield to first call. I am sure some number of these are Grid type specials that will NOT be imminently called. But you have to think that as soon as the issuer can get back on their feet a little, they will call a lot these and reissue at lower coupon rates.

  2. Digital Realty (DLR) announced today they are calling their “I” Shares on September 8th. They were paying 6.35% and were callable on 8/24/2020.
    The Series I Preferred Stock will be redeemed for $25.00 per share, plus all accrued and unpaid dividends to, but not including, the redemption date in an amount equal to $0.29545 per share, for a total payment of $25.29545 per share, which will be payable in cash, without interest on the redemption date.

  3. Sold SCHW-D today for more than I would get in dividends holding it to call.

    I am holding less and less of the stuff I bought when the market tanked because the prices are outrageous now.

    People wonder why the loose money isn’t showing up as inflation, but if you look at assets that is where the inflation is.

    1. Earlier in the year I sold some SCH with a neg YTC. Is there anyone out there who thinks that Schwab isn’t going to redeem a 6% issue it could redo for maybe 4.75%? Apparently yes.

      1. Bob, nobody has probably owned more negative past call issues than I have, and have never suffered a call loss yet. But even I have my limits as I am not willing to die on the hill over it. And presently I looked at my approx 30 issues, and only IPLDP and IPWLK are ones that could present a call loss. Most, even the old illiquids just arent worth the risk for a few measly bps. And yet someone today drove CNLPL to over $62 and a 5.2% yield and $10 over redemption price and past call….Why???…Entergy Arkansas redeemed all their 4% preferreds a couple years ago, and AES did with Dayton Power and Light preferreds that went all the way down to a 3.5% par yield and it was redeemed also.. They can be called….

  4. Etr has 11 preferreds I can see, 7 of which are negative YTC. If things go wrong in the markets these will hold up best. For instance ENO bottomed at 22 in March. Besides that, how many true A rated pfds are out there?? Some 49 of which entergy is 22% of that market!

    Yes I do sell low ytc as a rule. BUT if you owned it since new issue one can make the case that as a percent of one’s holdings staying with such may be sense able. You’ll only wish you had sold it the day after its been called!

  5. Unlike public storage, which redeems shares like clockwork, does Entergy have a history of redeeming higher coupon securities after issuing lower rate ones?

    1. Utilities arent like Public Storage and regular companies. Redeeming and reissuing lower coupons will go straight to the bottom line for them. For utes it gets rebated back to consumers. Until a new regulatory cycle or rate request is needed there just isnt any real incentive to redeem for ute. As this cost of capital is backed into the rates. But they are suposed to act in an efficient manner so if too high of yield is left outstanding they can bepenalized on rate request and disallow some returns on equity/capital.
      The only real pattern they had shown was redeeming all subsidiary capital stock preferreds and issuing baby bonds instead….Until they issued a small Entergy Texas preferred last year. So who knows….

      1. Grid, what do you think about NEE-I, a past call preferred from Nextera?
        It will pay $0.32 in a week or so, reducing one’s cost basis to $25.20-25.25.
        Current yield is a little over 5% and risk of call is the only negative that I see.

        1. Codger, those are the types of plays I do like to make with issues I track and follow. But I cant speak of this one and NEE specifically, because I dont trade NEE issues. So I am not real versed here on entry and exit points of NEE issues to assist you though. But in general I prefer the past call anchored near par issues over the nose bleed well above par issues from same company that is there only from call protection that may be serving no real use.
          Just to clarify, I have no issues with NEE, I just dont follow it and never have. My brain has limited capacity so I have to draw the line somewhere, ha.
          ….Had something odd happen this morning… I had an ask of $140 for AILNP and ask of $145 for AILNP yesterday. The 140 sold, and only 17 did of the $145… And stayed that way until this morning when the other 83 shares were removed and given the $145. I am certainly not complaining, but odd it happened the next day as there was no transaction notice and they were still there last night.

        2. Codger – NEE is a large, diversified, quality utility company. It is the parent company of FPL, which is the largest investor owned electric utility in Florida. I retired from FPL in 2007, after 38 years of service. This is a well managed, intelligent, fact-based company. I’m never afraid of buying NEE at the right price. I’d be surprised if they call NEE-I anytime soon; but I have no special insight. Looking out from my knot hole, I wouldn’t want to pay more than $25.45, top end, only because of the call risk.
          Grid – I’d love to see you dig into NEE because I truly respect your knowledge and point of view.

          1. Bear, as you know its a high quality progressive and innovative utility. I truly have never avoided it for any reason other than they offer no QDI preferreds and redeemed any from any subsidiary that had them. One can kind of dance in and out of ute preferreds and baby bonds by seeing the volume (or lack of), historical chart, call status, yield, and approaching dividend to trade.
            I just never have done the work here. Any time NEE sent out a new baby bond, my initial reaction..”Son of $#$#$, that #$&ing piece of #%@% is too %@#% low in yield for me to buy. :)….There was money to be made there also, I just never went that direction.

          2. bigbear:
            I have a big investment in NEE-I. The $0.32 dividend to be paid in 10 days will bring my cost down near par at which time I’ll just hold it.

        3. Good utility, low call risk, as good as any for 5%. If you’re looking for risk think major hurricane.

  6. Happening in the bond market too. I sold a bond at 102.00 last Friday that is being called on 8/19. 3.2% bond being called in 19 days. I had to call the Schwab bond specialist to see what I was missing. He said not a thing and was as surprised as I was that someone would lose 2% for 19 days of interest.

    This is the second time this has happened in the last 6 weeks.

  7. This is a great example of silly passive investment. Index funds buy simply because they receive cash flow and stocks are in their index.
    Great for us, bad for ETF&CEFs investors.

      1. PFF owns 9 of them.

        US29364W6030 | ELU | 25.26 | ENTERGY LA LLC 1ST MTG BD
        US29364D7536 | EAE | 25.57 | ENTERGY ARK INC 1STMTG BD4.75%63
        US29364D7619 | EAB | 25.59 | ENTERGY ARK INC 1MTG BD 52
        US29364W1080 | ELC | 25.67 | ENTERGY LA LLC COLLATERAL TR MT
        US29364N1081 | EMP | 25.73 | ENTERGY MISS INC 1M BD 66
        US29364D1000 | EAI | 25.83 | ENTERGY ARK INC 1M BD 4.875%66
        US29364W5040 | ELJ | 25.93 | ENTERGY LA LLC 1ST MTG5.25%52
        US29364P1030 | ENO | 26.20 | ENTERGY NEW ORLEANS INC 1ST MTG BD 66 |
        US29365T1043 | EZT | 26.48 | ENTERGY TEXAS INC 1ST MTG BD 64

      2. All funds who track the ICE Exchange-Listed Preferred & Hybrid Securities Index. For example the PFF hold 335,729 ENO.

        1. Don’t look now, but PFF sold 17,000 shares of one of the Legg Mason, since Tuesday, while the other one hasn’t changed.
          Normal activity?

            1. Investors will get their losses and the fund manager will receive his fees. Welcome to the wonderful world of index funds, lol.

            1. Any idea why they only sold one and not the other? Related to the overall percentage in the portfolio?

        2. Thanks, I haven’t looked at PFF or the like in a long time. I thought it was still an actual preferred stock fund, but I guess they turned it into a mix of bonds and preferred stocks at some point. Not surprised given the drubbing they got in the financial crisis since the vast majority of actual preferred stocks are in the financial sector.

  8. EZT / EAB are also nuts
    not as bad but also nuts
    im guessing that people are betting that utilities are slow to call or will not call as the coupon is already low

    1. PickleNick–some may think that, but I think more likely is we have so many newbie investors they don’t have a clue as to what they are doing.

    2. Pickle, Now EAB is one in the right situation I love to play for some easy money as I just did it last week. Earned an entire interest payment holding only a couple days. It had a modest selloff down to almost 25.50 last week and I bought. The interest payment was in the bag so I was only risking less than 15 cents. It spiked up to 25.90 range a couple days after I bought, so I dumped. But that was my intention all along. I dont generally reach for last penny either way, as I would miss out on too many trying to do that.

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