Preferred Stock Investing-The Good , The Bad and The In Between 2015 - 2020

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Preferred Stock Investing-The Good , The Bad and The In Between

capjak said:
I found some information. Just wanted to know about security of the business.



Global Indemnity Limited
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You may know this (or even better than me) but it bears mentioning...This issue is the "parent" holding company debt, not the actual insuring subsidiaries. You can look at the actual subsidiaries that are insuring the companies and people finances which may look great. Unfortunately that is more for the people being insured not the debt holders of parent company debt which is a shell do nothing company that only owns the stock the subsidiary companies.
It would be like for example me borrowing billions and issuing baby bonds to buy out the stock of walmart, target, and sears. "Gridbird Holdings" now controls all 3 of the separate individual companies and keeps them separate. I am loaded to the gills with debt. Say Sears continued losses take me down all while Target and Walmart continue on unaffected and very profitable. Doesnt matter Gridbird Holdings goes belly up and your baby bonds too.
So my point is understanding the finances behind this holding company is beyond my scope. I know A.M. Best rated it lower investment grade. But I also know 7.87% issue yield is not the normal rate for that kind of rating...Too high and companies just dont give away high bond yields because they are generous. Something isnt lining up here, so the risk level is higher here...Too what degree I dont know, but I dont view it as a bet the farm issue.
 
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Mulligan said:
I know A.M. Best rated it lower investment grade. But I also know 7.87% issue yield is not the normal rate for that kind of rating...Too high and companies just dont give away high bond yields because they are generous. Something isnt lining up here, so the risk level is higher here...Too what degree I dont know, but I dont view it as a bet the farm issue.
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It also depends on impossible to predict things like weather and possible terrorist incidents. Plus add in headquarters in the Caymans (like many reinsurers and large property/casualty insurers), rather than a US domiciled company. Just one really big event could spell disaster for them - not that it would wipe them out, but be enough losses to really cripple them, even with re-insurance, etc. So there is some element of random risk. Think of them like an mREIT - only instead of a 2 point interest rate rise that would wipe them out, it's a Cat 4/5 hurricane, or an earthquake, etc. A smaller interest rate rise would be painful, but manageable to a certain degree (for the mREIT)...just like a few large insurance incidents would be painful - but manageable - to GBLIL.

I have 200 shares (my max limit for "riskier" preferreds), and will hold for a while....but I'm widely diversified, so it's a bit different situation.
 
MooreBonds said:
It also depends on impossible to predict things like weather and possible terrorist incidents. Plus add in headquarters in the Caymans (like many reinsurers and large property/casualty insurers), rather than a US domiciled company. Just one really big event could spell disaster for them - not that it would wipe them out, but be enough losses to really cripple them, even with re-insurance, etc. So there is some element of random risk. Think of them like an mREIT - only instead of a 2 point interest rate rise that would wipe them out, it's a Cat 4/5 hurricane, or an earthquake, etc. A smaller interest rate rise would be painful, but manageable to a certain degree (for the mREIT)...just like a few large insurance incidents would be painful - but manageable - to GBLIL.



I have 200 shares (my max limit for "riskier" preferreds), and will hold for a while....but I'm widely diversified, so it's a bit different situation.
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Excellent thoughts. I dont really have a systematic purchase process, like you do. I have 500, which isnt one of my biggest holdings, but still alot as I have a more concentrated amount of holdings. I suspect I will not have that many come end of the year. Probably long term 200-300 shares is really where I should be at.
 
Mulligan said:
Sunset, Moorebonds knows more about this stuff, so dont let my negative rants sway you either way on these. Im an oddball investor...And my number 1 rule in investing is....If I am going to lose money on an investment, I damn sure want to understand and explain why I lost money. I cant comprehend the true mechanisms, leverage, and derivatives of these Mreits. So I stay away...Now in reality, I am violating that rule by owning bank preferreds. But usually if a bank goes under the reason would be fairly obvious. Mreits may at times be the best investment out there. I will never know because I am not willing to buy them though.
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Don't worry, it really was others that got me thinking about the safety of it as short term rates rise, while long term rates stay flat.

Besides I made 1.2% in 5 days after expenses :D
 
Mulligan said:
You may know this (or even better than me) but it bears mentioning...This issue is the "parent" holding company debt, not the actual insuring subsidiaries. You can look at the actual subsidiaries that are insuring the companies and people finances which may look great. Unfortunately that is more for the people being insured not the debt holders of parent company debt which is a shell do nothing company that only owns the stock the subsidiary companies.
It would be like for example me borrowing billions and issuing baby bonds to buy out the stock of walmart, target, and sears. "Gridbird Holdings" now controls all 3 of the separate individual companies and keeps them separate. I am loaded to the gills with debt. Say Sears continued losses take me down all while Target and Walmart continue on unaffected and very profitable. Doesnt matter Gridbird Holdings goes belly up and your baby bonds too.
So my point is understanding the finances behind this holding company is beyond my scope. I know A.M. Best rated it lower investment grade. But I also know 7.87% issue yield is not the normal rate for that kind of rating...Too high and companies just dont give away high bond yields because they are generous. Something isnt lining up here, so the risk level is higher here...Too what degree I dont know, but I dont view it as a bet the farm issue.
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Mulligan.... your example is not quite right....

Say you got your holding company and Sears goes belly up... that does not cause holding company to go belly up.... it still has assets with value and as such would need something big to happen for it to go belly up... as long as Walmart and Target were making profits it could send to holding it can pay its debt...

Even if there was no cash to pay the debt... there would be a restructure and Sears would be sold off in pieces and possibly Walmart and Target.... any cash collected would go to pay off creditors of holding which includes the baby bonds...

Or, the baby bonds would be converted to equity and you would be part owner of new holding company....

It hardly ever would be a total loss...
 
Texas, you are exactly right, but it could drive it into bankruptcy depending on recourse, non recourse debt, entangling loan protections. But the ultimate results would happen as you suggested. Just recently in Japan, there was talk subsidiary Westinghouse was going to drag parent Toshiba into bankruptcy, but didnt. I was just trying to keep it real simple and to make sure the debt of the holding company was understood to be completely separate issue from the quality ratings being assigned to subsidiary of the actual insuring companies. Holding companies can be separate, ring fenced, intertwined, etc etc.. All depending on the factors of type of debt each holds, along with ultimatel responsibility....Complicated stuff, over my head...Recently Indiana rate regulators basically through up their hands and didnt know how a parent company AES bankruptcy (parent of IPALCO) would effect the finances of IPALCO (parent of Indianapolis Power) because they couldnt determine if either would be dragged down with the other due to entangling loan agreements and finances.
Many people often refer (me also from laziness) refer to the parent company when discussing the preferreds. That is wrong... AILLL is not an Ameren preferred...It is an Ameren Illinois preferred, which is one of two subsidiaries of the Ameren holding company. A distinction without difference ultimately leadership wise. But a big distinction financially wise. Actually much of Ameren Illinois is a consolidation of previous other smaller holding companies being bought out.
 
Thanks for the information about CNLPL, GBLIL and AILLL
I bought CNLPL last month and GBLIL is out of my comfort zone for now.
But I like what you said about AILLL
Based on postings last month I am waiting until after the June divi to buy at $26.20 or lower.
Do you think I should buy it now?
 
Ric my thought if you are going to risk up to $26.20, you might as well try up to $26.55 now as you would get the divi... which is more than the 35 cent difference. This is a tricky one to trade...As Coolius will verify there have been times when it went exD and then traded up higher than pre exD. You have to decide how much over par you are willing to risk trading in it though.
Pig, I saw the AES-C. I have been out a few weeks. People who owned will not get call smacked here due to accrual of divi..Interestingly though the call was clearly let out of the bag May 15 as they had an SEC filing showing a bank loan to be used to pay off AES-C
 
Mulligan said:
Pig, I saw the AES-C. I have been out a few weeks. People who owned will not get call smacked here due to accrual of divi..Interestingly though the call was clearly let out of the bag May 15 as they had an SEC filing showing a bank loan to be used to pay off AES-C
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Yes only minor inconvenience, div accrual easily covered and then some. I also had MHNB, luckily div accrual well past my purchase price also. Kind of figured that one would be called. I play these penny games a lot. Keeps cash at work while I sift thru other stuff to buy (of which unfortunately there is none).
 
Preferred Stock Investing-The Good , The Bad and The In Between

pig pile said:
Yes only minor inconvenience, div accrual easily covered and then some. I also had MHNB, luckily div accrual well past my purchase price also. Kind of figured that one would be called. I play these penny games a lot. Keeps cash at work while I sift thru other stuff to buy (of which unfortunately there is none).
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Im on my penny chasing ways too. Saw BOFIL get near par so I snagged 400.... I then sold BPFHP at $25.75 as the trade off. I collected a divi holding a month with BPFHP and bought at same price. I like the 2026 backstop to BOFIL.
And I dont like going bank crazy so I sold one to balance the purchase.
 
Ric, having watched AILLL for close to 19 months, if you intend to be holding a long time after purchase, the difference between $26.20 and current $26.51 is not that huge.

I have seen times where, as Mulligan said, exDiv day price was equal to or even greater than on the day before !

Current ask is $26.94, somewhat high, but you could try a GTC at around $26.50 and hope someone comes down before exDiv day.


Update : Unexpectedly, I had a partial fill of a GTC order for 100 shares AILLL @ $26.51 at around 2:30 EST. They will go into the " sock drawer "
 
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Mulligan said:
Im on my penny chasing ways too. Saw BOFIL get near par so I snagged 400.... I then sold BPFHP at $25.75 as the trade off. I collected a divi holding a month with BPFHP and bought at same price. I like the 2026 backstop to BOFIL.
And I dont like going bank crazy so I sold one to balance the purchase.
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careful on BOFIL, apparently there is some sort of class action thing going on. might explain the big drop last few days (along with the normal post ex div). doubt those things mean anything in the long run. good move on Boston Private.

struck oil today myself, sold some STAG-C on weird price jump on ex div day, so in my mind i get next div payment along with the one qualified today. will buy back in about a month. cleaned out CIM-B also yesterday. portfolio undergoing some maintenance while i still have about a month of free trades to use up.
 
Anybody know the date of the AES call? Or the price plus divi?

It is my largest pref holding... will have to see what I want to replace it with...

With the various calls that I have endured since first starting this I am hesitant to buy a past call over call price...
 
Preferred Stock Investing-The Good , The Bad and The In Between

Texas, It is June 22... A lot of accrual for this dividend is built in to pay out... Surprised you have been hit with a lot of calls. I seem to side step them most of the time despite being knee deep in the past calls most of the time...
Pig, yes BOFI seems like its a sister of Bank of California with accusations here and there... BOFIL bounces up and down. I hit it on a down just a few cents above par. This is in my flip pile but will consider holding a while. The common acted fine and was up today. BOFIL started creeping back up after the early morning dump. I rarely will buy if common is dropping with the preferred. But today the preferred dropped and the common was going up. Of course being a debt issue they have to pay of become insolvent unlike a true bank non cum preferred. It will give me something to watch, lol...
Also bought 300 shares of ALMBP yesterday at $25.90. Wanted more today but it wouldnt come back to me. So I bought 100 shares of GLFPN today. Not thrilled to be under SO's umbrella but I checked pretty thorough yesterday how Gulf and Alabama Power are set up. No entanglements with Georgia Power or Mississippi Power financially which have been downgraded. Gulf and Ala. are stable and highly rated with needing no parent support, which their debt is lower rated than the 2 purchased subsidiaries.
 
Texas Proud said:
Anybody know the date of the AES call? Or the price plus divi?

It is my largest pref holding... will have to see what I want to replace it with...

With the various calls that I have endured since first starting this I am hesitant to buy a past call over call price...
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23 JUN 2017 is call date
divi will be .647 cents, so about 2/3rds normal div? something like that.

this was a larger holding of mine as well. only bought a little while ago. kind of bummed myself. no money lost. just a PITA now have to find another one.
 
Mulligan said:
Texas, It is June 22... A lot of accrual for this dividend is built in to pay out... Surprised you have been hit with a lot of calls. I seem to side step them most of the time despite being knee deep in the past calls most of the time...
Pig, yes BOFI seems like its a sister of Bank of California with accusations here and there... BOFIL bounces up and down. I hit it on a down just a few cents above par. This is in my flip pile but will consider holding a while. The common acted fine and was up today. BOFIL started creeping back up after the early morning dump. I rarely will buy if common is dropping with the preferred. But today the preferred dropped and the common was going up. Of course being a debt issue they have to pay of become insolvent unlike a true bank non cum preferred. It will give me something to watch, lol...
Also bought 300 shares of ALMBP yesterday at $25.90. Wanted more today but it wouldnt come back to me. So I bought 100 shares of GLFPN today. Not thrilled to be under SO's umbrella but I checked pretty thorough yesterday how Gulf and Alabama Power are set up. No entanglements with Georgia Power or Mississippi Power financially which have been downgraded. Gulf and Ala. are stable and highly rated with needing no parent support, which their debt is lower rated than the 2 purchased subsidiaries.
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i have Alabama Power as well, now that AES has been called, its one of my largest holdings. ironically i've had a sell out there at $26.35 and it almost hit once. have every intention of buying it back if it were to sell. will test this one all the way to call date. will put GLFPN on my watch list. not sure i've ever looked at that one to be honest.
 
Its getting hard in Ute ville to stay near 6%.... GLFPN has been callable since 2010... Goes ExD in 2 weeks so I almost got it near 6%. It was issued in 2005 during normalized interest rate era at 6%. It has had a strong price support through out its trading history. It never even hit $76 during 08-09 crisis when the financial preferreds were getting 50-85% haircuts.
 
If anyone has an overload of testosterone (or a drop in reasoning skills), take a look at HLM's preferred (HLM- on quantumonline). It is a sky-high coupon of over 11%. HLM is a tool distributor. Been bought/sold a few times over the years, yet the Trust Preferred remains outstanding. I read through their 10-K, and they are actually amortizing the value of the preferred issue against their taxes, AND deducting the interest paid on the Trust Preferreds. Kind of like a double dipping. Would help explain why it still remains outstanding with an insanely high coupon. I bought mine at $33. It's currently north of $34. Has a final maturity in 2027, with a YTM of over 7%.

Somehow it traded all the way down to par a few years ago. Would have been crazy lucky to pick that one up. According to the 10-K, there were relatively few shareholders, with an average of something like 11,000 shares per shareholder!
 
I couldnt ever find any info on it Moorebonds...It got bought out by a private company and no financials are issued, so I dont know their intentions with it. I remember at the time when it was lower I would have bought it if I knew more about the acquiring company and the safety of it.
 
by the looks of it, Moorebonds got in pretty good. who would have thought $33 on a $25 par issue would be a cracking deal. if that thing goes the distance that would be sweet.
 
pig pile said:
by the looks of it, Moorebonds got in pretty good. who would have thought $33 on a $25 par issue would be a cracking deal. if that thing goes the distance that would be sweet.
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When FBS-A was around circa 2010, it was trading at around $23-$24. When they finally resumed their dividend, it had about $8 of accumulated dividends bulging at the seems to get mailed out, and it instantly shot up to $33. But even buying it at $33 was a deal, since the coupon was over 8%, and you would get $8 in accrued dividends back that would drop your cost down to $25...just depends on the issue and the terms. :)

I might bail on HLM-, but likely will roll the dice and let it ride, since it's just 100 shares. Of course, one of these days, I'll get an itchy trigger finger and still hold it.....only to read that it was called a day or two after wanting to sell it.
 
MooreBonds said:
Here is a link to their 10-K:



https://materials.proxyvote.com/Approved/43162L/20170425/10K_324925.PDF
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Thanks, no I never got deep enough to find something like this. I did find a rating on the issue a few years back and it was Caa2. At $33 the yield is lowered and not much above other reach issues without the 33% call haircut. But I keep it on my list even though it never drops....Speaking of drops, most preferreds are very highly priced. About the only "value" are the ones that may be called... Like ALBMP. It started its decent towards par over a year ago as its par date is approaching. Utes are usually notoriously slow to call, so essentially I am risking a dime for a 4 month hold. If it continues on for any amount of time I will call it a successful trade. GLFPN may just be at edge where there is no benefit to call. However, some utes have rolled the preferred float into cheaper debt issues.
 
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