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

[Coolius]

RE2Boys,

Concerning EYMXP .... I sold my entire position today.

If called today, EYMXP will pay about $0.26 in accrued interest ( including the usual 30 day advance notice ). Every day with no call adds $0.0043.

Deciding to hold is a bet that EYMXP will not be called after the next dividend.

I was not willing to take that risk, sold today for par+1 dividend.

YMMV

 

[Texas Proud]

Just found a source confirming that EGYKP is to be called.

From Utility Giant Entergy Corp. Sells High Quality Baby Bonds | The Yield Hunter

Entergy Arkansas Inc. has sold a $25/bond issue at a coupon that reflects the quality of the offering as well as the rock bottom coupon market we currently live in. With an offering of $410 million of 4.875% First Mortgage Bonds the company has sold the lowest yielding issue seen in many years. The company will use the proceeds to call in 2 outstanding issues with higher coupons. They will redeem the $25/share 6.45% preferred stock issue (NASDAQ:EGXKP) as well as the 5.75% $25/bond 1st Mortgage Bonds (NYSE:EAA).

Now to check on EyMXP

RE2Boys,

Concerning EYMXP .... I sold my entire position today.

If called today, EYMXP will pay about $0.26 in accrued interest ( including the usual 30 day advance notice ). Every day with no call adds $0.0043.

Deciding to hold is a bet that EYMXP will not be called after the next dividend.

I was not willing to take that risk, sold today for par+1 dividend.

YMMV

I agree... do not take the chance... like BGLEN... I was hoping that the earlier call was all that was going to happen... I could have sold out all at $105 but thought they were done... nope... so now, if there is a call for any I will take it as a call for all if it is selling for a good amount above call price...

IMO, once they see they can lower their rate there is nothing to stop them from doing it for all their high rate issues... in fact, that would be stupid for them not to do it... the only thing is the timing of it happening... how many people do they have that can do this and how many can they take on at a time...

 

[Sunset]

I agree... do not take the chance... like BGLEN... I was hoping that the earlier call was all that was going to happen... I could have sold out all at $105 but thought they were done... nope... so now, if there is a call for any I will take it as a call for all if it is selling for a good amount above call price...

IMO, once they see they can lower their rate there is nothing to stop them from doing it for all their high rate issues... in fact, that would be stupid for them not to do it... the only thing is the timing of it happening... how many people do they have that can do this and how many can they take on at a time...

I agree mostly, which is why I will pay a little over par, but not a lot over par as it's too risky.

As for the stupid part, companies do stupid things for lots of reasons because if you think about it, a lot of companies in low rate environments could call but they don't probably for many accounting fashionable reasons.

 

[Mulligan]

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

Just found a source confirming that EGYKP is to be called.

From Utility Giant Entergy Corp. Sells High Quality Baby Bonds | The Yield Hunter

Entergy Arkansas Inc. has sold a $25/bond issue at a coupon that reflects the quality of the offering as well as the rock bottom coupon market we currently live in. With an offering of $410 million of 4.875% First Mortgage Bonds the company has sold the lowest yielding issue seen in many years. The company will use the proceeds to call in 2 outstanding issues with higher coupons. They will redeem the $25/share 6.45% preferred stock issue (NASDAQ:EGXKP) as well as the 5.75% $25/bond 1st Mortgage Bonds (NYSE:EAA).

Now to check on EyMXP

Yes, they had this out in SEC filings a few weeks ago...I thought I mentioned it here a while back. I didnt own the 6.45% issue as I flipped out a long time ago. But I owned the 6.08% issue that is getting snagged too ( a tiny float). I bought under the $102.83 call price so it wasnt a ding to me. But, I got a call on PJS today.... Bummer... I have to go but I need to send a shot across the bow for any CVB owners out there... Try to post tonight as it is a bit long and Gf is coming through the door now. Chasing past call above par issues is getting to be a dangerous game now... One needs to be careful and preserve capital, as it has got my attention, now. Or one constantly risks spinning wheels buying issues that call, and next thing you have nothing to show for it... I was up 15% this year, probably 13% or so now...Might be time to take a few chips off the table or at least rethink my strategy!


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[Mulligan]

Some of you may own CVB. Just a word of caution, not advise. As mentioned I had PJS called from under me ( and basically it appears my money is confiscated until payment Oct. 3 as trading was suspended). Any how they share similar traits... These are trusts of an underlying non callable bond. Owners only own certificates of the trust not actually the bond itself. Just like companies can call their own preferreds, brokerages which create the trust preferred and sell the certificates, actually own the call warrants themselves...
Merrill Lynch after noticing the underlying bond was trading around $108 called the trust issue today at $25. Now they have already probably lined a buyer of the $45 million bond. So they take your money at $25 par, and then resell the actual bonds at $108, booking and easy 8% profit taking from you and selling to someone else...
I bring this up only because the CVB underlying bond (KMI bond) is trading around $108 also. So IF they wanted to they could call at $10, and resell the actual bonds at $108 and book an 8% instant profit just calling the CVB. Now, I have no idea if they will. They can patiently wait and see if bond climbs higher, or maybe being only a $10 million issue it may not be worth their time to even do it and book a $800,000 quick profit... Who knows...But at $10.70, I decided not to wait around and risk a 7% haircut. I had 1600 shares but sold 500 last week to give me enough cash to get my 500 AES-C shares. I sold the remaining 1100 shares today. I am not getting bit twice...Hey, it may all work out great and never be called. I just felt this info may help you understand the risk better....One can always actually buy the underlying bond itself and get near 7% as it isnt callable... But it doesnt mature until 2098 or so. Bonds also have horrific bid/ask spreads, so buying and trading doesnt usually work here.


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[Mulligan]

Mostly we have just discussed trades, but while I am thinking, I thought a little strategy post may be needed now...Basically for almost 3 years, I have feasted on past call above par issues, and flipping quite frequently often buying same thing over and over. It is worked very well, with almost zero market angst while avoiding all market ups and downs. But, like anything, it works until it doesnt....And I think the "doesnt part" is steam rolling down the path....Rates have just been low too long now. Companies reaching to expand profits in low growth environment are now with more frequency plucking the "low hanging fruit". Though most were not mine, past call preferred issues are dropping like flies...
The risk/reward is just not there anymore for me. Protecting my double digit returns are more important than risking money on past call above par issues...I may be pruning a bit more, with no real strategy yet of what to buy. One thing is certain....I bought 500 shares of AES-C looking to flip 300 of them around next divi time as holding that many is a bit beyond my comfort zone. However, being close to par, and no viable suitable replacements, I may have to change my mind and hold them all due to no viable alternative.


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[Texas Proud]

I agree mostly, which is why I will pay a little over par, but not a lot over par as it's too risky.

As for the stupid part, companies do stupid things for lots of reasons because if you think about it, a lot of companies in low rate environments could call but they don't probably for many accounting fashionable reasons.

I agree that there are other things in place when it comes to a call... there might be some covenants that hinder it happening... it might be that the issue is just too small for them to worry about when you factor in the time, money and effort to place another issue... that is why I said IF a company has already called one of their issues... if they have done it once then the likelyhood of them doing it again go up IMO....

 

[Winemaker]

How does one feel about Alcoa?

Their preferred is way below par at ~$34 for a $50 issue, yielding over 7%. I took a chance with 200 shares. What you say?

 

[Mulligan]

How does one feel about Alcoa?

Their preferred is way below par at ~$34 for a $50 issue, yielding over 7%. I took a chance with 200 shares. What you say?

My Quantum is down, so I am going only off memory...Is this their convertible preferred or their old traditional preferred issued many many years ago?


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[Winemaker]

AAprB. It's the convertible; callable 10/1/17.

 

[Mulligan]

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

AAprB. It's the convertible; callable 10/1/17.

Convertibles are mostly a bet on the stock price at conversion time next year. If AA-B was converted today it would turned in $31.30 of AA common stock. Convertibles from what I have monitored track the common very closely and slightly above conversion exchange to allow for the yield inducement at purchase. If AA goes up in value, you will benefit from that at conversion and of course the opposite occurs if its stock price is lower a year from now.
I certainly do not have a bad opinion of it. But, if I owned I would consider it a common stock purchase with a one year "yield spicer". If I liked AA as a company I would buy (I have no incite on Alcoa). With regular preferreds, you can "hate the common stock" but "love the preferreds" and buy them. But with a convertible one should "love the common" as it will track it very closely.


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[MooreBonds]

AGO-F $25.72,

Mulligan - for as squirrely as you can be, I'm shocked that you'd consider a bond insurer! To me, a bond insurer is magnitudes worse than even a property/casualty insurer. You can somewhat predict some things like weather patterns, but to be beholden to municipalities/utilities/even other governments around the world (according to their description), how could you sleep at night knowing you're on the hook for their fiscal problems? If it were yielding a fat yield, I'd consider it more...but at a mere sub-5.5% yield, there's no way in hell I'd consider it comparable risk to a ute, or a bank like Wells Fargo.

 

[Mulligan]

No, no, no... I didnt recommend it, and I never mentioned I was buying, which I am not. I just posted what that portfolio manager recommended he was buying... I only looked at the Ally-A issue... I just finished out the article as that is where I got the Ally-A idea from....And I bought a bit... Though I may be forced to buy more, ha! I have been drifting more into banks with fewer options. Probably getting close to 20% of my stash now. Though I guess that is low since financials make up somewhere around 85% of all preferreds in market value. The rest of his selections as I mentioned in my precious post I had not looked at. And still haven't... And probably wont. They didnt "catch my eye" like the ALLY-A did.



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[Golden sunsets]

Mostly we have just discussed trades, but while I am thinking, I thought a little strategy post may be needed now...Basically for almost 3 years, I have feasted on past call above par issues, and flipping quite frequently often buying same thing over and over. It is worked very well, with almost zero market angst while avoiding all market ups and downs. But, like anything, it works until it doesnt....And I think the "doesnt part" is steam rolling down the path....Rates have just been low too long now. Companies reaching to expand profits in low growth environment are now with more frequency plucking the "low hanging fruit". Though most were not mine, past call preferred issues are dropping like flies...
The risk/reward is just not there anymore for me. Protecting my double digit returns are more important than risking money on past call above par issues...I may be pruning a bit more, with no real strategy yet of what to buy. One thing is certain....I bought 500 shares of AES-C looking to flip 300 of them around next divi time as holding that many is a bit beyond my comfort zone. However, being close to par, and no viable suitable replacements, I may have to change my mind and hold them all due to no viable alternative.


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I've just been buying and holding. The only issue of the four that I own where I am exposed is AILLL. Bought at 26.60, collected one divy so far this past month, so I am exposed to the tune of $592.97 over 500 shares. My other three issues are all callable at my purchase price, pretty much plus I've collected several quarters of divy's already. So has your reasoning on owning AILLL changed any Mul?

 

[Sunset]

No, no, no... I didnt recommend it, and I never mentioned I was buying, which I am not. I just posted what that portfolio manager recommended he was buying... I only looked at the Ally-A issue... I just finished out the article as that is where I got the Ally-A idea from....And I bought a bit... Though I may be forced to buy more, ha! I have been drifting more into banks with fewer options. Probably getting close to 20% of my stash now. Though I guess that is low since financials make up somewhere around 85% of all preferreds in market value. The rest of his selections as I mentioned in my precious post I had not looked at. And still haven't... And probably wont. They didnt "catch my eye" like the ALLY-A did.

That portfolio manager included a closed end fund of preferred (going from memory) which I looked at and thought that it brings a lot of diversification and returns ~7.3 %
The symbol is: HPF
I do notice it is a leveraged preferred share holder and the expense ratio is what I consider high 1.23% (or 1.70% once you add in the interest cost for leveraging).

I wondered what you thought about it ?

 

[Mulligan]

Thanks for suggestions, Sunset. I wish more would toss them out to cuss and discuss! However, I just made a personal decision when I first started buying to never use leverage. Especially since short term fear rate hikes are approaching they could really upset the applecart. Yield only is a by product of the underlying preferred plus the "leverage goosing". When you see low bond rated issues such as AES-C going for 6.6% and the fund is delivering that kind of yield, it is either in a bunch a trash or doing a heckuva a lot of "yield goosing". Dont get me wrong it can be a great tool. My understanding and trust level of using artificial instruments is just not within me. But this is only me and not a reflection on its suitability for someone to buy.
As far as my AILLL goes, its kind of like being married for 50 years to someone and the spouse develops Alzheimers. You were together in the good times and will stay together until the end. But no, after seeing the call landscape one in good conscious cant recommend it at this price. It currently trades about 6% above par, so that is a might decent "call haircut". We do know next divi is coming though.


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[Mulligan]

Speaking of squirrelly issues, Moorebonds... When that $212.00 hits your bank account from FIISO Oct. 3, your gonna be thinking "Man I love them squirrelly non callable cumulative preferreds".


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[Mulligan]

BTW- While I am remembering....But I thought Golden or Sunset maybe owned KCC (or others) but I wanted to make sure this point was known about it...KCC is exactly the same type of issue CVB and PJS. If you havent read look up a few posts and read it. The same principles apply to KCC. Though that issue has been largely called already, the brokerage can use its "call warrants" to finish off the issue. So largly if someone called the brokerage and said we want $3 million worth of that Unum bond, they could call it immediately with 30 days notice. Give you the $27.60 or so, and then profit the difference by selling
underlying bond and booking the profits.
It just becomes a math problem to them on whether it is worth their time and money. I had this process explained clearly to me by an astute investor about 2 weeks ago. And all be darned if he wasn't right as PJS was yanked just Friday. I have no incite whatsoever on whether CVB or KCC will ever be called. I just wanted you to know the mechanics behind it. The bonds are all way above par, so there is easy money to be made by the brokerages if they so choose to call. One just has to measure the risk/reward in determining to own or sell.


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[Sunset]

.....
As far as my AILLL goes, its kind of like being married for 50 years to someone and the spouse develops Alzheimers. You were together in the good times and will stay together until the end. But no, after seeing the call landscape one in good conscious cant recommend it at this price. It currently trades about 6% above par, so that is a might decent "call haircut". We do know next divi is coming though.
.....

I did look at AILLL, but the thought that it is ~ 1 year worth of div's over par makes me pretty reluctant. Which is why I'm still looking for other things.

 

[Mulligan]

I did look at AILLL, but the thought that it is ~ 1 year worth of div's over par makes me pretty reluctant. Which is why I'm still looking for other things.

There has been a lot of calls lately from all industries... Its really hard to even consider any past call issue trading more than a divi above par. And those are getting very hard to find......


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[Running_Man]

Alcoa is in the midst of a planned restructuring where it is planning to separate into two entities, in such cases the plan usually ends up giving one entity the majority of debt and the other entity better prospects, similar to a 1/2 bankruptcy so all the assets of the entire corporation do not go down in flames with the entire company. Alcoa for me would be a no go zone for preferred so I have not expended the energy to try and determine the profitability and possibility of preferred payouts for whichever entity is assigned the preferred.

 

[MooreBonds]

Speaking of squirrelly issues, Moorebonds... When that $212.00 hits your bank account from FIISO Oct. 3, your gonna be thinking "Man I love them squirrelly non callable cumulative preferreds".


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I'll take an army of squirrels if I can get my hands on them! I guess the morning coffee hadn't kicked in yet and I hadn't read your post closely enough. I though it was weird for you to be mentioning issues like that.

 

[Texas Proud]

BTW- While I am remembering....But I thought Golden or Sunset maybe owned KCC (or others) but I wanted to make sure this point was known about it...KCC is exactly the same type of issue CVB and PJS. If you havent read look up a few posts and read it. The same principles apply to KCC. Though that issue has been largely called already, the brokerage can use its "call warrants" to finish off the issue. So largly if someone called the brokerage and said we want $3 million worth of that Unum bond, they could call it immediately with 30 days notice. Give you the $27.60 or so, and then profit the difference by selling
underlying bond and booking the profits.
It just becomes a math problem to them on whether it is worth their time and money. I had this process explained clearly to me by an astute investor about 2 weeks ago. And all be darned if he wasn't right as PJS was yanked just Friday. I have no incite whatsoever on whether CVB or KCC will ever be called. I just wanted you to know the mechanics behind it. The bonds are all way above par, so there is easy money to be made by the brokerages if they so choose to call. One just has to measure the risk/reward in determining to own or sell.


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The one thing that I would say about an issue being called is that investors do not like it to happen just so the broker can make a few bucks... IOW, if they called every issue they could profit 8% or so on then people would either require a longer no call period or not buy them when offered...

 

[Texas Proud]

Alcoa is in the midst of a planned restructuring where it is planning to separate into two entities, in such cases the plan usually ends up giving one entity the majority of debt and the other entity better prospects, similar to a 1/2 bankruptcy so all the assets of the entire corporation do not go down in flames with the entire company. Alcoa for me would be a no go zone for preferred so I have not expended the energy to try and determine the profitability and possibility of preferred payouts for whichever entity is assigned the preferred.

Unless they state that clearly then putting all the bad stuff in one of the entities is a good way to get sued... you cannot knowingly put bad stuff in one and good stuff in the other and say 'good luck' to the one entity... if they do not make it in the first couple of years I would bet that the shareholders would sue the good company...

 

[Mulligan]

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

The one thing that I would say about an issue being called is that investors do not like it to happen just so the broker can make a few bucks... IOW, if they called every issue they could profit 8% or so on then people would either require a longer no call period or not buy them when offered...

Ah, Texas, if you ever have a used car for sale, I am buying from you...An honest man! That isnt how it works with investment brokerages... Remember back when they would push common stock recommendations to retail investors, while shorting the same stocks they were pushing? Besides, its all up and up..Read the prospectus of any issue ( and especially trust issues) it clearly states they can be called after the call date by the "call warrant holders". And at any time after that. That is just the way it works...Look at 95% of all trust issues issued in past 15 years that are all past call date....They are all gone! The brokerage has a prearranged deal with an acquirer to buy the bonds. The acquirer must bring the "cash to the table" when the 30 day warning is served....If they do not, then the brokerage does not call it and trust lives on. Read how it is worded.... Notice the word "intended exercise". This is the wiggle room on the "anticipated call". If the suiters don't come up with the cash, the brokerage doesn't call... Trust me...I know what I am talking about here. The informant who explained this is a walking encyclopedia on this stuff. But you are right in they are NEVER going to publicly state what is going on...You notice it isn't mentioned? This is the official SEC filing call on PJS from Friday.

On September 1, 2016 The Bank of New York Mellon, as Trustee for the PreferredPLUS Trust Certificates Series FAR-1 Trust (the “Trust”), issued a press release regarding the receipt of a notice of intended exercise on October 3, 2016 (the “Exercise Date”), of the outstanding Warrants representing the right to acquire (a) 1,800,000 of the Trust Certificates at an exercise price equal to $25 for each security being exercised plus accrued and unpaid interest up to but excluding, the Exercise Date. A copy of each of the press releases is attached as Exhibit 99.1 hereto.



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