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

[Mulligan]

As a real estate investor myself, cashflow is important. Although all of mine are profitable, one can still put money in one's pocket, and show a taxable loss. It is also the main factor factor in oil, mining, pipeline, and timber industries.



I can remember back in late '70's while while working on my MBA, the accounting professor taught a business model where one could buy a pickup, chainsaw, a piece of land and make $10,000/year tax free. One would have to spend a lot of time cutting down trees for firewood, but firewood was pretty expensive during the "energy crisis".

I agree....I meant they think at looking at FCF that they discovered the meaning of life....It is just one piece of the puzzle. MLP and REIT structure is different than C corp. I am old school with C Corps...Profits matter! The cash flow experts who run the buffalo off the cliff with Frontier are finding out the hard way. I would rather have cash flow negative, high profitability, and A rated debt, than FCF positive, debt to eyeballs that cant possibly be rolled over as no money is being made. That is Frontier...
Hmmm, timber, chainsaw, wood splitter, and truck? No way, I aint hungry enough and my bills are paid up, lol... I would rather collect the 6% QDI from Ameren, lol...

 

[Texas Proud]

Due to this talk, I looked at CBL, the company shares sure look like a deal at $5.75 with a ~13.94% dividend after they cut the div by 1/4, and I'm thinking what has improved in retail ?

One thing I found odd, was they talked about rebranding from CBL Assoc... to CBL Properties to better reflect what they do. Why did it take them so many years to figure that out, seems pretty obvious and not reassuring in the management.

Of course I'm the dummy who sold CAT much earlier because their div was all their profit

So I know nothing....

They should change it to CBL bitcoin or blockchain and it will skyrocket 500%!!!

 

[Mulligan]

Well, I suspect my trading is wrapped up for the year after grinding out a few small gains past week and getting into other issues...My focus has been on should be called but havent, adjustables, short end yield curve adjustables and term dated...Looks like 2018 will have these in the starting line up....PPWLO, AILLL, AILNP, MSEXP, CTWSO, NSS, SPLP-T, ALLY-A, GJT, GJO, KYN-F, AHT-D, GWSVP, LANDP, CNIGO, FIISO, and BURCP.

 

[capjak]

AILLL,BoFIL,CNLPL,CNTHP,GBLIL,KTH,KYNPRF,PFF,WFCPRL,CHSCM for me all in taxable account so may trim down to Qualified divi only in 2018. Retire date moved to probably May 2018

 

[Mulligan]

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

AILLL,BoFIL,CNLPL,CNTHP,GBLIL,KTH,KYNPRF,PFF,WFCPRL,CHSCM for me all in taxable account so may trim down to Qualified divi only in 2018. Retire date moved to probably May 2018

Cap, remember the tax rates are lowered...Plus it looks like reits get an extra 20% pass through reduction on dividends if held in taxable accounts... My last dollar bracket has been reduced to 24% from 28% so I now have a few taxable issues in my taxable accounts. My taxfree accounts are smaller than my tax free is.

 

[Running_Man]

In relation to NSS, the chances of a call are near zero isn’t it with a new preferred just being issued with a 9% yield, .6% higher than these? I tried looking through their financial statements and they do more with debt and subsidiaries than many companies I have looked at. What is favorable is the outlook for the commodity market for them but I have a lot more studying to do before I have an idea of what exactly they do with all their financing.

 

[Mulligan]

In relation to NSS, the chances of a call are near zero isn’t it with a new preferred just being issued with a 9% yield, .6% higher than these? I tried looking through their financial statements and they do more with debt and subsidiaries than many companies I have looked at. What is favorable is the outlook for the commodity market for them but I have a lot more studying to do before I have an idea of what exactly they do with all their financing.

Remember this is subordinated debt not preferred equity, so this does matter. If the Fed hikes 3 times next year the yield vaults well over the preferred equity yield. They wont allow that to happen, especially when long end isnt moving as much as short end. So I doubt it will be around in a year if short end rises.
This will speed up the learning curve for you.
https://www.moodys.com/research/Moodys-rates-NuStars-preferred-perpetual-units-Ba3--PR_375225

 

[Running_Man]

OK Mully, let me see if I have your perspective correct. You purchased NSS because you could pick up a “free” debt payment when the debt is called in January as you expect NS to call the debt because they can issue debt presently at 5 5/8 for the long term and this will be 8.42%. You do not like the 9% preferred- a rate NuStar has to pay to get “equity” to not count against their Debt/Ebidta covenants on the loans - despite the higher interest rate because you do not want to hold an instrument long term that could have the payments suspended in the future nor commit for a long time. You view the debt as a “freebie” coupon clipping.

Now for NS to call the 2043 floating debt instrument will I think require a new debt issuance since I don’t think they want to use up 402 million of their revolver to call the debt. Yet to date they have not given an indication that they will do so, but is expected as switching the debt would save about 10 million per year, though cause 7 million in cash to be used for the new debt and incur the costs of a call initially in the first year. But based on current interest rate trends that makes sense. They appear likely to get a rating downgrade unless earnings make a very quick uptick, perhaps they are waiting to be able to give better guidance on 2018 earnings in light of 4th qtr performance and tax changes. I think your logic, if I stated correctly, is sound and I probably missed a free coupon.



It is going to be an interesting January, unlike most January’s there is a radical change in tax law with large implications on corporate structuring and therefore there will be major corporate debt changes, not for NuStar in particular but for corporations in general, as corporate structures are realigned in order to take advantage of the new tax rates in the US. This is going to effect interest rates as companies are compelled to act when a 40 percent drop in income taxes is possible and capital investment is allowed to be immediately expensed. However the new tax law is not particularly MLP friendly in general.

 

[Mulligan]

Basically that is what I am thinking, RM. As you know a lot of “preferreds” have been issued over the recent years, but few have actually made it to the finish line and proceed onward with the adjustable not only in force, but actually increasing the present forward going yield. They have a regular maturing fixed debt that needs to be addressed in April. I suspect that is what will be addressed and NSS ignored near term. If they dont call, I am fine sitting on 8.4% (assuming no more rate hikes) and perched above the $700 million preferred stack in addition to the common stock.
CEO referenced the debt earlier in year, and immediately stated they didnt have to do anything with it. Plus it does have the differal clause in it if things go bad...But that cant happen until the preferreds and commons were suspended first. I just feel safer in this issue and dont give up much. Im not a fan of K-1 so taking the debt avoids that, also.

 

[bobandsherry]

I looked at NSS after Mulligan mentioned it in his list of buys. I got into NSS as I had cash, this was priced just around par, and saw this as a short term play of 10% return if it got called. And if it doesn't get called it still has plenty of play as an adjustable now with 8.4%+ return still with plenty of upside.

There's a reason the "9%" preferred has to pay a higher rate, it has higher risks (credit and interest rate).

 

[Mulligan]

Bob this is my favorite risk reward issue...I bought 400 more today at 25.02...Have too much, but I like it. I actually hope we get 2 or less rate hikes too minimize incentive for a call.

 

[bobandsherry]

Yep, the risk/reward seems fair. I'm in pretty good w/1,500 shares. But I was still looking to get a few more and I had GTC order in at $25. However my broker tried to protect me and adjusted the order price after the issue went ex-dividend. I was out for the day and didn't see notification on the adjusted price until late in the day. I got buy order in again but while price dipped below $25 at the open and closed at $25 my order didn't get filled. Patience....

 

[Mulligan]

Yep, the risk/reward seems fair. I'm in pretty good w/1,500 shares. But I was still looking to get a few more and I had GTC order in at $25. However my broker tried to protect me and adjusted the order price after the issue went ex-dividend. I was out for the day and didn't see notification on the adjusted price until late in the day. I got buy order in again but while price dipped below $25 at the open and closed at $25 my order didn't get filled. Patience....

It was cat and mouse with me all day...Chased up to $25.04 then gave up as I kept getting jumped and reversed it back to $25.02 and it hit a few minutes before close... Their was only one trade yesterday below par...A 5000 transaction at market close. Only one small trade at market open was below par... Im not gonna quibble over a few cents. Most of mine were bought near par a month ago and I got the interest payment coming my way in a couple weeks.

 

[bobandsherry]

^^ I was looking to stay at par just in case it is called. With 1,500 shares I wasn't feeling that hungry for more, just for the sake of more. Having some cash on the side is OK, there's a couple other issues I am considering (not preferred) and keeping an eye on to see if there's an opportunity with January sell-offs.

 

[Mulligan]

Bob, you cant lose money sneaking above par buying. Next accrual starts Jan. 16. Even if they called Jan. 2 they would have to pay until Feb. 1, which means minimum a call payout of at least $25.08...

 

[bobandsherry]

^^ Don't just want to break-even for 30 days.... Who knows, I may fall to temptation and juice the order a bit come Tuesday, but gotta stay disciplined!

 

[Mulligan]

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

This is just my opinion which means squat...But I would be stunned if it was called in April. They got a hard maturing senior debt to roll over in April. This will wait...Being its structurally subordinated debt with 5 yr deferral, it is only a hens teeth above the preferred stack, and will still have a yield lower than the last preferred issuance for near term anyways.
I think it can be had at $25.02...But it will start creeping up if no call is announced.

 

[brokrken]

Well, I suspect my trading is wrapped up for the year after grinding out a few small gains past week and getting into other issues...My focus has been on should be called but havent, adjustables, short end yield curve adjustables and term dated...Looks like 2018 will have these in the starting line up....PPWLO, AILLL, AILNP, MSEXP, CTWSO, NSS, SPLP-T, ALLY-A, GJT, GJO, KYN-F, AHT-D, GWSVP, LANDP, CNIGO, FIISO, and BURCP.

GWSVP, IPL-D, LANDP, NSS, SPLP-A for me

 

[MooreBonds]

If anyone's looking for a short-term bond, check out a new issue: COWNZ.

Cowen has a fair capitalization/net worth to backstop it, and the senior notes have a callable date of Dec 2020, final maturity Dec 2027. 7 3/8% coupon, I picked up some at $25.70, so a worst yield to call of about 6.4%, not too bad for short-term debt and a little more diversification (most of my baby bonds are BDCs).

 

[brokrken]

MooreBonds, is Cowen just like a small boutique investment firm?

 

[bobandsherry]

Bob this is my favorite risk reward issue...I bought 400 more today at 25.02...Have too much, but I like it. I actually hope we get 2 or less rate hikes too minimize incentive for a call.

OK, I juiced the order to $25.02 and got it filled. Will be decent short term return should it be called. Or if it's not called, I'm happy with a really nice 8.4% or so yield with possibility of going higher.

 

[Running_Man]

Day One of tax change trading and effect on US Treasury Rates
Change
US 3-MO 1.399 0.008
US 2-YR 1.923 0.032
US 5-YR 2.248 0.037
US 10-YR 2.462 0.051
US 30-YR 2.809 0.068

This is an interesting start to the year. WFCPRL fell below 1300 (buyout price) for the first time since last May and is now down 5% off it's peak. Could 1250 and 6% payout be far behind?

 

[Mulligan]

OK, I juiced the order to $25.02 and got it filled. Will be decent short term return should it be called. Or if it's not called, I'm happy with a really nice 8.4% or so yield with possibility of going higher.

Bob, the news is getting better for NSS...Another forum member just dug this up from UBS.....


On November 22nd, NuStar amended its credit agreement to specifically exclude NSS from debt calculations with secured creditors, an UBS report on NuStar confirms: "The recent amendment to the credit agreement for NuStar Logistics suggests management intends to keep NSS outstanding beyond the January 2018 call date providing an attractive floating rate to investors. We do not view this amendment as a negative signal, and point to the NuStar Logistics 10-year bond as an institutional market indicator of where the company can access capital if required."


As a major point to emphasize through all of this re-pricing over the last couple months that NuStar's debt across all maturity have not moved which tells us the market has not anything material in the business to warrant selling. UBS takes it further as says they issue more of the 10 year at around 5%. At $25.05, it isn't the best interest payment adjusted price, you could have gotten the last 2 months BUT as the picture on NSS gets clearer that it isn't going to get called.. We should see a nice bid higher in February/March..

 

[Mulligan]

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

GWSVP, IPL-D, LANDP, NSS, SPLP-A for me

Brokrken, you got all the bases covered in 5 issues... Above market high yield, safe perpetual, an adjustable and term dated!

 

[bobandsherry]

Bob, the news is getting better for NSS...Another forum member just dug this up from UBS.....

On November 22nd, NuStar amended its credit agreement to specifically exclude NSS from debt calculations with secured creditors

What's not clear to me why they made the amendment, what's driving the need and/or want to do this? And is that a good thing? Keeping my eye on if this has a pop to it due to the favorable rate and what appears to be a longer term investment option. Thanks for sharing.