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

[Mulligan]

Mully, love your perspective. Thanks for keeping us straight around here.

Ken, this just pisses me off with their untruths promoting certain issues, wouldnt surprise me if they do to front load and dump into spikes from the loyal followers. For example, they promoted this same issue a month or so prior also. But they were all mischaracterizing it as “high quality bond”. It is a B rated debt issue. All 3 rating agencies have it rated as such. That is deep in junk rated territory. By definition high quality is an investment grade bond. Yet the peddling fools wanted to argue that fact with me because they know there followers dont understand such terminology.
Now keep in mind I wasnt debating the merits of it being a suitable purchase for high yield. I have owned it and the preferreds myself. But they deliberately mischaracterize or are just plain damn dumb, one of the two.

 

[brokrken]

I hear ya. This issue is high yield paper and they should not characterize it as anything but. As you mentioned, that doesn’t mean there isn’t a place for it in a balanced portfolio, but don’t sell it as something else

 

[Green_and_Gold]

.... But they deliberately mischaracterize or are just plain damn dumb, one of the two.

Mulligan, "one of the two?" ... it could be both. Mischaracterizing and then thinking, or not knowing, that they can get away with it, qualifies for the second.

Thanks for your posts and BR, No. 12 (and yes, enjoying yesterday's perfect QB rating)

 

[Coolius]

For those who might be interested in SLMNP, an illiquid security, a seller has appeared today.


I bought a few more shares at $1,025.

 

[Mulligan]

Mulligan, "one of the two?" ... it could be both. Mischaracterizing and then thinking, or not knowing, that they can get away with it, qualifies for the second.



Thanks for your posts and BR, No. 12 (and yes, enjoying yesterday's perfect QB rating)

Green, Im sweating...Need Cowboys to win 9 and Titans 8 to cash my tickets. Tannehill giving me hope. And ‘Boys are healed up and looked better last night.

 

[onemorehappycamper]

For those who might be interested in SLMNP, an illiquid security, a seller has appeared today.


I bought a few more shares at $1,025.

Was wondering if you could give some details on this preferred ? I see it’s a special share with LYB and apparently only redeemable at owners discretion ? Is the redeemable price at par of $1000 ?
Would appreciate any info you can provide.. thanks !

 

[Coolius]

happycamper,


SLMNP was acquired by LYB a year ago, and currently has no possibility of being called. There is a provision for shareholders to sell shares back for around $800 - far below the par issued price of $1,000 ( positive spin is that it sets a hard floor below which the stock likely will never go ).


Mulligan was the guy who first introduced me to it, he is not only a shareholder but is intimately familiar with the innards of the security.


I will leave it to Mulligan to provide you with the background and credit worthiness of this stock, he does an infinitely better job that I could ever do.

 

[Mulligan]

Coolius, you are spot on...LYB has Senior unsecured debt rated BBB+. Its just a tiny sliver of capitalization...$115 million...And no other preferreds. So its a very safe play. Just a bastard preferred with no airplay.

 

[Mulligan]

Was wondering if you could give some details on this preferred ? I see it’s a special share with LYB and apparently only redeemable at owners discretion ? Is the redeemable price at par of $1000 ?
Would appreciate any info you can provide.. thanks !

Add a bit more here for color...This really isnt an LYB but a bastard preferred. A Schulman issued this as a convertible preferred to help pay for an acquisition in 2015. A convertible preferred can only be redeemed when common stock reaches the strike price. LYB then acquired A Schulman at a price ($42) that was below strike price. So since there are no common stock of A Schulman anymore it can never reach strike price so it can never be forcibly redeemed. However LYB will allow one to redeem per terms of 19.111 times acquired common stock price of $42 at owners discretion. This equates to about $802. Obviously no one would want to do this, but it in effect establishes a hard floor of $802. This hard floor is basically non existent in perpetual preferred. The 5.85% ish yield is appealing compared to other BBB- type issues which are around 5% ish yield and no floor.

 

[onemorehappycamper]

Add a bit more here for color...This really isnt an LYB but a bastard preferred. A Schulman issued this as a convertible preferred to help pay for an acquisition in 2015. A convertible preferred can only be redeemed when common stock reaches the strike price. LYB then acquired A Schulman at a price ($42) that was below strike price. So since there are no common stock of A Schulman anymore it can never reach strike price so it can never be forcibly redeemed. However LYB will allow one to redeem per terms of 19.111 times acquired common stock price of $42 at owners discretion. This equates to about $802. Obviously no one would want to do this, but it in effect establishes a hard floor of $802. This hard floor is basically non existent in perpetual preferred. The 5.85% ish yield is appealing compared to other BBB- type issues which are around 5% ish yield and no floor.

Mulligan and Coolius..
Thanks to both of you you for a very informative description of this issue, much appreciated! I plan on adding some to my portfolio as I agree it seems like a nice defensive option at a pretty good price. Cheers again.

 

[Mulligan]

Was wondering if you could give some details on this preferred ? I see it’s a special share with LYB and apparently only redeemable at owners discretion ? Is the redeemable price at par of $1000 ?
Would appreciate any info you can provide.. thanks !

Camper, this comes from page 89 of LYB annual SEC filings from Feb. of this year, pertaining to SLMNP....
Redeemable Non-controlling Interests—Our redeemable non-controlling interests relate to 124,347 shares of cumulative perpetual special stock issued by our consolidated subsidiary, A. Schulman, Inc. acquired in the acquisition. Holders of A. Schulman Special Stock are entitled to receive cumulative dividends at the rate of 6% per share on the liquidation preference of $1,000 per share. These shares may be redeemed at any time at the discretion of the holders. In 2018, 8,973 shares of A. Schulman Special Stock were redeemed for approximately $9 million. As of December 31, 2018, 115,374 shares of A. Schulman Special Stock were outstanding.
At the acquisition date, the fair value was estimated using the Black Derman Toy binomial lattice technique, which models the decision to redeem or hold by considering the maximum of the redemption value and the hold value throughout the term of the instrument and chooses the action that maximizes the return to the holder. This model requires assumptions on credit spread, yield volatility and risk-free rates.

 

[Coolius]

One nice thing about SLMNP is that only 115,374 shares are outstanding. So being scarce, and thinly traded for the most part, the price is reasonably stable until a large holder decides to dump fast - like what happened the past couple of days.



As long as one can live with a 5.85% yield, the strong credit rating and sustainability of dividends presents an attractive investment at around $1,020.


Shares are down to $1,019 in after hours trading. I might just go ahead and pick up a few more tomorrow if it weakens further.

 

[onemorehappycamper]

Yes definitely looks like a good option in the current market. I’m quite happy to pick up 5.85% for a portion of my portfolio [emoji3] thanks for all the info.. it was very helpful. I had tried to figure things out on quantum online but it left me just a little confused [emoji52] Cheers again. Will have to take a look at it tomorrow and hopefully pick up a few shares under 1020

 

[Coolius]

SLMNP - This morning I picked up another 10 shares at $1,021.85. And that's it, no more, I'm creeping up too closely behind Mulligan now in the number of shares he owns.

 

[jimnjana]

SLMNP - This morning I picked up another 10 shares at $1,021.85. And that's it, no more, I'm creeping up too closely behind Mulligan now in the number of shares he owns.

picked up a couple of shares this am too. First preferred shares in awhile.

 

[Coolius]

The slow bleed of SLMNP continues, down to $1,020.10; but trades are usually 1-10 shares at a time, so definitely no panic selling going on.


It cannot be tax loss selling, the volume is insignificant, so that's not an explanation.


Maybe because the next ex-dividend is in 2020, folks selling with intention of buying the first week of January, perhaps?



Ah heck, who knows ? I'll just enjoy the 5.86% dividend stream - no fear of a call.

 

[Mulligan]

The slow bleed of SLMNP continues, down to $1,020.10; but trades are usually 1-10 shares at a time, so definitely no panic selling going on.


It cannot be tax loss selling, the volume is insignificant, so that's not an explanation.


Maybe because the next ex-dividend is in 2020, folks selling with intention of buying the first week of January, perhaps?



Ah heck, who knows ? I'll just enjoy the 5.86% dividend stream - no fear of a call.

This happened last summer. It took about a week to unwind. It bottomed out around $1017 or so last time. Normal trading volume on a typical day is zero to 10, so its still got huge volume, ha. I suspect there usually arent many buyers either, so whoever is taking advantage of the liquidity maybe.

 

[jimnjana]

I bought 2 shares of SLMNP might average down if it keeps dropping. Ha.

 

[Coolius]

Let's hope this is the final blowout in SLMNP.



After hours trades 6.4K volume, way above the day's total, as low as $1,012.50 over 3 large trades of 3K, 1.5K and 1.5K.


Very likely a large institutional seller taking it down very slowly over the week, and perhaps dumping the rest today after hours.



Looking forward to price recovery next week.

 

[Mulligan]

Coolius, it may just lock up at this price for a while with no trading after seller is out. The way this issue was originally issued being not assigned a market, I suspect only a few institutions held most of the shares. Peons like us have only recently gotten involved. And as you noticed in this week of selling the most of the actual volume occurred in several 1k and 2k blocks. This really is a small institutional preferred. I know we have some wealthy individuals around (not me that is certain.) But even then I cant imagine an individual investor with a net worth of even $10 million plunking down $2 million for a 2000 share purchase of an obscure preferred stock, lol.

 

[Coolius]

This really is a small institutional preferred. I know we have some wealthy individuals around (not me that is certain.) But even then I cant imagine an individual investor with a net worth of even $10 million plunking down $2 million for a 2000 share purchase of an obscure preferred stock, lol.

You hit the nail on the head with that comment. We peons can absorb only a few shares around 50-100 even for the wealthy among us, but certainly not a 2000 share purchase.


So pretty safe to assume the large blocks are institutional sellers/buyers.



Right now my issue is whether to pick up another 5-10 at this attractive price of $1,012. Hard to resist, and if it goes back up to $1,035 again before next XD, I could flip for a 1-2% short term cap gain

 

[Mulligan]

You hit the nail on the head with that comment. We peons can absorb only a few shares around 50-100 even for the wealthy among us, but certainly not a 2000 share purchase.


So pretty safe to assume the large blocks are institutional sellers/buyers.



Right now my issue is whether to pick up another 5-10 at this attractive price of $1,012. Hard to resist, and if it goes back up to $1,035 again before next XD, I could flip for a 1-2% short term cap gain

Coolius with my late Friday purchase, I have 60...I have no business owning more than 20. But...with what is out there, the relative safety of issue, I can reasonably let this play out 6 months to see what happens without too much concern. I will wait for 1040 pre exD and if I dont I will take the 15 divi and wait for another exD and see.

 

[Coolius]

Coolius with my late Friday purchase, I have 60...

I presently have 30 shares - and like you I feel 20 is a reasonable number. But a price of $1,012 sure is attractive.


Let's see what Monday brings.

 

[Running_Man]

Camper, this comes from page 89 of LYB annual SEC filings from Feb. of this year, pertaining to SLMNP....
Redeemable Non-controlling Interests—Our redeemable non-controlling interests relate to 124,347 shares of cumulative perpetual special stock issued by our consolidated subsidiary, A. Schulman, Inc. acquired in the acquisition. Holders of A. Schulman Special Stock are entitled to receive cumulative dividends at the rate of 6% per share on the liquidation preference of $1,000 per share. These shares may be redeemed at any time at the discretion of the holders. In 2018, 8,973 shares of A. Schulman Special Stock were redeemed for approximately $9 million. As of December 31, 2018, 115,374 shares of A. Schulman Special Stock were outstanding.
At the acquisition date, the fair value was estimated using the Black Derman Toy binomial lattice technique, which models the decision to redeem or hold by considering the maximum of the redemption value and the hold value throughout the term of the instrument and chooses the action that maximizes the return to the holder. This model requires assumptions on credit spread, yield volatility and risk-free rates.

Interesting I must review LYB financial outlook

 

[Mulligan]

Interesting I must review LYB financial outlook

RM, remember from earlier posts above the owner put is a bit over $802 not liquidation value.