I personally dont buy these as they really arent preferreds in the sense most buy preferreds for. They will ultimately be a twin sister tracking stock to the common shares. This doesnt mean they couldnt be great profitable investments. It just that performance at conversion will very very closely mimic the common stock and one would ultimately get same results owning the common.
Google about to spend a lot of money. The convertible allows them to borrow less, yet have access to the capital now, without diluting current earnings per share.
Tizod, I am not suggesting in anyway this is a bad purchase at all. Just clarifying for you the comment about the insurer default. This is just debt from the holding company that owns the various issuing policy holding insurance companies. The holding company could default and it not affect the operating companies that issue the policies in any way.
Mulligan, I would consider it a real bad look, and further impact the debt, so IMHO it is responsible to think they would try very hard to keep it whole. Do you agree? I value your comment on this! I do wonder why the company would not open market buy these back slowly at these levels. That gets less likely with rates up of course, but awhile back I thought these would. But I thought some others would as well.
Tizod, Are you referring to management just screwing over the shareholders or the govt letting them default? Maybe I am misunderstanding you. From governmental end, my understanding is the state regulators really don't care about the holding companies and their issues if any. As the holding company doesnt have any direct responsibility to the policy holders. Its the claims paying subsidiaries that they are concerned about and keeping the ring fencing intact such that holding company cant rape the regulated subs.
Mulligan and pb4, I looked into this more and my summary is: (from AI) The ultimate holding company for AmTrust Financial Services, Inc. (including its preferred stock) is Evergreen Parent, L.P.. This entity was formed by the Karfunkel-Zyskind family and private equity funds managed by Stone Point Capital LLC.AmTrust Financial Services is itself an insurance holding company that operates as a wholly-owned subsidiary under Evergreen Parent. I found (real data) this regarding the financials of AMTRUST: www.amtrustinternational.com/... Based on what I can see, I agree with LeJeune 2019 SA article that this holding company is basically AMTRUST, and any actions of the holding company (same people running AMTRUST) reflect back to the insurers capability to do business. That brings me back to feeling 100% safe on these and buying more on dips. Again, I cannot understand why they don't buy them back and retire it. Maybe they like the payouts for themselves as well...If this helps anyone, as I like the divvy in my IRA.
I agree with what you wrote but what you are missing is that state insurance regulators provide certain restrictions on withdrawing capital from insurance subsidiaries and withdrawals above a certain level require advance approval by insurance regulators.
Tizod, now I have not researched specifics on this issue in a long while so I am just speaking in generalities. But if you aren't aware, there are holding companies, owning holding companies, (and can even have a holding company under yet another holding, etc). So actual subsidiaries can reside under several layers of holding companies, which are not the obligators or debt of parent(s) with subs in fact ring fenced from above holdco’s and parent(s). Any easy to understand example for me to explain my thought.
Thanks to you and pb4! I really appreciate your insights and depth of knowledge here! I am, in this case, going to take the approach that the holding co's here would be so linked the sub would have to keep them in line and not have the bad PR of a issue. I think that would happen in the SRE example above (I know it doesn't have to). I trust SRE WAYYYY more than the owners/CEO of Amtrust, but they are very personally invested at the low and high level, so I'll keep taking the gamble. Don't like the risk and rates of many others out there, and moving out of many common shares except some bio/medical...
Texas, Amtrust issues now trades on what is referred to as the “expert market”, so many brokerages do not allow trading of these securities. Fidelity does allow trading on a very few including Amtrust issues if I am not mistaken.
I've held PFFA for a good while now but there is not much to talk about.
I've been buying tiny blocks. Adding to my position. I don't think there is much risk being diversified and managed.
Tommyboy is correct as it is diversified and solid management, Has underperformed past year in relation to peer funds, but historically a top end performing preferred fund. The 9.5% isnt really that special in that one could mirror the major funds holdings and leverage it out and one could get the same yield.
I have bought a big slug of PFFA... about 3.9% of portfolio... IMO it is harder to find any prefs that I like that even come close to that yield.. so going easy peasy with this..
It's my biggest holding in the preferred space. So I just let it give me dividends...(not buying or selling)
