Aspen Holdings Preferred Shares Look Particularly Attractive

Aspen Holdings (NYSE:AHL) is a Bermuda based P&C insurer. As much as I like the common stock, I am more interested in the 7.4% preferred shares.

As of the market close on 4/8, the preferreds trade for approximately $12. Since face value of the shares is $25, the 7.4% payout (on $25) now equates to a 15% yield.

In a private transaction, the company is buying back 2.6 million of the 8 million preferred shares outstanding.

As of 12/31/2008 the company has $2.8 billion in equity and has a market capitalization under $2 billion.

For the years ended 12/31/06, 12/31/07, and 12/31/08, the company earned $378 million, $489 million, and $104 million, respectively.

Currently, the balance sheet is strong and the company remains liquid. The preferred dividend is not cumulative, but is paid before any common dividend. In addition, if the preferred payment is missed for 6 quarters, the preferred shareholders can nominate directors to the board.

The 15% payment is a high reward investment relative to the risk. In addition, there is upside on the share price as the economy recovers.

Disclosure: I am currently a owner of the preferred shares (and sold puts against the common at $20).

Comments

[Boubou:]

Thanks for pointing that out.
Other distressed preferreds ( and higher rated) selling for 1/2 price include those of ING, BCS, DB etc.. which have more than doubled in recent weeks from lows down around 20c on the dollar.
I think all these are worth a look.

Apr 10 08:48 AM

[mals:]

How do you buy the preferred? What is the stock symbol?

Novice

Apr 10 03:26 PM

[Dan Braem:]

The symbol on yahoo finance is AHL-PA. Your broker may have a similar but slightly different symbol. The important thing here is to look for the 7.4% preferred.

Apr 10 06:32 PM

[Soledancer:]

What to you make of Aspen's 3.31.09 announcement to sell more (1.22m to be exact) of its common shares to raise funds for repurchasing 1/3 or 2.6 million shares of the 7.4% Pref'ds? It seems that the company's offer price for the pref'ds is $12.50 which is around what it is trading for?? It is a little bizarre to try to think who might want to sell with such a yield and if the company is going strong as if you have pointed out? Any insight??

Apr 11 02:11 AM

[Dan Braem:]

I spoke with investor relations a little while ago - and you are correct - they are raising cash through common issuance to buy back the preferred. From Aspen's standpoint, it is a great deal. Sell at $25 and buy at $12.50.

I am not sure who the seller is - I didn't ask and I am not sure they would tell me anyway. But my understanding is that one seller is doing the transaction to sell the preferreds back to Aspen.

I can only guess that a desperate seller needs to raise capital. I see nothing from Aspen's operations that would suggest that the preferred payment will be discontinued.

Apr 11 10:54 PM

[Dan Braem:]

From the time I wrote this article until today (4/30/2009) - AHL preferreds are up from 12 to 15, or a 25% gain. Not bad for a couple weeks activity.

If you are a trader - take the profits. Personally, I am holding the preferreds because the income stream is tremendous (as I mentioned in the article, if you bought at $12 you are getting a 15% return from the dividends).

Apr 30 11:24 AM