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Tim McPartland
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Tim McPartland is a private investor with over 44 years of investment experience. Additionally he is the editor of The Yield Hunter, a website devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master... More
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  • AmTrust Financial Services Inc. Prices A Preferred Share Offering

    Property and casualty insurer AmTrust Financial Services (NASDAQ:AFSI) is offering a new preferred stock with a 7.50% coupon (ticker:AFSI-D). While this is a non-cumulative offering this issue may be of interest to income investors looking for a very nice yield with a high AM Best rating of 'A'. This new issue begins trading tomorrow on the OTC 'grey' market under ticker AMSVP for those interested in buying shares 'wholesale'.

    Currently AmTrust Financial Services has 3 other series of non-cumulative preferred stock outstanding. Below we list some of the keys statistics for the series that are currently outstanding. As you can see the pricing on the new issue falls just below the pricing of the AFSI-C issue which was issued last September.

    TickerCouponPriceCurrent YieldYield to Worst

    When looking at preferred stock offerings it is nice to compare new issues from the same issuer with those series that are currently outstanding. In this case as an investor we would demand (by either buying or not buying) a 'reward' of at least 7.55%. We say this because we personally believe that prior to any of the above issues reaching their 1st call date (typically 5 years after issue) interest rates in general will be higher than they currently are and thus these issues may well not ever be redeemed. Our 'yield to worst' percentage above is the yield to 1st redemption date and while the 'A' series would be most attractive if we thought the issue would be called at its 1st call date in June, 2018, the 'C' issue is the most attractive if one believes it will not be redeemed (called). We have a page on our website that compares all issues of companies that have multiple issues outstanding.

    When looking at preferred stocks we like to know a few other basic pieces of information.

    1st we like to know if the issue is 'perpetual' in duration (meaning no maturity date). If it is perpetual there is a high likelihood that at this point in time it will never be redeemed. Most issues are perpetual in duration (although there are a handful of 'term preferred' share issues available).

    2ndly we like to know if the issue is 'cumulative' or 'non-cumulative'. Certainly in a perfect world one would stick to buying only cumulative issues. While the likelihood of a company suspending their preferred dividends is minimal it does happen and if shares are cumulative there is a chance that you may recoup those dividends at some point in the future. Obviously if the shares are non-cumulative once dividends are suspended they will never, ever be paid--they are gone forever. Note that banking and insurance issues are now almost all non-cumulative.

    Additionally we want to know if the offering prospectus contains any special or tricky terms. This could be a non standard 1st redemption date, a bonus rate for not redeeming by a certain date etc. While special terms don't often turn up they do on occasion and it is good to not be surprised in the future by a hidden provision.

    For this new issue we find the following--

    • The issue has a standard 1st redemption date of 3/19/2020
    • The issue is non-cumulative
    • There are no special terms in the prospectus

    So knowing the above we would want to research AmTrust Financial Services a bit closer and would look over their website and their latest 10-Q or 10-K.

    Assuming that the company passes muster financial we have to determine if we have an interest in the new preferred issue and if we do what we would be willing to pay for shares.

    In this case we would demand a current yield above 7.55%, This means that we would pay no more than about $24.75 for the new issue shares. To get this price (or better) we would turn to the OTC market on Monday (3/16/2015) where these shares will begin to trade on the 'wholesale' market. We know that the underwriters are getting a discount on the shares of 78.75 cents and on the OTC grey market this assures us that if we wanted these shares we can likely pick some up in the next couple of days wholesale for a price of less than our $24.75/share target.

    For us, we don't have interest in these shares because we are currently not adding new perpetual shares to our accounts

    Mar 16 1:38 PM | Link | 5 Comments
  • Farm Land Values Begin To Tumble

    While we believe that owning quality farm land is a great long term investment (say 5 to 20 years) we have been critical of the REIT Farmland Partners (ticker:FPI) for many reasons.

    First off their timing of the offering - could you pick a better time to lure investors into these shares than after a 400% rise in land values? Unfortunately investors initially bought into the shares which came public 04/2014 at $14--but it hasn't gone to $14 since day 1. Shares closed on Friday at $10.86.


    Tags: FPI, reit
    Dec 31 5:38 PM | Link | 4 Comments
  • Does It Make Sense To Hold Preferred Stock CEF's At This Time?

    Just sitting here daydreaming for a minute it struck us that holding preferred stocks CEF's (Closed End Funds) at this time is maybe not smart. Given that we have a decent potential for increasing interest rates next year maybe we should do the obvious.

    We see that the preferred stocks CEF's and ETF's remain a couple percent off of their yearly higher as of this moment. The current yield on the CEF's is between 6.9% on the low end and 8.4% on the upper end. But we understanding that perpetual preferreds are going to get murdered when/if rates move higher--and the CEF's will get hit harder than the actual shares as they are all levered (between 27% and 34%).

    So to summarize--if you are moving toward longer durations don't be stupid and hold a bunch of preferred stock CEF's. We fit the stupid camp--we will begin to unload our shares now. Many times my wife tells me 'for a smart man sometimes you miss the obvious'--and once again she is right (but don't tell her).

    Dec 31 3:53 PM | Link | Comment!
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