2 New Investment Grade Issues Greeted with Strong Demand

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2 new investment grade issues have begun trading in the last couple of days and they have been greeted with very strong demand from income investors.

1st off electrical utility Entergy New Orleans has sold a new baby bond issue with a modest coupon of 5.50%.  This is a investment grade issue and even with the modest coupon in the 1st 2 days of trading the bonds are at $25.60.  Obviously investors are starved for income issues as it is unusual for a new issue trading significant volume to move up so quickly–more typically they will move up over the course of a month. This issue has the typical 5 year optional call option, but has a long dated maturity in 2066.  Because of the long dated maturity this issue will react negatively to any future interest rate increases.

Details of this issue can be found here.


Closed end fund Gabelli Equity Trust (NYSE:GAB) has sold a super high quality preferred stock with a coupon of 5.45%.  The issue is now trading on the OTC Grey Market (our OTC Grey Market primer is here) at a price of $24.92/share. Ultra conservative investors should consider ownership of this issue.  While it is perpetual, meaning the share price will react negatively to interest rate increases, the principal will be safe. The issue has a rating of A1 (Moodys). Being a closed end fund Gabelli must maintain a asset coverage ratio of at least 200%.  We do want to point out that the various Gabelli closed end funds came close to violating the leverage rules in 2009, but readily raised additional equity to stay clear of a violation. We are considering taking a position in this issue for our personal accounts.

Details of the issue can be found here.

Recent quality issues have moved up very strongly once trading commenced on their respective permanent exchanges.  Sunstone Hotels 6.95% preferreds (NYSE:SHO-E) is trading at $26.50, Stag Industrials 6.875% preferred (NYSE:STAG-C) is trading at $26.20 and Huntington Bancshares new 6.25% preferred (HBANO) is at $25.58. Investment grade KKR&Co 6.75% preferred stock (NYSE:KKR-A) just started trading on the NYSE today and we would expect it to begin to move higher from today’s $25.12/share price.

Tim McPartland

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Tim McPartland
Tim McPartland is a private investor with over 45 years of investing experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.
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