Utility Southern Company Issues Baby Bonds
By: Tim McPartland,
Giant utility company, Southern Company, has sold a big baby bond issue–35,000,000 shares. The issue is investment grade as one would expect out of this company. The coupon is fairly tasty for this level of quality at 6.25%.
Unfortunately the issue has a duration that doesn’t fit with our personal current focus of keeping durations short to medium in length. The issue doesn’t mature until 2075 which may work for someone focused on income without regard to capital movement as this security will respond negatively to any hikes in interest rates so we will pass.
Additionally the issue contains a clause that allows for up to 40 consecutive quarters of interest deferral without causing a default. This is not unusual in this type of issue and likely will never be utilized, but just the same one should be aware of the clause.