Utility Entergy Mississippi Sells First Mortgage Baby Bonds
By: Tim McPartland,
As we had previous predicted, when utility companies Entergy Arkansas and Entergy Louisiana, sold baby bonds a few weeks ago, sister company Entergy Mississippi has sold a new 4.90% first mortgage bond. As we have come to expect investment grade bonds from utilities are being issued with very modest coupons to refinance older issues.
This new issue is a $260 million dollar first mortgage bond (a lien on all of Entergy Mississippi’s property). The issue has the normal terms of a “baby bond” being a $25/bond optionally callable in October, 2021 with a maturity date in 2066. Interest payments will be paid 4 times annually. This long duration bond, while highly rated which provides safety, will likely fall in value when/if we move into a interest rate hiking cycle. Potential investors in this issue should realize that while they will have good safety their capital balances will move in the opposite direction of the direction of interest rates.
The proceeds from this new issue will be used to call in the 6% (NYSE:EMZ) and 6.2% (NYSE:EFM) baby bonds currently outstanding. Additionally they will redeem the outstanding 6.25% (OTC:EYMXP) preferred stock issue. As with all of these refinancing issues coming out the company will save substantial amounts in interest payments (in this case between $2 and $3 million) and of course us income investors will have fewer selections of issues with quality, decent coupons.
Recall that last week when utility The Southern Company (NYSE:SO) issued some baby bonds we reminded investors that some of these issues allowed issuers to defer payments for up to 40 consecutive quarters without it being a default event. In the case of this new Entergy Mississippi issue there is no such ability to defer payments and any interest payment not made within 30 days of the due date will cause the company to be in default. Any payments in default will accrue additional interest at the rate of 5.90%.
Since this is an exchange traded debt issue it will NOT trade early on the OTC Grey market. Additionally there has been no ticker symbol yet announced for this new issue. We will attempt to update readers when a ticker is known.
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