Utility Giant Entergy Corp. Sells High Quality Baby Bonds
By: Tim McPartland,
Entergy Corp (NYSE:ETR), one the country’s largest electric power production utilities has come to market in a major way in the last week with “baby bond” offerings from 2 of their subsidiaries.
Entergy Arkansas Inc. has sold a $25/bond issue at a coupon that reflects the quality of the offering as well as the rock bottom coupon market we currently live in. With an offering of $410 million of 4.875% First Mortgage Bonds the company has sold the lowest yielding issue seen in many years. The company will use the proceeds to call in 2 outstanding issues with higher coupons. They will redeem the $25/share 6.45% preferred stock issue (NASDAQ:EGXKP) as well as the 5.75% $25/bond 1st Mortgage Bonds (NYSE:EAA).
Entergy Louisiana LLC has sold a $25 issue at the same coupon (4.875%) as the above issue, although the issue is smaller at $270 million. With the proceeds from this offering they will call 2 outstanding issues of “baby bonds”. The called First Mortgage Bonds are the 6% issue (NYSE:ELB) and the 5.75% issue (NYSE:ELA)
The above new issues are rated “A” by Standard and Poor’s and “A2” by Moody’s–firmly investment grade.
Both of these issues have the same long duration maturity date of 9/1/2066, which means there is substantial interest rate risk. By this we mean that if interest rates move higher the price of these “baby bonds” will move lower. All income investors will need to decide if the long term safety of the issue outweighs the interest rate risk.
We would anticipate that at current interest rates these issues will trade in the $25 to $25.50 range shortly after they begin to trade.
Ticker symbols have not been released as of this moment, but we believe these new issues will begin to trade in the next week. We will post ticker symbols when they are known.
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