Getting “Called Away”!

rich-person

Just this last week I had my 3rd preferred stock or baby bond called away this year. I just can’t remember the last time I had a preferred or bond called away other than at an expiration date. Luckily it was a small position in my IRA, I had bought it at a discount under par a year or so ago and immediately sold it for a few pennies over the redemption price. I’ll take the 8% dividend. 

Here is the email from Fidelity:
preferred-called.jpg

As you can see the original call date was still 2 years out. So why would Star Bulk call this 8% baby bond (exchange traded debt), ticket SBLKL, which was trading at slightly above par? What they did was to anticipate a higher cost of future money and extend out the “loan” so to speak.  To do this they previously released a 8.30% senior note due 2022, ticker SBLKZ.  This new issue is callable on 05/15/2019, and matures on 11/15/2022. The transaction extended debt out 3 years at a cost of .3% extra on the interest side. 

The message here is that there is still a lot of money available even to companies out on the risk curve like Star Bulk by those of us seeking higher yields. These companies see interest rates rising in the future are willing to pay up now to lock in the cash they need. 

I took my proceeds from the sale and added to my position in Main Street Capital, ticker MAIN, a BDC with an excellent track record. The yield is a little lower but there is a lot of room for capital appreciation. Here is a pretty nice chart, and the chart does not include a 7% yield (including 1-2 special dividends every year)

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