Posted on

Public Storage: Another Preferred Stock IPO That Broke Below The 5% Threshold



Introduction

Our goal is to present to you our IPO analysis for every new fixed-income security that enters the market and to find out if there is any trading potential. In this article, we want to shed light on the newest Preferred Stock issued by Public Storage (PSA). Even though the product may not be of interest to us and our financial objectives, it definitely is worth taking a look at.

The New Issue

Before we submerge into our brief analysis, here is a link to the 424B5 Filing By Public Storage – the prospectus.

Source: SEC.GOV

For a total of 11M shares issued, the total gross proceeds to the company are $275M. You can find some relevant information about the new preferred stock in the table below:



Source: Author’s spreadsheet

Public Storage 4.875% Cumulative Preferred Share of Beneficial Interest, Series I (NYSE: PSA-I) pays a fixed dividend at a rate of 4.875%. The new preferred stock has a ‘BBB+’ Standard & Poor’s rating and is callable as of 09/12/2024. Currently, the new issue trades a little above PAR at a price of $25.20 and has a 4.84% Current Yield and YTC of 4.71%. The dividends paid by this preferred stock are not eligible for the preferential 15-20% tax rate on dividends. They are also not eligible for the dividend received deduction for corporate holders. This means that the “qualified equivalent” current yield and YTC would be 4.03% and 3.93%, respectively.

Here is what the stock’s YTC curve looks like right now:



Source: Author’s spreadsheet

The Company

Public Storage, incorporated on March 13, 2007, is a real estate investment trust (REIT). The Company’s principal business activities include the ownership and operation of self-storage facilities, which offer storage spaces for lease, generally on a month-to-month basis, for personal and business use, ancillary activities, such as merchandise sales and tenant reinsurance to the tenants at its self-storage facilities, as well as the acquisition and development of additional self-storage space. The Company’s segments include Self-Storage Operations, Ancillary Operations, Investment in PS Business Parks, Inc. (PSB) and Investment in Shurgard Europe.

Source: Reuters.com | Public Storage

Below, you can see a price chart of the common stock, PSA:



Source:
Tradingview.com

For 2018, the common stock has paid а $8.00 yearly dividend. With a market price of $257.81, the current yield of PSA is at 3.10%. As an absolute value, this means it pays $1.396B in dividends yearly. For comparison, the yearly dividend expenses for all outstanding preferred stocks (with the newly issued series I preferred stock) of the company are around $210.53M.

In addition, with a market capitalization of around $44.67B, PSA is the second-biggest Industrial REIT in the US (according to Finviz.com).

Capital Structure

Below you can see a snapshot of Public Storage’s capital structure as of the time of its last quarterly filing in June 2019. You also can see how the capital structure evolved historically.



Source: Morningstar.com | Company’s Balance Sheet

As of Q2, PSA had a total debt of $1.91B ranking senior to the newly issued preferred stock. The new Series I preferred shares’ rank is junior to all outstanding debt and equal to the other preferred shares of the company, which total $3.74B.

The Ratios Which We Should Care About

Our purpose today is not to make an investment decision regarding the common stock of PSA but to find out if its new preferred stock has the needed quality to be part of our portfolio. Here is the moment where I want to remind you of two important aspects of preferred stocks compared to common stocks.

  • Preferred shareholders have priority over a company’s income, meaning they are paid dividends before common shareholders.
  • Common stockholders are last in line when it comes to company assets, which means they will be paid out after creditors, bondholders, and preferred shareholders.

Based on our research and experience, these are the most important metrics we use when comparing preferred stocks:

  • Market Cap/(Long-Term Debt + Preferreds). This is our main criteria when determining credit risk. The bigger the ratio, the safer the preferred. Based on the latest annual report and taking into consideration the latest preferred issue, we have a ratio of 44670/(1910 + 4015) = 7.53, which is a superior number for all creditors of the company, indicating the company is very low leveraged.
  • Earnings/(Debt and Preferred Payments). This is also quite an easy-to-understand approach. One can use EBITDA instead of earnings, but we prefer to have our buffer in what is left to the common stockholder. The higher this ratio, the better. The ratio with the TTM financial results from the Income Statement data is 1460/(40+ 210) = 5.84 repeating the ratio above, showing significant buffer for the preferred stockholders and the bondholders so to be calm about the payments. Moreover, the company manages to pay almost $1.4B dividend expense for its common which is junior to its liabilities.

The Public Storage Family

The group is composed of 12 more preferred stocks with fixed rates. Their dividends are not qualified but they are the company that broke the 5% nominal yield mark for the first time for the last 3 years. The previous fixed-rate preferred stock with less than 5% nominal yield is again owned by Public Storage, 4.90% PSA-E, issued on October 6, 2016. Of course, we are talking about exchange-traded fixed-income securities.



Source: Author’s database

On September 11, Public Storage announced it is calling all of its outstanding 5.625% Preferred Stock, Series U (NYSE:PSA.PU) on October 14, 2019. Thus with this refinancing with the newly issued Series I Preferred Stock, PSA is saving itself an annual rate of 0.75%.

I’ll compare the newly issued PSA-I with the rest of its “brothers” by their Yield-to-Call and Current Yield.



Source: Author’s database

PSA-A obviously has the highest Current Yield of the group but on the other hand, its YTC is negative. In fact, it is the preferred stock with the highest nominal yield, becomes callable in 3 months, and with the current spread of 1% in refinancing with the new preferred stock, PSA-A is also very likely to be called for redemption.

Since all issues are trading above their par value, their Yield-to-Call is the Yield-to-Worst of the group. So let’s see what the yield curve looks like, excluding the callable ones:



Source: Author’s database

The higher the YTC, the better the security. With its 4.71% YTC, PSA-I rewards a 0.40% more than the maximum you could realize if you choose second-highest YTW in the group, PSA-E. However, it is the issue with the lowest nominal fixed dividend rate, which means it is the most vulnerable from subsequent rate hikes. Still, we are entering a low rate environment and a good yield can hardly be found without taking higher credit risk.

In addition, you can see a comparison between PSA’s preferred stocks and the fixed-income securities benchmark, the iShares U.S. Preferred Stock ETF (PFF). On the following chart, a close correlation can be seen between all preferreds (except for the called PSA-U and reaching its call date PSA-A) and PFF. The close behavior during the recession late last year gradually goes into a smashing outperformance of all PSA’s securities over the fixed-income benchmark.



Source: Tradingview.com

Furthermore, there are 3 Corporate Bonds issued by the company:



Source: FINRA

For my comparison, I choose the bond that matures closest to the call date of PSA-I, the 2022 Corporate Bond.



Source: FINRA | PSA4541617

PSA4541617, as it is the FINRA ticker, is rated an ‘A’ and has a yield-to-maturity of 1.809%. This should be compared to the 4.84% yield-to-call of PSA-I, but when making that comparison, remember that PSA-I’s YTC is the maximum you could realize if you hold the preferred stock until 2024. The result is a yield spread of 3% between the two securities. One can justify this margin by the higher rank in the capital structure, the higher credit rating, and the two years earlier maturity date.

Sector Comparison

The chart below contains all preferred stocks in the “REIT – Industrial” sector (according to Finviz.com) that pay a fixed dividend, have a par value of $25 and a positive YTC. It is important to take note that none of these preferred stocks are eligible for the 15% federal tax rate.

by their Yield-to-Call and Current Yield



Source: Author’s database

All preferred stocks in the sector are trading above their par value, and the current yield is, in fact, their Yield-to-Best. That’s why the best way to compare the group is by their Yield-to-Worst (equal to their Yield-to-Call). This is a much more plausible yield curve. One more filter will be added, the security must not be callable.

by their Years-to-Call and Yield-to-Call



Source: Author’s database

All REIT Preferred Stocks

In the charts below, I’ll compare all REIT preferred stocks with a par value of $25 that pay a fixed dividend rate, excluding the preferred stocks issued by CBL & Associates (CBL) and Washington Prime Group (WPG), as these companies have a lot of problems right now:



Source: Author’s database

The next chart presents only the preferred stocks with a positive yield-to-call:



Source: Author’s database

I will add one more condition – the preferred stocks to be rated by Standard & Poor’s:



Source: Author’s database

The next bubble chart will examine how the yield curve in the sector looks. It presents only these preferred stocks that are not callable, have a positive YTC and are rated by S&P, by their years-to-call and YTC:



Source: Author’s database

All ‘BBB+’ Preferred Stocks

The last chart contains all preferred stocks that pay a fixed dividend rate, have a ‘BBB+’ Standard & Poor’s rating and positive yield-to-call.



Source: Author’s database

Special Considerations

Nothing out of the ordinary.

Use of Proceeds

We estimate that the net proceeds from this offering will be approximately $ million (or approximately $ million if the underwriters exercise their over-allotment option in full), after all anticipated issuance costs. We intend to use the net proceeds from this offering to make investments in self-storage facilities and in entities that own self-storage facilities, for the development of self-storage facilities, and for general corporate purposes, including the redemption of our preferred shares.

Source: 424B5 Filing by Public Storage

Addition to the iShares U.S. Preferred Stock ETF

With the current market capitalization of the new issue of around $275M, PSA-I is a possible addition to the S&P US Preferred Stock iShares Index during some of the next rebalancings. If so, it will also be included in the holdings of the main benchmark, PFF, which is the ETF that seeks to track the investment results of this index, and which is important to us due to its influence on the behavior of all fixed-income securities. I’ll just remind you about the last year rally in the fixed-income borne from the redemption of the two “giants” HSEA and HSEB and the released cash of over $600M used from PFF to buy more of the rest of its holdings.

Conclusion

As fixed-income traders, we follow every one preferred stock or baby bond, which is listed on the stock exchange. As such, PSA-I is no exception, and the homework we always do we share with the public. It is not necessary for the IPO to be an arbitrage and a bargain but in many cases, the new security happens to be better than the ones already trading on the market.

The company has great financials in terms of fixed income investors, having 7.5x times more equity than liabilities and is paying 7x times more dividends on its common stock than all of its outstanding preferred stocks that are standing above in the capital structure. So, here the credit risk is absolutely out of the table. Despite its lower nominal yield, PSA-I has a 0.4% higher YTW than the second-highest one in the family, PSA-E. The same is also observed in the comparison with all other REIT preferred stocks and these that have the same rating of “BBB+” as the new IPO. However, its current yield is the lowest both in the sector and with the “BBB+” rated ones. This is not necessarily a bad thing when we are talking about an environment of lowering interest rates. But whether this trend will continue after 5 years, for sure, a question that is difficult to answer.

Trade With Beta

Coverage of Initial Public Offerings is only one segment of our marketplace. For early access to such research and other more in-depth investment ideas, I invite you to join us at ‘Trade With Beta.’

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source:

Initial Public Offering & Preferred Stock News


Author: Continue reading Public Storage: Another Preferred Stock IPO That Broke Below The 5% Threshold

Posted on

Ping Identity prices IPO shares at $15 – MarketWatch

Ping Identity Holding Corp.

PING, +0.00%

priced its initial public offering at $15 a share Wednesday evening, valuing the software company at more than $1 billion. Ping said it planned to sell at least 12.5 million shares at that price to raise at least $187.5 million at an initial valuation of about $1.16 billion. Vista Equity Partners acquired Ping in 2016 for an undisclosed sum, though The Information reported that Vista paid $600 million for the company. Vista will retain control of the company, holding more than 80% of the shares after the IPO. Underwriters – led by Goldman Sachs, BofA Merrill Lynch, RBC Capital Markets and Citigroup – have access to an additional 1.88 million shares that could drive the totals higher. Ping Identity is expected to begin trading Friday morning on the New York Stock Exchange under the ticker symbol PING.

Source:

“ipo” – Google News


Author: Continue reading Ping Identity prices IPO shares at $15 – MarketWatch

Posted on

Peloton IPO Is Coming. Here’s What You Need to Know – Barron’s

A Peloton Interactive store in Corte Madera, Calif.

Photograph by David Paul Morris/Bloomberg

Is a $2,000 exercise bike worth an $8 billion stock market value?

That’s what we’ll learn when Peloton Interactive, known for its popular, exercise equipment and streaming fitness classes goes public later this month. In its latest update to investors, the company said it plans to sell shares at a price between $26 and $29 per share. Those prices would give the company a total value of about $8 billion.

Here’s some key information about the IPO:

What is Peloton?

Peloton calls itself a “connected, technology-enabled fitness” company. In practice, that means it sells exercise bikes and treadmills that let users stream fitness classes over their internet-connected screens. (It also offers an app that streams classes to other platforms.)

Taken together, the company’s offerings purport to bring a personalized, human-led, social training experience into your home.

The bikes cost $2,200; the treadmills are more than $4,000. The class subscription is $40 a month. Naturally, you can accessorize, buying shoes, resistance bands, weights, and more. (That last bit isn’t a huge chunk of revenue, but it’s meaningful at a bit under 2% last year.)

The company has raised about $1 billion in private funding, the most recent round was at a valuation above $4 billion.

Does it make money?

Not so far. In an SEC filling, the company reported $915 million in revenue for the fiscal year ended June 30, up 110% from the previous year, mostly on sales of its bikes and treadmills.

But the company lost $195.6 million, widening from a loss of $47.9 million a year ago, as R&D, sales and marketing, and general and administrative costs all increased substantially.

Who are its customers?

Most of Peloton’s customers are in the U.S., though it has expanded to Canada and the U.K. Germany is next.

The company said in its IPO filing that as of June 30 it has sold about 577,000 of its bikes and treadmills since 2014. It has 1.4 million “members,” the company said.

The company believes it has a total addressable market of 67 million households world-wide, 45 million of those in the U.S., and it estimates that in the 12 months ended March 2019, roughly eight million stationary bikes and treadmills were sold in its four markets.

When will it go public?

The timing of the pricing isn’t officially set, but it’s likely to be later this month.

What will the ticker be?

Peloton plans to trade on the Nasdaq using the symbol “PTON.”

What will the shares cost?

The company expects to sell 40 million shares to the public at a price between $26 and $29 a share. (The IPO underwriters have an option to purchase another six million shares.)

How much will Peloton raise, and what’s the money for?

At the midpoint of its projected IPO range, $27.50 per share, the deal would raise about $1.3 billion assuming the additional allotment of six million shares is sold.

In its filing, Peloton said the money was intended for “working capital and other general corporate purposes, which may include research and development and sales and marketing activities, general and administrative matters, and capital expenditures.”

Is this a good time to go public?

Well, 2019 has been a pretty good year for IPOs—and investors, Barron’s recently noted, have shown a willingness to back companies willing to invest in growth, which is to say that it isn’t necessarily a must for a company to make money before its IPO.

With that said, the longer the losses run, and the bigger they get, the more concerned investors become, as the
Lyft

(LYFT) and
Uber Technologies

(UBER) IPOs have shown. Peloton’s saving grace could be a combination of its brand, premium product, and loyal subscriber base.

At least one analyst has already put a rating on Peloton’s stock before it’s even publicly available—perhaps an indication of investor interest.

Last week, DA Davidson’s Michael Kawamoto, assigned a Neutral rating and a $29 price target, writing that the IPO looks “more palatable than initially thought if growth remains strong, but execution will need to be very solid.”

Elsewhere on Wall Street, Rohit Kulkarni at MKM Partners wrote that the implied valuation “feels reasonable in growth context.” He cited “diverse revenue segments with a complicated yet one-of-a-kind business model which includes elements of wearables, hardware, subscription media, and luxury apparel.”

Corrections & Amplifications: Peloton lost $195.6 million in the fiscal year ended June 30. An earlier version of this article wrongly reported the figure as $195.6 billion.

Email David Marino-Nachison at david.marino-nachison@barrons.com. Follow him at @marinonachison and follow Barron’s Next at @barronsnext.

Source:

“ipo” – Google News


Author: Continue reading Peloton IPO Is Coming. Here’s What You Need to Know – Barron’s

Posted on

WeWork’s Neumann wants to live forever, be king of the world and first trillionaire, says WSJ

Adam Neumann, co-founder and chief executive officer of WeWork, speaks during a signing ceremony at WeWork Weihai Road flagship on April 12, 2018 in Shanghai, China. World’s leading co-working space company WeWork will acquire China-based rival naked Hub for 400 million U.S. dollars. (Photo by Jackal Pan/Visual China Group via Getty Images)

Jackal Pan | Visual China Group | Getty Images

WeWork has attracted scrutiny over its unusual business model and governance structure, but the company’s strangeness seems to start at the top with CEO and co-founder Adam Neumann, according to a remarkable profile in The Wall Street Journal.

Neumann has expressed interest in becoming Israel’s prime minister and the president of the world, living forever, and becoming the world’s first trillionaire, the Journal reported, citing people familiar with the situation. He is also said to have told employees that the company could one day end world hunger.

Additionally, as WeWork’s IPO valuation has been slashed, Neumann continues to believe the company could be worth far more than the $47 billion valuation assigned to it in January, the Journal said. That conflicts with the narrative Neumann expressed as recently as yesterday, when the Financial Times reported that he told employees that he had been “humbled” by the company’s IPO stumbles and said he needed to learn more about running a public company.

It comes as the We Co., WeWork’s parent company, moved this week to delay the IPO, reflecting ongoing skepticism around its corporate governance structure and ballooning losses. The company is now figuring out how to sharpen its story before it starts its investor roadshow, while maintaining it expects the deal to be completed by the end of the year.

Read the full report from the Wall Street Journal here.

Source: IPOs
Author: Continue reading WeWork’s Neumann wants to live forever, be king of the world and first trillionaire, says WSJ

Posted on

Saudi market regulator in talks with Aramco on IPO rules

RIYADH, Sept 18 (Reuters) – Saudi Arabia’s Capital Market Authority (CMA) is in talks with Saudi Aramco and its advisers about the regulatory requirements for listing on the domestic stock exchange, its chairman Mohammed bin Abdullah Elkuwaiz told Reuters.

“We continue to have discussions with the company and its advisers on both their readiness, as well as our regulatory requirements for the market,” Kuwaiz said on Wednesday.

Asked whether there will be any waivers or exemptions for the company’s listing, Kuwaiz told Reuters in an interview that the CMA is “still having those discussions”.

Reuters reported this month that state-owned oil firm Aramco plans to sell a 1% stake this year, in a potential $20 billion deal, and another 1% in 2020 ahead of an international sale.

The kingdom’s stock market regulator typically requires firms offer at least 20% to 30% of their shares when floating.

Aramco, whose chairman Yassir al-Rumayyan said this week that the IPO would be ready within the next year and preparations were continuing despite Saturday’s attacks on its facilities, is yet to file its prospectus with the Saudi regulator.

“We receive waivers or exemption requests where needed and we review them on a case by case basis,” Kuwaiz said, in reference to those discussions.

Aramco’s primary listing will be on the Saudi stock exchange (Tadawul) in Riyadh, but the government is still considering a secondary listing overseas, Saudi finance minister, Mohammed al-Jadaan told Reuters in an interview on Wednesday.

(Reporting by Marwa Rashad, Hadeel Al Sayegh and Davide Barbuscia; Editing by Alexander Smith)

Source: IPOs
Author: Continue reading Saudi market regulator in talks with Aramco on IPO rules

Posted on

SAUDI ARABIAN MARKET REGULATOR IN TALKS WITH SAUDI ARAMCO AND ADVISERS ABOUT REGULATORY REQUIREMENTS FOR IPO – CMA CHAIRMAN

Asia stocks mostly higher as Fed cuts rate and BoJ holds monetary…

The U.S. Federal Reserve on Wednesday cut its overnight rate by 25 basis points to a range of 1.75% to 2%, a move that was widely expected. The central bank, however, appeared…

read more
Source: IPOs
Author: Continue reading SAUDI ARABIAN MARKET REGULATOR IN TALKS WITH SAUDI ARAMCO AND ADVISERS ABOUT REGULATORY REQUIREMENTS FOR IPO – CMA CHAIRMAN

Posted on

This year’s IPO class is the least profitable of any year since the tech bubble

Confetti falls as Lyft CEO Logan Green (C) rings the Nasdaq opening bell celebrating the company’s initial public offering (IPO) on March 29, 2019 in Los Angeles, California.

Mario Tama | Getty Images

This year’s initial public offerings are performing like it’s 1999 — and not in a good way.

Companies going public this year are expected to produce the lowest profits of any year since the Dotcom bubble, according to analysis from Goldman Sachs.

Just 24% of companies going public in 2019 will report positive net income this year — the lowest level since the tech boom and bust two decades ago, Goldman’s chief U.S. equity strategist David Kostin told clients in a note this week. In 1999, a year before the internet bubble burst, 28% of IPOs reported positive net income in the first year as a public company. That fell to 21% for companies going public in 2000.

Profitability has been a key topic this year as a group of high-profile, money-losing private companies enter the public market. Investors are increasingly questioning the business model of growth at any cost, and taking weak demand, for WeWork especially, as a cautionary tale.

Uber went public in May, and reported a $1.8 billion loss ahead of its public debut. It revealed a $5.2 billion in the second quarter. Uber’s ride-hailing rival Lyft, posted a 2018 loss of $900 million ahead of its March IPO. Both stocks are down more than 25% since their IPO date. WeWork would be the second-biggest money-loser in history if and when it goes public.

“In terms of a path to profitability, IPOs since 2010 look more like tech boom IPOs than offerings completed during the 2001-2009 period,” Kostin said.

Biotech effect

The wave of below-average profits is not necessarily the fault of the Ubers and Lyfts of the world. Kostin said biotech is dragging the average down, accounting for 28% of IPOs this year. None of those biotech names are projected to be profitable for the next three years, he said.

The IPO total is also reaching a multi-decade high. More than 75 companies have gone public this year in the U.S., raising a total $31 billion. IPO proceeds are on pace for the second-highest level since at least 1995, only trailing the total during the 1999 peak of the original tech boom, when they brought in $58 billion, according to Goldman Sachs.

To be sure, the U.S. stock market trades more than 120% above its level 20 years ago, meaning the equity raised by IPOs in the past year is small on a relative basis. It’s on pace to be 0.1% of the S&P 500’s market cap, vs. 0.6% during the Tech bubble, Kostin said.

He pointed out a few differences between modern IPOs and what happened during the height of the Dotcom bubble. Offerings this year have lower valuations compared with the late 1990’s peak. Still, compared to an average year, investors are assigning a greater valuation premium than usual to IPOs.

Staying private longer

On average, the age of companies going public over the past quarter century has stayed roughly the same at eight years — except when it comes to technology companies. The average tech company age in a public debut rose from three years in 2001 to 13 years in 2018.

Sales growth tends to be stronger for companies going public younger, according to Goldman. The average firm founded 0 to 5 years before an IPO reported sales growth of nearly 50% five quarters after an IPO. For firms older than 15 years, that sales growth was 19% on average.

“Younger firms grow sales at a faster rate than their more experienced peers,” he said. “This trend has contributed to the lower expected sales growth for recent IPOs compared with the Tech bubble.”

Still, Kostin said company age when a company held an IPO was not “a significant indicator” of relative performance during the following three years.

While these companies might not be showing profits immediately, Kostin said a debut year isn’t the most important metric. His analysis showed that first year profitability had “no discernible impact” on the likelihood of out-performance during the following two years. It was profitability by the third year that really mattered. Since 2010, IPOs with positive net income by year three, have seen positive excess returns and the “highest likelihood of outperformance.”

“Achieving profitability by year three mattered for outperformance during all three cycles,” Kostin said.

Source: IPOs
Author: Continue reading This year’s IPO class is the least profitable of any year since the tech bubble

Posted on

Entergy Texas: A New 5.375% Preferred Stock IPO From This Utility



Introduction

Our goal is to present to you our IPO analysis for every new fixed-income security that enters the market and to find out if there is any trading potential. In this article, we want to shed light on the newest Preferred Stock issued by Entergy Texas, which is a subsidiary of Entergy Corp. (ETR). Even though the product may not be of interest to us and our financial objectives, it definitely is worth taking a look at.

The New Issue

Before we submerge into our brief analysis, here is a link to the 424B2 Filing by Entergy Texas – the prospectus.

Source: SEC.gov

For a total of 1.4M shares issued, the total gross proceeds to the company are $35M. You can find some relevant information about the new preferred units in the table below:



Source: Author’s spreadsheet

Entergy Texas 5.375% Series A Cumulative Preferred Stock (NYSE: ETI-) pays a qualified fixed dividend at a rate of 5.375%. The stock bears an investment grade rating (BBB- according to S&P) and is callable as of 10/15/2024. At this point, ETI- is trading above its par value at a price of $25.86 and has 5.20% Current Yield and 4.61% Yield-to-Call.

Here is how the stock’s YTC curve looks like right now:



Source: Author’s spreadsheet

The Company

We are a business corporation organized under the laws of the State of Texas. We are a public utility company engaged in the generation, transmission, distribution and sale of electric energy to approximately 454,000 customers in the State of Texas.

All of our common stock is owned by Entergy Corporation. The other major public utilities owned, directly or indirectly, by Entergy Corporation are Entergy Arkansas, LLC, Entergy Louisiana, LLC, Entergy Mississippi, LLC and Entergy New Orleans, LLC. Entergy Corporation also owns all of the common stock of System Energy Resources, Inc., the principal asset of which is its interest in the Grand Gulf Electric Generating Station, Entergy Operations, Inc., a nuclear management services company, and Entergy Services, LLC, an administrative services company from which we buy services.

Source: 424B2 Filing by Entergy Texas

Entergy Corporation is an integrated energy company engaged primarily in electric power production and retail distribution operations. Entergy owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, including 9,000 megawatts of nuclear power.

Entergy delivers electricity to 2.9 million utility customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy has annual revenues of $11 billion and nearly 13,700 employees.



Source: Company’s website | About Entergy

Below, you can see a price chart of the common stock, ETR:



Source: Tradingview.com

Entergy Corporation’s dividend distribution has been on a slight rise for the past few years, from $3.32 in 2013 to $3.58 in 2018 and is expected to pay a dividend of $3.64 for 2019. With a market price of $114.45, the current yield of ETR is at 3.18%. As an absolute value, this means it has a $691.3M in yearly dividend expenses for the common. For comparison, the yearly dividend expenses for its newly issued Series A Preferred Stock is $1.88M.

In addition, with a market capitalization of around $23.02B, Entergy Corporation is one of the largest electric utility companies (according to Finviz.com).

Capital Structure

Below, you can see a snapshot of Entergy Corp.’s capital structure as of the time of its last quarterly filing in June 2019. You can also see how the capital structure evolved historically. As of Q2 2019, ETR had a total debt of $18.84B ranking senior to the newly issued preferred stock.



Source: Morningstar.com | Company’s Balance Sheet

The Entergy Corporation Family

In this section, I want to take the time to compare the new issue with the other securities issued by Entergy Corporation’s subsidiaries.



Source: Author’s database

Currently, there is a total of 10 baby bonds issued by Entergy Texas, Mississippi, Louisiana, New Orleans, and Arkansas. Four of them are currently trading at a negative Yield-to-Worst, and the other six – at an average YTW (equal to the Yield-to-Call) of 3.60%. Although the newly issued preferred stock and the other outstanding mortgage bonds are different types of securities, we may claim that the Entergy Texas Series A Preferred Stock is the best security of the group. It has 1% higher Yield-to-Call, pays a qualified dividend and despite the fact it is already trading at a premium of 3%, it still has an advantage over the rest at these price level.

In addition, there are plenty of Corporate bonds, issued by the holding:



Source: FINRA

For a comparison, I choose the bond that matures closest to the call date of the newly issued Series A Preferred Stock, the 2024 Corporate Bond, issued by Entergy Gulf States Louisiana (ETR.LE).



Source: FINRA | ETR.LE

ETR.LE, as it is the FINRA ticker, is rated an “A” by S&P, is maturing on 10/01/2024 and has a Yield-to-Maturity of 2.166%. This should be compared to the 4.61% Yield-to-Call of ETI-, but when making that comparison, remember that its YTC is the maximum you could realize if you hold the stock until 2024. This result is a yield spread of 2.45% between the two securities. This yield margin can be justified by the higher rank in the capital structure and the higher credit rating.

Sector Comparison

The image below contains all preferred stocks and trust preferred securities that pay a fixed interest rate issued by a Utility (according to Finviz.com).



Source: Author’s database

It should be noted that PG&E (PCG) suspended the dividend on its preferred stocks beginning Jan. 31, 2018. Yet, their dividends are cumulative, and the reason for their suspension at this time is not the solvency of the company. At the end of the day, a suspended dividend means that we are not getting our money on time, and the time value of money does matter to us. Furthermore, on Jan. 29, 2019, the company has filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California.

The following bubble chart presents the rest of the preferred stocks of the group by their % of Par and Current Yield:



Source: Author’s database

Except for ALP-Q, CMS-B, NMK-B, and NMK-C that have much lower Current yield, the rest of the non-suspended preferred stocks give relatively the same Current yield, and in that respect, the newly issued preferred stock seems fairly priced.

All ‘BBB-‘ Preferred Stocks

This section contains all preferred stocks that pay a fixed dividend rate, have a par value of $25, a ‘BBB-‘ Standard & Poor’s rating, and positive Yield-to-Call. The first chart is presented by Yield-to-Call and Current Yield of the securities



Source: Author’s database

To see how the real Yield curve of these securities looks, we’ll have to include two more conditions: the preferred stocks don’t have to be callable and have to trade above par value. The next chart will present the BBB- preferred stocks by their Years-to-Call and Yield-to-Call:



Source: Author’s database

Special Optional Redemption

We may redeem shares of Series A Preferred Stock (…) in whole but not in part, at any time and from time to time prior to October 15, 2024, within 120 days after the conclusion of any review or appeal process instituted by us following the occurrence of a Ratings Event (as defined herein), and the redemption price shall be equal to $25.50 per share, plus the amount of accumulated and unpaid preferred dividends on such shares up to and including the date on which the redemption price on such shares has been paid in full;

Source: 424B2 Filing by Entergy Texas

Use of Proceeds

We anticipate our net proceeds from the sale of the Series A Preferred Stock will be approximately $33.3 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds we receive from the issuance and sale of the Series A Preferred Stock for general corporate purposes. Pending the application of the net proceeds of the Series A Preferred Stock, we will invest them in short-term, highly liquid, high-rated money market instruments and/or the Entergy System money pool.

Source: 424B2 Filing by Entergy Texas

Addition To The iShares Preferred And Income Securities ETF

With the current market capitalization of only $36M, ETI- cannot be an addition to the iShares Preferred and Income Securities ETF (PFF), which is important to us due to its influence on the behavior of all fixed-income securities. I’ll just remind you about the last year’s rally in the fixed-income borne from the redemption of the two “giants” HSEA and HSEB and the released cash of over $600M used from PFF to buy more of the rest of its holdings.

Conclusion

As fixed-income traders, we follow every preferred stock or baby bond which is listed on the stock exchange. As such, ETI- is no exception, and the homework we always do we share it with the public. It is not necessary for the IPO to be an arbitrage and a bargain, but in many cases, the new security happens to be better than the ones already trading on the market.

The company looks good, stable trend, one of the largest utilities, and paying $691M in common stock dividends versus only $2M for its only preferred stock. However, the preferred stock is already trading at a 3% premium, and if we compare it with the sector and to the other BBB- rated preferreds, we can see that with 4.61% YTC and 5.20% Current yield, it is fairly priced. Yes, we are in a lowering interest rates and yields environment, and in the context of the family, it gives quite higher return compared to the other holding’s baby bonds, having 5-year call protection, and giving a qualified distribution. Still, trading close to $26 does not tempt me to open a position. If it comes to a price close to the par, then it would come under my observation.

Trade With Beta

Coverage of Initial Public Offerings is only one segment of our marketplace. For early access to such research and other more in-depth investment ideas, I invite you to join us at ‘Trade With Beta.’

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source:

Initial Public Offering & Preferred Stock News


Author: Continue reading Entergy Texas: A New 5.375% Preferred Stock IPO From This Utility

Posted on

Factbox: WeWork takes its place in 2019’s spoiled IPO party – Reuters

(Reuters) – WeWork owner The We Company postponed its initial public offering (IPO) after a lackluster response from investors to its plans, adding to a long list of high profile names that have failed to click as listed companies this year.

FILE PHOTO: The WeWork logo is displayed outside of a co-working space in New York City, New York U.S., January 8, 2019. REUTERS/Brendan McDermid/File Photo

The U.S. office-sharing startup’s latest step comes just days after Reuters reported that it might seek a valuation of between $10 billon and $12 billion, a deep discount to the $47 billion valuation it achieved in January.

While 2019 has seen some of the most recognizable private brands look hopefully at the public markets, those that did list on U.S. stock exchanges this year have had a rough year too.

– Ride-hailing company Uber Technologies Inc (UBER.N)

— IPO Price: $45.00

— Debut date: May 10

— Debut open: $42.00; Debut close: $41.57

— Performance since IPO: down 23.5%

– Ride-hailing company Lyft Inc (LYFT.O)

— IPO Price: $72.00

— Debut date: March 29

— Debut open: $87.24; Debut close: $78.29

— Performance since IPO: down 33.6%

– Workplace messaging firm Slack Technologies Inc (WORK.N)

— Direct Listing on NYSE

— IPO reference price: $26.00

— Debut date: June 20

— Debut open: $38.50; Debut close: $38.62

— Performance since debut: down 32.2%

– China’s Wanda Sports Group Co Ltd (WSG.O)

— IPO Price: $8.00

— Debut date: July 26

— Debut open: $6.00; Debut close: $5.16

— Performance since IPO: down 41.4%

– Luxury online reseller RealReal Inc (REAL.O)

— IPO Price: $20.00

— Debut date: June 28

— Debut open: $28.00; Debut close: $28.90

— Performance since IPO: down 16.3%

– China’s largest live-streaming platform DouYu

International Holdings Inc (DOYU.O)

— IPO Price: $11.50

— Debut date: July 17

— Debut open: $11.02; Debut close: $11.50

— Performance since IPO: down 18.9%

Source- Reuters data, Regulatory filings

—Performance is based on stock’s Monday close

Reporting by Shariq Khan in Bengaluru; Editing by Shounak Dasgupta

Source:

“ipo” – Google News


Author: Continue reading Factbox: WeWork takes its place in 2019’s spoiled IPO party – Reuters

Posted on

Despite a hot year for IPOs, WeWork’s stock sale is delayed – CBS News

WeWork is pushing back its initial public offering after encountering a frosty reception from investors with concerns with its money-losing business model and corporate governance. Once valued at $47 billion, the office-share company is facing questions amid a $1.61 billion loss in 2018 and worries about its co-founder’s grip over the company and its board.

Wall Street had expected WeWork parent The We Company to begin a road show to market its public shares as early as next week. But now, the company said the IPO may not be completed until year-end. 

“The We Company is looking forward to our upcoming IPO, which we expect to be completed by the end of the year,” the company said in a prepared statement. “We want to thank all of our employees, members and partners for their ongoing commitment.”

Trending News

It’s a cold turn in a hot year for IPOs. Already, companies such as Uber, Lyft and Pinterest have drummed up widespread investor support, but WeWork appears to be having difficulty generating enthusiasm. While the company is growing rapidly, it doesn’t have the profits to show for it, losing $1.61 billion last year on $1.82 billion in revenue. 

Co-working: When the home office is away from home

The We Company also recently announced it was cutting by half — to 10 per share from 20 — the voting power of the highest-class shares that CEO Adam Neumann and others would have after the IPO.

The concerns have taken a toll on its valuation, with he Wall Street Journal reporting that underwriters and bankers are now pegging its value at between $15 billion to $20 billion, rather than the earlier $47 billion.

What’s riding on its IPO

WeWork, which plans more aggressive expansion, has billions of dollars riding on a successful IPO. The New York company struck a deal last month that would give it access to $6 billion in financing raised by a group of banks, as long as it raises at least $3 billion in the IPO.

Founded as a co-working space in Manhattan in 2010, WeWork now has 527,000 members in 111 cities around the world. It mostly makes money by renting buildings and dividing them into office spaces to sublet to members.

The brand is popular with small businesses, start-ups and freelancers who can’t afford permanent office space. Members use an app to book ready-made offices or desks and get access to front-desk service, trendy lounges, conference rooms, free coffee and other services, including keg parties for members.

But its business model has not been tested in an economic downturn that could hurt its members, whose typical lease commitment currently averages 15 months. Many economists and corporate executives expect a further slowdown in business investment orders in the U.S. coming months as companies here and overseas get hit by global escalations of trade disputes, particularly with China.

Source:

“ipo” – Google News


Author: Continue reading Despite a hot year for IPOs, WeWork’s stock sale is delayed – CBS News