Friday, September 25, 2009

Exchange Traded Bonds:

Added: A new post on this subject was published 5/30/12: Exchange Traded Bonds: New Gateway Post

ADDED to Original Post: The QuantumOnline free web site, registration required, has the securities in catergory #3 below listed under "Exchange Traded Debt Securities" Exchange-Traded Debt Securities Table - QuantumOnline.com The securities listed in category # 1 below, "Trust Certificates", can be found under the heading "Third Party Trust Preferred Securities Table" at the QuantumOnline.com site. This site has links to the prospectuses and other information about exchange traded bonds.

The pricing of individual bonds traded in the bond market can be found at the Finra site. FINRA Just enter the ticker symbol for the common stock, click go, then navigate to bond in the search box, click go, and then navigate to the bond of interest to you. By way of example, this is a link to the first page of the Finra site for AT & T bonds and this a link to the first page for Verizon Bonds. Those bonds are traded in the bond market with one bond having a $1,000 par value. I currently own trust certificates, with a $25 par value and issued by a trust that owns bonds from a single issuer, that represent beneficial interests in senior bonds from Verizon and AT & T which are traded on the stock exchange.

*****************Original Post:

An exchange traded bond is a bond that trades on the stock exchange and traded just like a common stock. Unlike the bonds traded in the bond market, where the minimum unit is one bond in the amount of $1,000, most exchange traded bonds have a par value of $25. An individual is not required to place a minimum order for securities purchased on a stock exchange, and I have purchased many times just 50 shares of an exchange traded bond. I would divide the exchange traded bonds into three categories.

1. Trust Certificates: A bond from a single issuer is deposited into a Trust controlled by an independent trustee. Investors purchase a Certificate representing an undivided interest in the property of the Trust. Some of these Trusts contain junior bonds while others have senior bonds as the underlying security. Some Trust Certificates are fixed rate coupon bonds while others are what I called floaters. Many of these floaters pay the greater of some minimum rate or a percentage above a short term rate such as the 3 month Treasury Bill or the 3 month LIBOR, while a few others just have a float provision with no guarantee This type of exchange trade bond is discussed in more detail in another Gateway Post and the large number of linked posts therein which discuss particular securities. Trust Certificates: New Gateway Post LINKS TO FINRA INFORMATION ON UNDERLYING BONDS IN TRUST CERTIFICATES) The Trust Certificates that are floaters are also referenced in these Gateway Posts: Synthetic Floaters Links to Discussions on Floaters in One Post

Most Trust Certificates have a $25 par value, though a few have a $10 par value such as XKK, a TC with a senior bond issue from Goodyear Tire as its underlying security.

2. Trust Preferred: The second category of exchange traded bonds is called Trust Preferred, similar in some respects to Trust Certificates. This form of ownership also involves a Trust. In this case, however, the Trust is a so-called Delaware Trust that is controlled by the firm who created it. I am not aware of any Trust Preferred securities that contain a senior bond. All of them to the best of my knowledge are junior securities, mostly issued by banks and utilities. Some Trust Preferred issues are also the underlying security in Trust Certificates. This is the Gateway Post to Trust Preferred issues that also contains links to posts about specific issues. Trust Preferred Securities: Links in One Post Most Trust Preferred issues have a $25 par value.

3. Mini Bonds or Baby Bonds: The third category includes any exchange traded bond that is neither a Trust Certificate or a Trust Preferred, nor is it even in a Trust. The investor buys the bond itself. The ones that I have bought in the past are either senior bonds or First Mortgage securities with a $25 par value. Subsequent to the original date of this post, I have added some with $20 par values including senior bonds from HRPT Properties (HRPN) and Protective Life (PLP), and one with a $10 par value (PMK).

I have not previously discussed my position in a General Electric Capital issue, GEP, mentioned below. This is a recent position and my cost is less than $21. It is a Step-Up bond. That means that every five years until maturity in 2035 the interest rate increases to a higher level. The rate is currently 4.5%. In 1/2030, it rises to 8%. In 1/2010, it rises to 5.5% and 6.5% in 1/2020. I prefer a Step Up to a fixed rate unless there is a wide short term yield differential, particularly when I can purchase one at a discount to par value which is $25 for GEP due to the issuers call option rights (for comparison purposes, I would suggest the reader compare GEP with GED, a fixed rate coupon from GE Capital maturing in 2035 with a fixed coupon of 5.875%-so it comes down to whether you will are willing to accept less in yield now for more later on). The Step Up provision is a form, at least to me, of protection against the effects of inflation on a fixed coupon bond. GE calls these type of $25 par value exchange traded securities Baby Bonds. I currently own, or have owned and sold, small positions in the following exchange trade bonds in this third category:


AAG HOLDING (GFW)(guaranteed by Great American Financial, a sub of American Financial Group-AFG) SECURITY CALLED 7/13/12

Allianz (bought 7 2009) (no maturity date)(DELISTED)
DELISTED FROM THE EXCHANGE: SEE ITEM # 9 Bought 50 FPCPRA at $24.95

American Financial Group (AFE) SECURITY CALLED 9/28/12

Ameriprise Financial (AMPPRA) Maturity 2039:
Prospectus: www.sec.gov 

ARES Capital (ARY)
Bought: 50 ARY at 24.2
Sold: 100 ARY @ 24.6
Prospectus: www.sec.gov

ARES CAPITAL (ARU)
Bought:  50 ARU at $24.5
Prospectus

Argo Group International (AGIIL)
Bought: 50 AGIIL at $21.11
Final Prospectus Supplement

Bank of California (formerly known as First PacTrust) (BANCL)
Bought Roth IRA: 50 BANCL at $25.20
Added 100 BANCL at $25.1
Prospectus

Commonwealth REIT (CWHN) Formerly HRPT
Prospectus: www.sec.gov
Delphi Financial (DFP)(voluntarily delisted after merger)
Prospectus: e424b2

Delphi Financial (DFY) (partial call 7/2010)(partial call 9/2010)(full redemption 12/2010)
Prospectus: e424b5

EAA: Entergy Arkansas First Mortgage Bond
Bought 50 EAA at $23.6-Roth IRA
Prospectus: www.sec.gov
EFM: Entergy Mississippi First Mortgage Bond:
Bought 50 EFM at $24.9
Prospectus: Preliminary Prospectus Supplement

EHL: ENTERGY LOUISIANA FIRST MORTGAGE BOND (EHL has been Called EHL Redemption)
Prospectus www.sec.gov 

 ELB: Entergy Louisiana First Mortgage Bonds
Roth IRA: Bought 50 ELB at $25.06
Prospectus: www.sec.gov

EMO: Entergy Mississippi First Mortgage Bond: (EMO CALLED 4/2010: Item # 5 EMO)
Prospectus: www.sec.gov

 EMQ: Entergy Mississippi First Mortgage Bond:
Bought 50 EMQ at $24.83
Paired Trade: Sold 50 EMQ at $26.49 and Bought 50 EFM at $24.9
Prospectus: www.sec.gov

FCZ: Ford Motor Credit  (to be called 12/23/2010)
PROSPECTUS: e424b2
SECURITY CALLED 12/23/10

FCY: Forest City:
PROSPECTUS: www.sec.gov 

GEP: GENERAL ELECTRIC CAPITAL
PROSPECTUS: Pricing Supplement
SOLD GEP
SECURITY CALLED 1/18/13

 Hanover Insurance
Bought 50 THGA at $21.58
Prospectus: SEC 

Hercules Technology Growth Capital (HTGZ)
Bought 100 HTGZ at $24.63
Bought 100 HTGZ at $24.6-ROTH IRA
PROSPECTUS: Filed Pursuant toRule 497

KWN: Kennedy Wilson 2042
Bought Roth IRA: 50 KWN at $24.85
Prospectus Supplement

Maiden Holdings North America
SOLD 50 MHNA at $25.75

NEXEN NXYPRB (Security Called March 2013)

PFX: PHOENIX INSURANCE
PFK: PRUDENTIAL (CPI FLOATER):Bought 100 PFK AT $18.47
PROSPECTUS: Pricing Supplement No. 122 dated March 31, 2006 

 Reinsurance Group of America (RZA)
Bought 50 RZA at $24.47-ROTH IRA
Bought:  50 RZA at $24.29
Prospectus

Selective Insurance (SGZA)
Bought 50 SGZA at $20.6
Prospectus

SALLIE MAE CPI FLOATER (ISM)
SALLIE MAE (OSM) (CPI LINKED Floater)
Sold 100 OSM at $23.34 (March 2012)-Item # 9 Bought 50 OSM at $15.74
Item # 4 Bought 100 OSM at 15.75-Regular IRA (June 2010)- Item # 4 Sold 100 OSM at $16.87 (July 2010); Item # 3 Bought 50 OSM at $11.8 (June 2009)- Item # 3 Sold 50  OSM at $16.01 (January 2010)
Another 100 shares were bought on 7/31/2008, prior to the commencement of this blog, and were sold 10/22/2010: SOLD 100 of 200 OSM at $18.18
Item # 1 Sold 50 OSM at $21.06 (March 2011)-Added to OSM at $18.47 (December 2010).
 PROSPECTUS: www.sec.gov
(For those interested in how the penny rate is calculated for OSM, ISM and PFK, see these posts: Item # 7: Bought 100 XLU/Bought 100 QAI/SOLD AUY/Unemployment and Inflation/Bought 30 ZBPRC at 18.4/ and Item # 1: CPI and CPI Floaters OSM and PFK )

Telephone and Data Systems (TDA)(partial redemption 12/2010)(FULL REDEMPTION MAY 2011)

Texas Capital Bancshares (TCBIL)
Bought 50 TCBIL at $21.3
Prospectus

U.S. Cellular (UZV) (REDEEMED IN FULL ON 6/25/2011)
Bought 100 UZV at $24.42 (50 in Roth IRA and 50 in main taxable account)

Vornado (VNOD)
Prospectus: e424b5

As of 6/12/2010, of the ones listed above, I currently own AFE, TDA, OSM, DFP, PMK, AMPPRA, HRPN, VNOD, GFW, DFY, UZV & PFK.

NOTE: THE EUROPEAN HYBRIDS are also exchange traded bonds but I have two Gateway Posts for them already: Aegon Hybrids: Gateway Post ING Preferred Stocks (HYBRIDS): Links in one Post

The following is a list of exchange traded mini bonds that I have never bought:

ALF: ALABAMA POWER SENIOR NOTES (Called 10/2010)
Prospectus: www.sec.go
SECURITY CALLED 10/29/10

AFQ: American Financial Group (new issue Sept. 2010)(matures in 2050)
Prospectus:  SEC 

ARN: Ares Capital 2022
Prospectus

ARU: Ares Capital 2022
Prospectus

ARY: Ares Capital 2040
Prospectus

AVV: Aviva PLC (matures 2041)
Prospectus:  www.sec.gov

CRP: CREDIT SUISSE
Prospectus: www.sec.gov
SECURITY CALLED MARCH 2013

 CUBIL: Customers Bancorp 2018
Prospectus 

EHB: ENTERGY ARKANSAS: FIRST MORTGAGE BOND 
PROSPECTUS: www.sec.gov
(Called 11/2010)

EHA: ENTERGY ARKANSAS: FIRST MORTGAGE BOND:
Prospectus: www.sec.gov
(Called 11/2010)

ELB: Entergy Louisiana (new listing March 2010-proceeds used to redeem EHL)
Prospectus: www.sec.gov

EDT: Entergy Texas
Prospectus: www.sec.gov

EMQ: Entergy Mississippi
Prospectus: www.sec.gov

FORD MOTOR CREDIT (FCJ) (CALLED 12 /2010)
Prospectus: e424b5  

GED: GENERAL ELECTRIC CAPITAL PROSPECTUS :
Prospectus:  www.sec.gov 
SECURITY CALLED JANUARY 2013

GPD: GEORGIA POWER: (Called 6/2010)
PROSPECTUS www.sec.gov

GPJ: GEORGIA POWER (Called 6/2010) 
Prospectus: www.sec.gov

 MKV: Markel (Called 8/1/2012)
Prospectus: FORM 424B5

 MLG: MET LIFE PROSPECTUS: 
Prospectus: www.sec.gov


GSF: Goldman Sachs (new issue Nov 2010)(matures in 2060) 
Prospectus:  e424b2


GUL: GULF POWER (senior notes maturing 2033 5.25% coupon)
Prospectus: www.sec.gov (Partially Called 7/19/13)


TDE Telephone and Data Systems  (New Issue 2010-Proceeds Used to Partially Redeem TDA)(matures 2059)
Prospectus:  www.sec.gov

WESTAR (WRS) (FIRST MORTGAGE )(matures 2047) Final Prospectus Supplement CALLED 5/15/12

THE FOLLOWING ARE SOME THAT ARE NOT BEING ACTIVELY CONSIDERED FOR ONE OR MORE REASONS:
AFA: American Financial Group (Maturity 2042): Final Prospectus Supplement
AFW: American Financial Group (Maturity 2042) Final Prospectus Supplement
CCW: COMCAST (MATURITY 2055)  Prospectus CALLED APRIL 2012
CCS: COMCAST (MATURITY 2056)  Prospectus Called July 2012
CCT: COMCAST (MATURITY 2055) e424b2 Called 11/2011
CCV: Comcast (Maturity 2061) Prospectus 
CPV: CBS ( MATURITY 2056)  Prospectus CALLED MARCY 2012
CTQ: Qwest (Maturity 2051):   Prospectus
CTW: Qwest (Maturity 2051):  Prospectus
DRU: Dominion Resources (Maturity 2079): Prospectus
DTZ: DTE Energy  Prospectus
GAJ: GREAT ATLANTIC (MATURITY 2039 & CREDIT ISSUES) www.sec.gov  (bankruptcy filed 2010)
GAR: GEORGIA POWER (MATURITY 2047) Prospectus Called July 2012
GAT: GEORGIA POWER (MATURITY 2048)  Prospectus
GEG: GENERAL ELECTRIC CAPITAL (MATURITY 2047)  Prospectus CALLED 1/1813
GEJ: GENERAL ELECTRIC CAPITAL MATURITY 2047)  Prospectus CALLED 1/18/13
GEB: GENERAL ELECTRIC CAPITAL (MATURITY 2052) Prospectus
GPU: GEORGIA POWER (MATURITY 2044)  Prospectus  Called 9/27/2010
GPW: GEORGIA POWER (MATURITY 2044) www.sec.gov CALLED
NRN: NATIONAL RURAL COOPERATIVES (MATURITY 2043)e424b5 Called 9/1/2010
PHA: PULTE HOMES (MATURITY (MATURITY 2046)  Prospectus 
RBV: CBS ( MATURITY 2051) www.sec.gov/ Called 11/2010
SGZ: Selective Insurance  (Maturity 2066):  Prospectus CALLED MARCH 2013

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