I had a limit order to buy 100 of another TC that contains the same underlying bond as JZJ but with a slightly different guarantee. The order was filled at 12.5 and I thank that person for selling it to me at that price. If necessary, I will hold an AT & T bond paying me at a minimum 12% until maturity based on my cost. The symbol is JZE. The only difference between the two TCs is that JZE has a guarantee of 6% whereas JZJ has a slightly higher guarantee of 6.375%. Both mature at the same time and both have the same enhancement features where the coupon floats up by a 1/4 point with every downgrade. The JZE is a Lehman ABS origination, Series 2004-2. The call feature appears to be different, which means this is slightly different in that respect too, and it can be called in January 2009. At a 12.5 cost, my effective yield doubles at the guaranteed 6% coupon to 12%, more in the event of a downgrade in the underlying debt. As with JZJ, there is certainly a possibility of a call at par value of the underlying security which would mean, if it happens, the payment of the $25 par value plus accrued interest on the TC JZE and that would mean a 100% gain.
I also did a nibble on a TC PJS by buying 50 at $7.20. This TC has a $25 par value. This TC contains a Senior bond of First American (FAF), a title insurance company. The coupon on the TC is 7.53% payable semi-annually in March and September. It just went ex-interest last month. It matures in 2028. At a $7.2 cost, the effective yield based on the coupon is over 26% plus the difference between $7.2 and $25 on 50 shares if held to maturity and it is redeemed at par value. This is a Merrill Depositor origination (FAR-1). I did check the Fitch rating of the underlying bond before purchasing it and Fitch rates it as BBB-. This would place it I believe at the lowest category of investment grade.
I also averaged down on the ING Group 7.2% perpetual preferred (INZ) by buying another odd lot of 50 at 7.84. This one is discussed in a prior blog with INZ as the identifier. At that cost, the effective yield is 22.9% annualized, paid quarterly.
Lastly, I mentioned in one of my emails that I had sold a closed end company a few days ago at over $5.5 that is leveraged, which I do not like, and it owns corporate and government bonds from Asian countries, with a large concentration of Australian government and corporate debt. I bought some of those shares back today, buying 200 of FAX at 3.38 late today with a market order since the spread was just a penny. This closed end fund was selling at about a 29% discount to NAV yesterday and another 13% discount or so when I entered my order, recovering some near the close. The Aussie dollar has been hit pretty hard lately. At my price, the dividend yield is close to 12% annualized, payable in monthly installments. The fund web site is Aberdeen Asia-Pacific Income Fund, Inc. - Aberdeen Asia-Pacific Income Fund, Inc. - US Funds - Aberdeen Asset Management
I am hoping for some concrete and unified action by the finance ministers over the weekend and I hope that the day off on Monday will cause everyone to take a few deep breathes and relax a little, a little meditation may be useful, get out and walk around the block. It is a gorgeous day here in Tennessee.
I am very familiar with FAX having bought and sold it many times, and my comments on the problems with leverage made in prior blogs are applicable to FAX. I review at least one annual and semi-annual report before buying a closed end investment company. The discounts to NAV in closed end funds present opportunities and risks. I do not recall them ever being so wide as they are now across the spectrum of funds. INZ is a preferred stock issue with no maturity which is bad. It has preference rights only over common stock. Given my risk profile and lack of debt, I view all of the investments made today as worth the risk but only for me.
In full disclosure, I own shares of JZE, FAX, INZ and PJS and may continue to buy additional shares at or below the current prices indicated for today's purchases, or even slightly above. This is not a recommendation to buy or to sell. Trade at your own risk, and perform research about this security by reading the prospectus at sec.gov and further studying the financial health of AT & T, ING and First American (symbols T, ING, FAF at yahoo finance) before making any investment. Consult with your financial advisor prior to making any purchase. In this blog, I am merely describing my reasons for purchasing this security and the potential pitfalls that I identified prior to purchase. This security may not be suitable for others based on their unique financial position and risk profile. THE PROSPECTUS ON THIS TC JZE CAN BE FOUND AT SEC.GOV using the search term Lehman ABS: www.sec.gov