Monday, October 13, 2008


 I had tried to purchase a senior bond of Hertz contained in a Trust Certificate  (DKR) last Friday at 5 but it did not fill so I just placed a market order to buy 50 which was filled  at 6.45.  I alluded to this security in a prior post without mentioning it by name.     This is a senior bond of the heavily indebted Hertz company (HTZ is common symbol), a car rental firm as we all know.  This bond is very risky but the potential reward if Hertz survives is very large so I viewed it worth a nibble only.  It is a junk rated credit so I will never invest much money in those. Here is what makes it very attractive even for its huge risk.  It matures on June 1, 2012 with a $25 par value.  I now have a total of 100 shares with today's 50 purchase and will not buy anymore.  If Hertz survives for another four years, I will receive 2500 for that 100 shares for around a $1800 profit on the shares at an average cost of $7.    The coupon is 7% which is worth an additional 27% annually.   If you amortized the spread between $7 and $25 for 3.5 years, then  that figure is $514 per year or an additional 73% or so a year assuming of course payment of the par value at maturity bringing the total yield to 100% annually based on a $7 cost.  All that needs to happen, and this may be a big "if" under the current and reasonably forecasted economic conditions, is for Hertz to survive for 4 years, make all the interest payments and the final payment on maturity.  Interest is payable in June and December.  This is the kind of security that will either be a home run or a bust. 

I believe the Cusip on the underlying HERTZ bond WHICH HAS A HIGHER COUPON THAN THE TC is  : 428040BS7 

In full disclosure, I own shares of DKR  and will NOT buy additional shares at or below the current price.  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 and further studying the financial health of HERTZ (symbol HTZ 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 CAN BE FOUND AT SEC.GOV   THIS IS MORGAN STANLEY SATURN ORIGINATED TC series 2003-8.  

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