Friday, December 26, 2008

FCY: Forest City Enterprises Senior Bond (FCY)/FCZ

1. Forest City Enterprises Bond (FCY): The decision making process on whether to buy the senior note issued by Forest City Enterprises is producing a heated debate in my own head. The senior debt was just downgraded to B+ by S & P.

I am always cautious when a company eliminates a very small common stock dividend as a measure to enhance liquidity. The dividend was just eight cents.  To me, that is just plain negative. I looked at the 10-q again and noted 822.5 million in senior debt with 300 coming due in 2015 and 150 in 2017 (see p. 18, FORM 10-Q) More importantly for a senior debt holder is the amount of secured debt which is listed on p. 57. Of course, the senior debt would come after the secured debt in the event of a bankruptcy. Secured debt is listed at 5.979 billion. The expected maturity dates of this non-recourse mortgage debt is listed on p. 71.

 I could not find whether any of the properties owned were unencumbered by a mortgage which would be a relevant consideration for a senior debt holder looking at a boatload of secured, non-recourse mortgage debt in constant need of refinancing. This company has a lot of projects in development even though it has recently slowed down on new developments.

Personally, I believe that a prolonged downturn in commercial real estate, coupled with liquidity issues for a heavily indebted company, can topple even the best managed company. This is a very close call for me. After having a debate with myself and calling a vote, which was 4 to 3 in favor of a nibble only at a price below the current bid, I placed a limit order for 50 shares a few minutes ago. The dividend yield at $10 is 18.4%. The par value is $25 and the note matures on 2/1/2034. For ease of my next calculation, I am going to round that to 25 years to maturity. Amortizing the spread between a $10 cost and a $25 par value to arrive at an annual figure, I get 6% annually from the spread assuming payment at maturity or an early call. Still, it is barely worth even a nibble given the heightened level of risk involved in the current economy for commercial real estate and credit.

2. Ford Motor Credit bond (FCZ): I did suffer a moment of temporary insanity, maybe I need to take some meds, and I do own some Ford Motor Credit, with the position taken prior to today. Ideology and Facts: Coexistence Not Allowed/CIT/ F & FCZ/ I am almost sure that this may backfire on me but I did it anyway. FCZ has a 7.375% coupon, a 2031 maturity, a $25 par value, with interest paid quarterly. (prospectus: e424b2) When making this kind of investment, it is best to start with an assumption that you could easily lose money and to keep a tight stop loss on it. I will take my medicine at around 5. I hope that it is more than a 1 day wonder, up 42% so far today. I would have to say that anyone desiring to having me involuntarily committed could use this purchase as evidence. FCZ does go ex interest on Monday. I would hope that Ford would sell an interest in this finance subsidiary to a more stable party before considering a bankruptcy petition.

I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator. I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine. Any discussion made by me of particular securities is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the post. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In this post, and all others by me, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments. Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed. These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities. All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.

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