Monday, April 27, 2009

SL Green/Dysfunctional Pricing In KTN today/ GM Bondholders: Most Likely a No Deal on Common Stock for Bonds/

There is no way the GM bondholders will accept the exchange offer for common stock.  GM offered them 225 shares of common stock for each $1000 in bonds.  GM says that it needs 90% participation of its unsecured debt to accept this offer by the end of May. If that is the best GM is going to do, and it apparently is, then bankruptcy is just around the corner, sometime around June 1st.  A contentious bankruptcy proceeding could last for a long time.  I do not own any GM bonds.  If I did, I would ignore that offer.  

There was a late date surge in the price of an Aon TC, KTN, that I own, which placed it at a disparate price to a functionally equivalent Aon TC, KVW, which I also own.  There is no rational reason to buy KTN at $21.60 rather than KVW at $18.31. Both contain the same underlying Aon junior debenture but KTN does have a slightly higher coupon.Bought 50 DKK in Roth/ SOLD EMO/GE/RF Dividend Cut/GOOG/FHN/ Redemption for Underlying Bond in AT & T TCs?/  This post contains a link to the prospectuses of all four Trust Certificates containing the same underlying bond.  Links To Prospectuses for the AON TCs in One Place  I have noted far fewer examples of this dysfunctional pricing since I started talking about these securities, as well as the other functionally equivalent securities.  So maybe I have taken away one of  my bread and butter plays from last year by talking about it which is okay.  Since I bought KTN at very favorable prices, I did not sell it today and plan to keep those shares until something causes me to question the credit worthiness of Aon (AOC). The underlying security in these TCs is a Trust Preferred issue.  Now if I got a surge like that in KVW, I might sell 100 of the 200 shares owned which would be the highest cost shares, and then wait for an opportunity to buy another one of the four functionally equivalent Aon TCs at a better price.   If an investor wants to own this long term junior bond in TC form, then it just comes down to a question of which one provides the buyer with the most yield based on the cost at the time of purchase.  

Given the state of the New York commercial real estate, as viewed from the confines of a house in Tennessee, I thought the earnings report from S L Green Realty was okay.   The FFO results were boosted by a $57.5 million gain from actually purchasing its own debt at a discount, which is fine with me.  My problem is creating a gain by pretending that the debt is bought back at a discount under FASB 159 as the banks are doing.  Occupancy fell to 96.2% from 96.7% in the year ago quarter in SLG's Manhattan properties.  Yahoo! Finance 
I primarily own the cumulative preferred issues, SLGPRC and SLGPRD, but I have been building a common share position at a snail's pace, more like watching grass grow.  History does tell me that the NYC market goes through down cycles and then recovers to new heights.  As long as SLG can maintain the core of what it owns during the down period, without having to liquidate at an inopportune time due to credit issues, then the down cycle is just a buying opportunity in my opinion, but admittedly this Tennessee boy knows next to nothing about Manhattan real estate.   But, sometimes I make a decision based solely on common sense, like knowing milk comes from a cow rather than a plastic jug at Krogers,  so I am a buyer of that Manhattan brick  rather than a seller.  

CBS reported that there is an ongoing criminal investigation of three Masters of Disaster at AIG's Financial Products Division, London Unit.  This is old news as far as the head guy, but I see that CBS named a couple of new ones.   CBS News
Two of the three were recipients of the bonuses paid out a couple of months ago according to CBS.

Another investment advisor was charged by the SEC for allegedly defrauding investors out of hundreds of millions of dollars.
Some of this guy's investment funds were not even audited.

The 3 month T Bill rate is moving closer to zero, closing at .096%.  I am not going to rollover my next T Bill coming due soon in my Treasury Direct account.   I am done with that. 

I thought that it was interesting that Corning (GLW) rehired some laid-off staff due to stronger than expected demand. 

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