1. Bought 100 PMK at $8.35 (see disclaimer): I thought that I had reached the bottom of the exchange traded bond barrel with the purchase Monday of 100 shares of the Trust Preferred from FleetBoston, FBFPRN. Bought 100 FBFPRN/ Now, with today's purchase of 100 PMK, I know that I am at the bottom. This exchange traded bond is a senior unsecured issue from PMA Capital with a par value of $10, an 8.5% coupon, and a maturity on 6/15/2018. Interest is paid monthly. So, that is $85 per year which translates to a 10.17% yield, plus another 16% or so at maturity provided PMA Capital survives to pay me. Interest is paid monthly. I wish that I could buy investment grade securities with the same features.
This is a link to the prospectus: PMA Capital Corporation Form 424 (B)(5)
PMA Capital (PMACA) is a small property and casualty company serving just a few states, offering workmen's compensation and disability insurance, as well as a range of commercial and general liability insurance. PMA Capital's last earnings report was a profit of 26 cents a share, above analyst expectations. Market cap at the closing price today of $5.5 is around 177 million. Price to sales is around .32 and price to book is .47. PMACA: Key Statistics
The quantum online site says Moody's has this debt rated Ba3. That is junk. If you scroll further down the list of exchange traded bonds at this site, you see another Ba3 rated debt security, an issue from Pulte Homes. Exchange-Traded Debt Securities Table While I do not totally ignore junk bonds, I am cautious with my exposure to them (see item # 5: Junk Bonds/ )
This is a link to a PDF that contains a PowerPoint presentation made by PMA on its First Quarter 2009 highlights. pmacapital.com/pdf This presentation also contains the firm's debt maturity schedules. This is an important consideration for this company. Total debt is listed as 129.4 million as of 3/31/2009 in the last 10-Q, at p. 26: pma10q.htm
A.M. Best recently placed the ratings of PMA Capital and its subsidiaries under review with negative implications. This includes its "bb" rating on the 54.9 million senior note due in 2018.
The agreement to sell its PMA Capital Insurance Company, a discontinued operation, has not been completed, and is pending approval by a state insurance commission. The parties to that agreement agreed to extend the deadline for such approval to 10/31/2009. pma8k.htm A description of that discontinued business can be found at p.7 of the recently filed 10-Q. pma10q.htm The negative rating outlook from A.M. Best is connected with this discontinued operation, its shortfall in "overall capitalization, concern over the sale of the run-off operations and potential exposure to PMA Capital upon the sale closing". For me, it is impossible to assess what may happen with this discontinued operation, yet another reason to limit my exposure to 100 shares.
Given my large diversity of holdings, an individual security like this one, with just 100 shares owned, throwing off $85 a year in interest, will not have any material impact on my portfolio, no matter what happens. But that is not how I look at it. I have a large number of securities that throw off income, individually most of them do not matter much when viewed in isolation. Together, the bond and other income producing holdings provide a significant amount of cash flowing in the brokerage accounts, virtually every week, that can be reinvested into purchasing other securities.
2. Ebay (owned): Barron's tech writer, Eric Savitz, wrote a negative article when EBAY was at $11.93 and I mentioned that I was going to bet against Eric. /Savitz on Ebay/ Maybe LB thinks too much, but it was hard to accept Eric's reasoning that EBAY was a "value trap" at 9 times estimated 2009 earnings with almost 4 billion in cash and short term investments as of 12/31/08. EBAY: Balance Sheet Arguments stand or fall based on their merits and whether they are reasonably based on facts, or simply whether they make sense, and not based on the identity of the person making them. Well, eBay reported after the close, and the stock was rising after hours to over $20, a double from ERIC's warning to stay away. I am not a big fan of EBAY so I may allow my magic coin decide its fate tomorrow. The numbers do not look so good, with earnings at 25 cents a share down from 35 cents a year ago. Excluding one time items, the Non-GAAP earnings were 37 cents a share, a penny better than the consensus estimate. Revenues declined 4%. But there were some signs of stabilization, if you are willing to call a slower decline stabilization. PayPal had a 11% revenue increase and registered users grew 20%. FREE CASH FLOW for the quarter was 602 million. As of 6/30/09, cash and short term investments were about 3 billion. EBAY bought Korea’s Gmarket for 1.2 billion in cash during the quarter. For the next quarter, EBAY expects adjusted earnings of 34 to 36 cents, with the street at 35 cents.
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