Bought: 60 TOBC at 21.75, 50 GSPRA at 21, 50 FTE at 20.83, 100 NSSC at $1.8

1. Rounded TOBC to 100 shares by Adding 60 at 21.75  (Regional Bank Stocks' basket strategy) (see Disclaimer):  This article from TheStreet is a roundup of ten high yielding bank dividend stocks, which has been a useful topic in the selection of stocks for my regional bank basket.  Of those ten, I own six of them:  NYB, TOBC, VLY, FNB, HCBK and FNFG.  After selling 1/2 of my position in Porter (PBIB), easily the worst performing stock in that basket and who had cut its dividend from 20 cents per quarter when I purchased the shares to 1 cent for the next quarter, I decided to use those proceeds to increase my position in Tower Bancorp  which is discussed at the following page in this article.  As mentioned in the article, Tower is trading at tangible book value with a forward price earnings ratio of 10.   The dividend yield at is around 5.1%.  Tower recently sold stock at $20.25, raising 47.8 million dollars in net proceeds.  SEC Filed Press Release 

The bank just completed the acquisition of First Chester County bank that had 23 branches primarily in Chester and Delaware counties in Pennsylvania, contiguous to Tower's existing geographic markets.  Form 8-K  Tower Bancorp, Inc. Completes Acquisition of First Chester County Corporation I am still concerned about the acquisition of First Chester, given its high level of loan losses and the other issues discussed in the foregoing Form 8-K.  After reading First Chester's earnings reports (see e.g. www.sec.gov), I voted against the merger proposal as a Tower shareholder.  And my concerns about this acquisition caused me to limit my purchase originally to just 40 shares.   On the potential positive side, the merger was a potentially attractive and cheaper way to acquire customers and branches in a contiguous geographic market.  Notwithstanding the foregoing, I decided to risk some more funds given my current assessment of the  potential upside at the current price.      My previous buy of just 40 shares at 21.35 last July.  I suspect that TOBC has been left behind in the regional bank rally due to its First Chester acquisition.   

This is a link to Form 10-Q for Tower's Q/E 9/2010 which I discussed in a prior post: ITEM # 1 TOBC 

This is a link to a map of Tower's branches: Tower Bancorp, Inc.

2. Bought 50 GSPRA at $21 (see Disclaimer):  I have bought and sold shares of GSPRA earlier in the year.  Sold 100 GSPRA at $21.9 Sold 50 GSPRA at 20.03  Bought 50 GSPRA at 18.8  GSPRA is a non-cumulative floating rate preferred stock which pays the greater of 3.75% or .75% above the 3 month LIBOR rate on a $25 par value.  This is a link to the Goldman Sachs sites that describes the terms of its three floating rate equity preferred stocks (GSPRA, GSPRC, GSPRD).  My main post discussing this type of security is Advantages and Disadvantages of Equity Preferred Floating Rate Securities.

There are a few reasons for buying this security back in a small amount.  GSPRA does pay qualified dividends, and I do not have to worry now about the extension of the qualified dividend rate for all taxpayers.  I bought this security in a taxable account and will only buy one of the Synthetic Floaters  tied to a GS bond  in the retirement accounts (PYT & GYB tied to 2034 Junior Bond, GJS to 2033 senior bond).  In addition I would hope that the Federal Reserve's Jihad against savers will end in 2011.  If short rates thereafter start to rise to more normal levels over time, then the Libor float provision of this security will be triggered when that short rate exceeds 3% during the relevant computation period.    Of course, the current rate is the guarantee of 3.75%.  At a total cost of $21, the guarantee will yield about 4.46%. 

GSPRA Prospectus:   SEC GOV 

This is a link to historical information on the LIBOR Rates, 

I have also compared the GS equity preferred stock floaters with three synthetic floaters that contain GS bonds in  GOLDMAN SACHS FLOATERS, with the comparison made on price information from October 2, 2009.

See also:  Goldman Sachs Synthetic Floaters and Floating Rate Non-Cumulative Preferred (April 2009).

3. Bought 50 FTE at 20.83 (see Disclaimer): I bought and sold France Telecom (FTE) shares earlier in the year.  Bought 50 FTE at 21.09   Bought 50 FTE at $20.47  Sold 50 FTE @ 23.18  FTE pays a good dividend, with distributions generally made semi-annually in June and August.   France Telecom SA, FTE I held the shares long enough during my last cycle of ownership to receive the August distribution.  As discussed in prior posts, the price of these ADRs will reflect the exchange rate between the Euro and the USD.  Yesterday, the shares traded in Paris (FTE.PA) closed at €15.71, roughly equal to 20.88 USDs. Currency Converter 

Assume the Euro rallies to $1.57 (the exchange rate on 7/8/2008), and the Paris shares closed at €15.71, then I would expect the ADRs to be priced at $24.72.  On the other hand, what if the EURO fell to $1.19 (exchange rate for 6/7/2010), and the Paris shares closed again at €15.71, then I would expect FTE to be at $18.72.  So, I just want to drive this point home again about how exchange rates will impact the value of the ADR shares.   

Ideally, I want to buy a ADR for a European company when both the EURO is weak against the dollar and the share price in the firm's home market has slid to tempting valuation levels.    International Trading and Currency Risks Bought 100 AXAHY at 14.69 ADDED 50 NABZY AT 19.51 (National Australia Bank Strong U.S. Dollar + Weak Market=Time to Start Looking Overseas  While the Euro has rallied some recently against the USD (EUR/USD Currency Conversion Chart), the FTE Paris listed shares have fallen from €17.36 on 11/2/2010, FRANCE TELECOM Stock Chart | FTE.PA, and the Euro has slid some too since that date falling from about $1.40 to $1.33 which gives me a better entry point for FTE than in early November.  

S & P has a 12 month price target of $25 and rates this stock three stars.   Morningstar rates the stock five stars with a $34 fair value estimate.  The consensus estimate for 2011 is for earnings of $2.26 per share. 

FTE reported third quarter sales of €11.628 billion and a EBITDA margin of 36.5%.  Mobile subscribers increased 8% year-over-year to 114.5 million.  Revenues in FTE's Africa and the Middle East operations increased 9.8% excluding Egypt.  France Telecom Form 6-k

Price to book is 1.39 and price to sales is .93 according to YF.   

4. Bought 100 NSSC at $1.80 (LOTTERY TICKET strategy)(See Disclaimer):  I have previously bought and sold Napco Security (NSSC) in the lottery ticket category:  Buy 100 NSSC at $1.02   Sold LT NSSC at $1.96

Napco is a manufacturer of security products, "encompassing intrusion and fire alarms, building access control systems and electronic locking devices".   

I have about 200 potential LT candidates that are listed in a watch portfolio at Yahoo Finance.   I look everyday to see if there is any news about those candidates that shows up at the bottom of this portfolio when I open it up.  I noticed a video interview with the President of NSSC at the  TheStreet TV.  This guy said that Napco's business was improving so that was enough to buy back just 100 shares at $1.8.  

I would note a few areas of concern.  This is a small company, with a market cap of around 34 million at the current price.  The number of officers and the level of their compensation would be consistent only with a significantly larger company in my opinion.  NSSC Profile   Also, the company has not been profitable on a GAAP basis for several quarters.  Napco lost 6 cents for the Q/E 9/30, an improvement over the 10 cent loss recorded in the comparable quarter for 2009.   Form 10-Q.    I was not surprised to see a substantial percentage number of no votes for two members of the Board up for re-election in 2010:    www.sec.gov  I suspect that this company could be easily absorbed by a private equity firm who would have no trouble cutting costs, starting with the early retirement of some or all of the officers.   So, barring that eventuality, I hope the President is telling the truth about the firm's current and future prospects.   

Price to book is around 1.07 and price to sales is  .52, according to YF.  There are no analyst estimates. 

NSSC closed at $1.69 yesterday, down 17 cents on above average volume. 

The five year chart is ugly:  NAPCO Security Technologies, In Stock Chart The stock was trading at over $10 in 2006.   HK mentioned that the LB, our new Head Trader here at HQ, needs to be reminded of Heaknocker's most important trading rule-buy stocks that only go up in value after their purchase.  

Fidelity Brokerage Interference with Customer Trading Opportunities/Sold 1/2 PBIB for a Loss/Added 50 GFW at 24.9 and 50 KTV at 25.85 in Regular IRA/Sold 120 NWSA at 14.83

Some readers may be interested in Fidelity's response to my email protesting their latest prohibitions on the purchase of certain exchange traded bonds. Fidelity Brokerage Extends Denial of Trading Opportunities to Synthetic Floaters and Even an Exchange Traded Junior Bond DFP

" I am sorry to hear that you are not able to trade many of the securities that you have so much experience with. Due to the low level of understanding by the majority of our customers, you are correct that many of the structured products have been restricted from trading with Fidelity. This policy is under review and I will pass along your feedback to make sure our executives are aware of your opinion. 

In regards to DFP and other products that aren't structured/packaged, you may be able to trade these, but it may need to be done by phone. You can contact our Fixed Income Department directly to place these orders at 800-544-5372 during market hours."

Now, isn't it just absurd that I have to call their fixed income department to trade an exchange traded bond like DFP, which is just a baby bond that is traded like a common stock?   That is just bizarre to me and it suggests that other reasons underlie the prohibitions which involve the profitability of these lightly traded issues to Fidelity rather than the interests of their customers.   Their actions are without question contrary to my interests, where a significant number of trades in the now prohibited securities have netted me substantial percentage gains.  

This was LB's reply, who is not known for tolerating fools or those who interfere for no good reason in the implementation of one of its strategies: 

"I have already set in motion a transfer of my Roth IRA account to another brokerage firm, since I am tired of being restricted from purchasing easy to understand exchange traded bonds. I find your policy to be unreasonable. The prohibitions enacted by Fidelity extends to simple exchange traded bonds, such as the fixed coupon trust certificate JBK and the junior bond issue from Delphi Financial DFP, in addition to the synthetic floaters and the exchange traded principal protected notes. If Fidelity puts one more exchange traded bond on its shit list, I will transfer my much larger account to a brokerage firm that is more interested in my business without giving you an opportunity to be reasonable. That account generates about 10 thousand a year in commissions for Fidelity. I will not tolerate one more exchange traded bond being put on your no buy list. Of course, I do not believe that the purported reason given has anything to do with the announced prohibitions. The synthetic floaters are no harder to understand than say the floating rate equity preferred stocks, such as METPRA, which you allow me to trade at least for now. The lost of my Roth IRA account will cost Fidelity about $1200 per year in commissions, most likely for at least the next thirty years since I will not need my retirement accounts ever. I recently did some Roth IRA conversions to minimize the importance of the regular IRA account which I will leave with Fidelity until I decide to move the main taxable account."

I doubt that anyone at Fidelity even knows that JBK is no longer a synthetic floater after the swap agreement with Lehman was terminated after it filed for bankruptcy.    


I do wonder who came up with the idea that a majority of online brokerage customers have to fully understand a security before any customer can trade it.  That is certainly a novel idea.  I was thinking that Fidelity needs to select 100 of their retail customers at random, send them to HQ, and have each of them cross examined by our LB for two or three hours about their security selections, just to determine whether a majority of them understand the potential risks of their investments.  The end result would no doubt be an expansion of Fidelity's no buy list to include about 99% of the common stocks traded on the NYSE. 


Is a synthetic floater that pays the greater of a guarantee or a percentage above a short term rate harder to understand than an equity preferred stock (lower in priority) that pays the greater of a guarantee or a percentage above a short term rate?   Is GSPRA more or less safe than GYB? Advantages and Disadvantages of Equity Preferred Floating Rate Securities

Synthetic Floaters


There are tax reasons why I buy synthetic floaters and some principal protected notes only in a retirement account, and the Roth IRA is by far now the most important retirement account.  Since Fidelity was denying me the opportunity to manage that account in an appropriate manner, I have just fired that firm and moved the Roth to another brokerage company.   

I spent a few minutes copying some of my 2010 trading information on some of the synthetic floaters in my retirement accounts, which just shows the trading profit, as well as some 2010 trades for DFP and JBK:

JBK 2010 Taxable Account

PYT 2010 ROTH IRA

DFP 2010 ROTH IRA

DFP 2010 TAXABLE

GJL GJP GJS GYB 2010 ROTH IRA

GJN GYB 2010 REGULAR IRA

 2. SOLD 120 NWSA at $14.83  (SEE DISCLAIMER):  I am really not optimistic about the potential for stocks in 2011.  I hear antidotes  frequently now from investors who use brokers who are advising them to sell bonds and to buy stocks.    Maybe stocks will do okay in the first quarter of 2011 and bonds will continue to be led lower by the declines in treasury bonds.   I suspect that 2011 will be a down year for both bonds and stocks.


I last mentioned buying shares of News Corp, the NWSA shares, back in 2008 at $6.88.   This company pays a negligible dividend, around 1% at the current price.  I am currently substituting income securities for some of my common stocks that pay no or miniscule dividends.  By increasing cash flow, I will have more funds to invest in 2011 as opportunities arise, either in bonds or stocks or both.  


3. BOUGHT IN REGULAR IRA 50 GFW at 24.9 and 50 KTV at 25.85 (see Disclaimer):  These two trades brought me down to less than $100 in my regular IRA account which has been depleted by a series of Roth IRA conversions since October 2008.  I do not plan to make another trade in that account for the 1st half of 2011.    Some of the securities remaining in that account include purchases of INZ at 7.82, AEH at  $4.63, KTN at  $14, PKM at a total cost of $17.76, and METPRA below at a total cost of $13.26 before starting this blog: 

So, I am just going to leave this alone.  KTN went ex interest yesterday.  It is one of those rare TCs that do not have a call warrant attached to it. 


The add of 50 GFW brings me to my limit of 200 shares of this senior bond.  I have bought the other 150 shares recently and have nothing to add to those discussions.   Bought 50 GFW at $24.82 Bought 50 GFW @25.04 Bought 50 GFW at 22.76 Bought 50 GFW at 22.63 Sold 50 GFW at 25.13


Prospectus: Final Prospectus Supplement  My current yield for the shares purchased yesterday will be close to 7.5% coupon since par value is $25.


Exchange Traded Bonds:


I have not purchased the TC KTV for a long time. I still own shares bought at under $18.  This TC contains as its underlying security a trust preferred security originally issued by First Union, later acquired by Wachovia.  And Wachovia is not part of Wells Fargo.   Trust Preferred Securities: Links in One Post


Prospectus:  www.sec.gov


The TP originally from First Union has the same ratings now as TPs originally issued by Wells Fargo.  The ratings can be found at  Wells Fargo Bank.


A list of WFC's trust preferred and equity preferred stocks, along with information about each of them, can be found at  Wells Fargo - Investor Relations - Preferred Stock Information.


The First Union TP that is the underlying security in KTV has a 8.04% coupon and was issued by First Union Institutional Cap I.  It matures on 12/1/2026.  Interest payments are made semi-annually with the record dates on 5/15/ and 11/15.


The KTV coupon is higher than the underlying bond at 8.2%, which gives me a current yield of 7.93%.  This is significantly higher than the Wells Fargo TPs that are exchange traded securities. And KTV has a shorter maturity.


KTV also has some call protection based on the following schedule:

"Where the  Underlying  Capital  Securities are redeemed due to an Optional
Redemption,  the  Certificates  will  be  redeemed  according  to the  following
redemption price:

                                                       Redemption Price
      Date                                              per Certificate

      December 1, 2006  to    November 30, 2007            $26.52
      December 1, 2007  to    November 30, 2008            $26.42
      December 1, 2008  to    November 30, 2009            $26.31
      December 1, 2009  to    November 30, 2010            $26.21
      December 1, 2010  to    November 30, 2011            $26.11
      December 1, 2011  to    November 30, 2012            $26.01
      December 1, 2012  to    November 30, 2013            $25.90
      December 1, 2013  to    November 30, 2014            $25.80
      December 1, 2014  to    November 30, 2015            $25.70
      December 1, 2015  to    November 30, 2016            $25.60
      December 1, 2016 and thereafter                      $25.49"

Page S-14, www.sec.gov 

Since par value is $25, I have a lower YTM than my current yield. 

4. Sold 52 shares of PBIB at $10.18 for a loss (Regional Bank Stocks' basket strategy)(see Disclaimer): My purchase of Porter Bancorp (PBIB) was clearly a mistake in retrospect.  Besides being my only significant loser in the regional bank basket, the OG violated the cardinal rule, pronounced by Headknocker, to avoid buying stocks where the cockroach infestation has been seen.  I  sold 50 PBIB at 14.7, at a small profit,  after seeing evidence of those cockroaches.   Item # 6 PBIB. 

The following is my comments made that justified the disposal of my position at $14.7:

 "Porter was rightfully downgraded to market perform from outperform by Keefe Bruyette based on Porter's 4th quarter results released after the market closed on Friday. A summary of the rationale for the downgrade can be found at StreetInsider. Possibly the management of this small bank sandbagged investors by waiting until Friday afternoon to release this earnings report which recognizes losses that possibly needed to be acknowledged sooner. (The nonperforming loans increased 58.6 million in the quarter to 84.9 million.) This is a quote from the earnings release giving the CEO's song and dance routine explaining the tremendous jump in nonperforming loans in the last quarter: "We took a more aggressive stance in reviewing our loan portfolio at year-end in light of the heightened regulatory scrutiny in the current environment and the prolonged weakness in the economy coupled with our concentration of real estate loans and the economy’s impact on real estate values." The 3 cent loss was a huge miss from the 44 cents expected by the analysts. Reuters.com Due to my concerns about management's credibility at this time, which is currently nil, Porter is a candidate for the chopping block (the "Wilmington Exception" to the Regional Bank Strategy), but I will wait to see if there is a dividend cut before making a decision."

Unfortunately, the Old Geezer can sometimes be sucked into a representation made by management, as his mind has turned to a gooey mush, unlike our LB who has never been fooled by anyone including the Masters of Disaster who pride themselves on all forms of chicanery.  So after receiving public assurances from the President of Porter, the OG bought back some shares at 13.27.   Well, it has been downhill since then.   Porter recently slashed its dividend to just one cent per quarter.   www.sec.gov  The last earnings report for the Q/E 9/30/2010 showed an E.P.S. of 17 cents, down from 46 cents in the year earlier period.Form 10-Q   Porter has not yet redeemed the government's preferred stock but did sale common and convertible preferred stock in a private placement,   Form S-3, at prices that I view as dilutive to long term shareholders (see five year chart at Porter Bancorp, Inc. Stock Chart | PBIB). 

Notwithstanding the foregoing, I will keep the remaining 55 shares based on the hope that some other bank will put Porter's shareholders out of their misery by acquiring it.

Bought 100 SSRAP at $17.25 (TC-Underlying Bond from Sears Acceptance)/Case Shiller-Worrisome/Bought 500 FAX @ 6.71/Sold: 100 XLU @ 31.39, 50 EBTC @ 13, 100 BAB @ 24.78/Bought 1 SuperValu Bond @ 97.8 Maturing 2014

The Case Shiller index for home prices in twenty metropolitan areas declined 1% in October compared to September, representing the fourth consecutive monthly decline.   The decline of 1% was after a seasonal adjustment. Before the seasonal adjustment, the decline was 1.3%.  www.standardandpoors.com  Every metropolitan area experienced a decline in October.  The largest percentage declines were in Atlanta (-2.9), Detroi (-2.5%), and Chicago (-2%).   The 20 metropolitan area index is about where it was in 2003.    These numbers suggest that a double dip decline in housing prices is a realistic possibility.  Rosenberg may end up being right in his prediction of a housing double-dip.  CNBC.com

The long treasury bond ETF, TLT, had another bad day, falling 2.29% to close at $91.61.   Selling accelerated after the five year note auction received the lowest bid-to-cover ratio since June. The yield was 2.149%. Recent Note, Bond, and TIPS Auction Results  The treasury sold 42 billion in five year notes at that rate. Is anyone interested in feeding the beast at 2.149% for five years?  The Fed bought 6.78 billion in treasuries yesterday maturing between July 2013 and November 2014 as part of QE 2. Federal Reserve Bank of New York - Permanent Open Market Operations

1. Bought 500 of the Bond CEF FAX at $6.71 and Sold 100 XLU at 31.39 on Monday (See Disclaimer):  This pared trade was done primarily to increase my cash flow. FAX is a leveraged bond CEF that invests primarily in Australian  government and corporate bonds, though the fund also owns bonds issued by countries and corporations from other countries in the Asia-Pacific region, including South Korea, Singapore, India, Indonesia, Hong Kong, Malaysia, and China.    Asia-Pacific Income Fund, Inc.  As of the market close on 12/27, this bond CEF was selling at a 7.44% discount to its net asset value per share of $7.26.  It went ex dividend for its monthly distribution of $.0301 per share yesterday. 

FAX has a higher current yield than XLU and pays monthly dividends.  At a total cost of $6.71,  FAX yields about 6.25%. I just bought XLU at 30.83  and will receive one quarterly dividend. I also bought FAX to achieve more diversity in my international bond portfolio.  Morningstar rates this fund 3 stars.

This is a link to FAX's last filed Form N-Q that lists its holdings. 

This is a link to the last SEC filed shareholder report for the semi-annual period ending in April 2010: Aberdeen Asia Pacific Income Fund, Inc.  I focused on the overall credit quality of the fund's holdings shown at page 6 of that report.  As of 4/30/2010, 67.9% of the assets were rated "A" or better, with 31.8% at AAA.   (21.1% in junk categories and 11% in the lower tier of investment grade)  

I would add a caveat about this fund.  During the Dark Period, I was able to buy shares of this fund at $3.38 per share.  I calculated then that the fund was selling at close to a 42% discount to its net asset value. Some Nibbles Got Filled: JZE, PJS, INZ and FAX ( Post Dated: 10/10/2008) That fact shows that this leveraged bond CEF was vulnerable to price depreciation due to individual investor panic.

FAX closed yesterday at $6.67, down 2 cents.  The discount to net asset value expanded to 8%. WSJ.com

Part of my rationale for this purchase has to do with my opinions about the potential outperformance of bonds from the Asia-Pacific region.  Some of my opinions on that subject were voiced by Bill Gross in one of his newsletters titled Ring of Fire and by Mohamed El-Erian in a Barrons interview.  Item # 3 El-Erian Interview Barron's &  Bill Gross:The New Normal (see also: Near the End of A Long Term Bull Market in Bonds Staring in the Early 1980s? (July 2010)

2. Sold 50 of 150 EBTC at $13 (Regional Bank Stocks' basket strategy) (see Disclaimer): I placed a limit order to sell 50 of my 150 shares of EBTC at $13 before the market opened yesterday, and the price just blew through it.  EBTC closed at  $13.45 yesterday.   I sold my highest cost shares yesterday, using FIFO accounting, which were bought at 11.75.  I mentioned that this was my plan when I added 50 shares at  $11.27 (Item # 3 Post Dated 12/17/2010). This is what I said then:

"Since I am trading some in the regional bank basket to book profits and to lower my average cost where possible under FIFO accounting, I may at some point sell 50 shares of EBTC purchased at 11.75, the first shares purchased, and keep the shares bought at $10.33 and at $11.27.  While that may sound picayune to most everyone, it is one way that I manage risk in my stock portfolio.   Other risk control measures include of course security selection, the decision on the amount to invest in each security, and the vast dispersal and variety of holdings and asset classes."


I am also keeping the shares purchased at $10.33.

3. Sold 100 of 150 of of the ETF BAB at 24.78 and Added 1 SuperValu Bond at 97.8 maturing in 2014 (see Disclaimer):  I decided to take a small loss on my recently purchase shares in BAB.  This bond ETF owns Build America bonds which have not been faring well lately due to the significant correction in long treasury bonds which is continuing and the increasing concerns about municipal bonds. I bought those 100 shares in July at 25.98.  I substituted an individual bond purchase that will provide more yield and a far shorter maturity than the average duration of the bonds owned by the BAB ETF.

Interest rate risk for the SuperValu bond, which matures in 2014, is practically non-existent.  There is a risk, associated with interest rate risk, that I call the risk of lost opportunity. If interest rates continue to rise, this bond may fall in price some, all other variables impacting price remaining the same.  Consequently, if that happens, I lose the opportunity to buy the bond at a lower price, creating more of a current yield and YTM, with the funds deployed yesterday.  I view that risk to be minor and immaterial for such a short term bond.

The most important risk is the credit risk associated with the junk rated SuperValu bond.  And, I just increased the risk some to me by extending my exposure from 2 to 3 SuperValue bonds, with one being a long bond originally issued by Albertson's that had a tempting yield for the OG.   Item # 3   Bought: 1 SuperVaLu Bond at 98.73 (5/1/2016 maturity); Item # 6   Bought 1 Albertsons Bond (now part of SVU) at 77 (8/1/2029 maturity).

The bond purchased yesterday has a 7.5% coupon.  It is rated B2 by Moody's and B+ by S & P according to the information at FINRA.   The bond matures on 11/15/2014.  Interest payments are made semi-annually in May and November.  It is a senior bond according to the prospectus:  Final Prospectus

My confirmation states that the current yield at my cost is 7.668% and my yield to maturity is 8.169%.

I read a report in  Barrons yesterday that grocery stores will be a principal beneficiary of the Durbin amendment, which will have the effect of lowering interchange fees for debit cards.

I would feel better about these  SVU bonds if the company eliminated its too generous common stock dividend and sold more of the stores acquired in its Albertson's acquisition.  There was a report at Reuters a few days ago that SVU had not found any takers for the Shaw grocery chain, more than 175 stores in New England, that it acquired in 2006 as part of its buyout of Albertson's.

Hopefully the earnings estimates for SVU are not pie in the sky wishes. The consensus estimate for FY 2011, ending next February, is for an E.P.S. of $1.48 according to YF. 

4. Bought 100 SSRAP at $17.25 (see Disclaimer): For the past year, I have periodically placed a limit order to buy 100 shares of the trust certificate SSRAP which contains a senior bond from Sears Roebuck Acceptance Corporation as its underlying security.   I had reached the point many months ago where I had no expectation of a fill when I placed an order and was shocked to see an execution yesterday at $17.25.  

This security was  delisted from the NYSE in 2005 and now trades on the "Grey Market", where there is no transparency. Suspension of the obligation to file reports was made under Rule 12(h)-3: Rule 12h-3 -- Suspension of Duty to File Reports under Section 15(d)  Bid and ask prices are not displayed in the grey market, and there are no market makers.  The trades are shown at the pink sheet exchange under the  SSRAP symbol.  Volume was heavy yesterday for this security at 4,970.  Some days, it does not trade at all.  Needless to say, market orders can never be used for a Grey Market listed security. 

This TC has a 7.25% coupon on a $25 par value.  The bond and the TC mature on 6/1/2032.  At a total cost of $17.25, my current yield is around 10.5%.  Interest payments are made semi-annually on 6/1 and 12/1. 

This is a link to the prospectus for SSRAP: www.sec.gov 

The underlying bond is rated junk at Ba3 by Moody's and BB- by S & P.  

This is a link to the FINRA information on the underlying bond.  

Although SSRAP was delisted, the trustee still collects interest on the bonds owned by the trust and distributes those funds to the owners of the TC SSRAP.  I actually checked that information at the trustee's web site, since nothing is being filed at the SEC anymore as a result of the delisting.    I found that data at www.etrustee.net, and just entered the Cusip Number 80411A201.  This is a snapshot of the recent distributions: 

The yield to maturity at a total cost of $17.25 is 11.15% according to the Morningstar Bond Calculator.  

The prospectus for the underlying security can be found at www.sec.gov, originally a debt issue of the Sears Roebuck Acceptance Corporation (SRAC), then a wholly owned subsidiary of Sears. There are some requirements in the prospectus that SRAC maintain a ratio of earnings to fixed charges of at least 1.1 in every fiscal quarter. If it falls below that amount, Sears is obligated to make up the difference (See page. 8 of prospectus) . Sears Roebuck is now part of Sears Holdings, Form 10-Q, along with Kmart Holding Corporation.

Given the difficulty in purchasing or selling this security, it is not surprising that it provides a much better yield than the underlying bond, which I could have bought yesterday.   Based on a trade of 82 in the bond market, the current yield of the underlying bond, which has a lower coupon than the TC, is around 8.53%. FINRA The YTM would be higher of course. 

Sears common stock trades under the symbol of SHLD.  Sears is expected to earn 91 cents in its F/Y ending in January 2011.  

SSRAP closed at $16.73 yesterday, down 52 cents, trading in a range of $16.73 to $17.5.

Trust Certificates: Links in One Post