Friday, October 15, 2010

TRUST Certificates: Links in One Post Duplicate Post

Trust Certificates: Links in One Post Duplicate Post

I have created a duplicate of this post. I amend it frequently by adding new material and links. Any changes in the older post, published in 9/2009, now takes several minutes to make which is why I created a duplicate with some deletions at the end to shorten the post. The post from 9/2009 is still at its original location.

Another frequent topic of discussion in this blog is a unique way to own a bond, and to purchase them on a stock exchange rather than in the bond market. I call them Trust Certificates, sometimes abbreviated to just TCs. A Trust Certificate represents an undivided interest in the property of a trust that contains a bond from a single issuer, that bond is referred to as the underlying security of the Trust. The trustee collects the interest payments from the issuer and then disburses those funds to the owners of the Trust Certificates. Most Trust Certificates have a par value of $25 which makes them more affordable for an individual investor who may not want to buy a bond in the minimum unit of $1,000.

I give a general discussion of Trust Certificates in this post. Trust Certificate JZJ AT & T BOND It would also be helpful for anyone unfamiliar with this form of ownership to read a prospectus just to become acquainted with this type of security, before even trying to make a selection.

I currently own a large number of these securities. During the 4th quarter of 2008, they became seriously mispriced compared to the prices of the underlying security. On top of that, the underlying securities were frequently being seriously mispriced in the bond market in my opinion, particularly in October 2008, so it was like a discount to a discount in my view. Back then it was not unusual to pick up 3, 4 or even 5% more by buying the bond in Trust Certificate form than by buying the bond directly in the bond market, and corporate bonds were then trading at historically high premiums to comparable U.S. Treasuries. I have discussed some of the reasons behind this dysfunctional pricing which is less of an issue now. The prices for the individual bonds contained as the underlying securities in the Trust Certificates can be found at the FINRA web site, and I have started to collect links to the pertinent bonds in the following Gateway Post. LINKS TO FINRA INFORMATION ON UNDERLYING BONDS IN TRUST CERTIFICATES


Some trust certificates are Synthetic Floaters.

In these posts I discuss many that I currently own and some of my trading activity in them:

AFC CAPITAL (guaranteed by Hanover Insurance)  Bought 50 KRH in IRA at 18.62 Bought 150 TC PKM at 17.8 & 17.5 Bought 50 of the TC KRH at $19 Bought 50 PKM at 24.84 Sold 50 KRH at 24.6 Bought: KRH at 24.85 Sold 100 of 150 PKM at 25.93  KRH PROSPECTUS: PKM PROSPECTUS: FINRA INFORMATION UNDERLYING BOND:  FINRA

AT & T: (AUGUST 2010-JZE AND GJF CALLED & JZJ PARTIALLY CALLED BY OWNER OF THEIR RESPECTIVE CALL WARRANTs) JZE: MORE DETAIL Trust Certificate JZJ AT & T BOND Some Nibbles Got Filled: JZE at 12.5 , PJS, INZ and FAX JZE AND JZJ: UNDERLYING AT & T BOND DATA at FINRA Jobs /DD/ TCs with AT & T BONDS Added to Long Bond Positions: Bought JZJ at 17.5 / Bought GYC at 15.5: Synthetic Floating Rate Bond Bought GJF Sold 50 GJF at 24.25 Added 50 JZJ at 24.75 Call Warrant Exercised on JZE and JZJ Bought TC GYC at $21 Sold GYC at 22.3 in regular IRA  Added 50 GYC at $21.60 in Roth IRA FINRA Info Underlying Bond In JZJ FINRA JZJ Prospectus: JZJ UNDERLYING BOND PROSPECTUS: GYC Prospectus:  FINRA INFORMATION UNDERLYING BOND GYC FINRA UNDERLYING BOND PROSPECTUS GYC  Prospectus Supplememt

Countrywide (now Part of Bank of America) /Bought 50 of the TC CPP at $24.2/ Sold TP CPP at 24.9 CPP PROSPECTUS:

Daimler AG: Bought Another 100 of GJL at $20.6 GJL is a synthetic floater with a guarantee/GJL Called Bought 100 GJL/ Sold 100 GJL at $23.85 GJL Called by Owner of Call warrant 12/2010

DPL Bought 100 MJT at 22.57 Sold 100 MJT at $24.43 Bought 100 MJV at $24.8/  BOUGHT 50 MJT at 25.6 UNDERLYING BOND PROSPECTUS: MJV PROSPECTUS: MJT PROSPECTUS: LINK TO FINRA INFORMATION ON UNDERLYING BOND:  FINRA  MJV and MJT Called by Owner of Call Warrant 2/2011

DUKE (NOW SPECTRA ENERGY) TRUST CERTIFICATES JBI DUKE SOLD 100 JBI AT PAR VALUE Bought 100 of the TC JBI at $25.1 Sold 100 JBI at 26.5  Bought 50 of the TC JBI at 25.31 FINRA INFO ON UNDERLYING BOND: FINRA JBI Prospectus: Prospectus for Underlying Security:

 FIRST UNION (ACQUIRED BY WELLS FARGO) Sold 50 KTV Buy 50 KTV/ Rounded KTV to 100 Shares at less than 18 

GOLDMAN SACHS: Added another 100 GYB in Regular IRA at $11 Sold 100 GYB at 18.09 Bought 50 GYB Sold 50 GYB at $15/ GYB is a synthetic floater with a guarantee Analysis of Prior Question about Goldman Sach's Floaters GOLDMAN SACHS FLOATERS Goldman Sachs 6.345% Junior Debenture Maturing on 2/15/2034 Item # 2: Bought 50 of the TC JBK at $16 Item # 4: JBK Bought 100 JBK at $16.15 New Information about JBK Bought 100 GJS AT $13 (GJS is a synthetic floater with no guarantee) Sold 100 GJS in the Roth IRA at $15.6 Bought: 50 GJS at 14.6 Sold 50 GJS @ 16.20 Bought 100 GJS at 10.5 (april 2009) SOLD GJS at 13.06 Bought 50 PYT at 11.2 Bought 50 PYT in Roth at 13.34 PYT is a synthetic floater with a guarantee Bought 70 PYT at $15.75 Sold 70 PYT at 18.66 and Bought 70 GYB at 18.49 in Regular IRA Bought 50 PJI at 20.85 Sold 50 of 100 PJI at 21.35/ Added 50 PJI at 20.17 Sold 50 PJI at 23.52  Bought 50 PYB at 22.83 Bought 50 JZS at 22.95 Pared Trades in Roth: Sold 100 PYT at 19.25 & Bought 100 GYB at 18.98 Sold 100 JBK at 21.59 Sold 50 JBK @ 21.59 Bought 100 DKW at 22.86 (DKW CALLED by owner of Call Warrant) Bought 50 DKW @ 23.07 Sold 50 JZS @ 24.15 Sold 50 GJS @ 16.20 & 100 GYB @ 19.9 Sold 100 GYB @ 19.4 Alert on TC DKW-Exercise of Call Warrant/SOLD 50 OF 150 DKW @ 25.20 Sold 100 DKW @ 25.25 Bought 50 GYB @19.07 Bought 100 PYB @ 23.81 Bought 50 PYB @ 23.69  Bought 50 JZS at 23.37 Bought 50 PJI at 23.11  Bought 50 PYT at 18.06 in the Roth IRA  Bought 50 GYB at 18.63 in the Roth IRA  Sold 50 JZS at 23.1 in Roth IRA  Sold 100 of 200 of the TC PYB Bought 50 GJS at 16.9 in Roth IRA FINRA INFO ON 2033 SENIOR BOND: FINRA   JZS PYB PJI DKP DKW HJG GJS UNDERLYING BOND PROSPECTUS FOR GS 2033 SENIOR: FINRA INFO ON 2034 GS TP FINRA GYA GYB JBK PYC PYY PYK PYT HJJ HJL HJN UNDERLYING BOND PROSPECTUS 2034 GS TP: PJI PROSPECTUS: (2033 SENIOR BOND) GYB PROSPECTUS: (SYNTHETIC FLOATER) JBK PROSPECTUS: (2034 TP) PYT Prospectus: (SYNTHETIC FLOATER) JZS Prospectus: (2033 SENIOR BOND) PYB PROSPECTUS: (2033 SENIOR BOND) DKW PROSPECTUS (2033 SENIOR BOND)

GOODYEAR TIRE: Goodyear Tire TC XKK (12/2008 post) Aegon Perpetual Preferred & XKK (jan 2009 post) Buy of XKK at $3.8 in IRA LINKS TO LONG TERM BOND BUYS IN PRIOR POSTS (dec 2008 post) Goodyear Tire XKK (nov 2009 post) Added 50 XKK at 8.98 Sold 300 of the 550 of the TC XKK Sold: 100 of the 200 XKK at 9.96   Bought 200 of the TC XKK at 10.02 FINRA INFO ON UNDERLYING BOND: FINRA XKK PROSPECTUS: Underlying Bond Prospectus:

J P MORGAN Buys of a JPM TC PYV      PYV is a synthetic floater with a guarantee  PYV a Hold? BUY 50 GJN at $12  GJN is a synthetic floater with a guarantee SYNTHETIC FLOATERS BOUGHT 100 GJK IN ROTH at $19.83 SYNTHETIC FLOATERS Sold PYV at $23.3/Sold 100 GJK at $24.6/ GJK is a synthetic floater with a guarantee Sold 50 GJN at 22.08 GJN Prospectus: PYV Prospectus: GJK Prospectus:

LIBERTY MEDIA SOLD 1/2 OF PIS POSITION/ Sold Remaining shares in the TC PIS/ Sold PKK at 24.1 Bought 50 PIS at 25  Bought 50 PIS at 24.88 in Roth IRA  SOLD 100 PIS at 25.95 FINRA Information on Underlying Bond in PIS PYL PYA: FINRA FINRA Information on Underlying Bond in PKK: FINRA PKK Prospectus: PIS: Prospectus:

Limited Brandsbought 50 pzb at $16.05/ Bought 50 of the TC PZB at 19.85 Sold All PZB at $22.3 & 22.49 FINRA INFORMATION UNDERLYING BOND: FINRA PZB PROSPECTUS: UNDERLYING BOND PROSPECTUS:  

MACY'S (originally issued by May Department stores, acquired by Macy's) Morning Trades: Sold DKQ TRUST CERTIFICATE MACY'S BOND DKQ Bought 50 of the TC DKQ at $15.95/ BOUGHT 50 DKQ AT 19.03 Sold 50 of 100 DKQ at 21 Sold50 DKQ @ 23  Bought 50 DKQ at 22.06 Sold 50 DKQ at 23.32  FINRA INFORMATION ON UNDERLYING BOND: FINRA DKQ Prospectus: Underlying Bond Prospectus: 

MOTOROLA Bought 50 XFJ at 25.38 Added 50 XFJ in Roth at 25.3 Bought: 50 XFJ @ 25.15 FINRA INFO UNDERLYING BOND XFJ: FINRA XFJ PROSPECTUS: UNDERLYING BOND PROSPECTUS: / XFJ Called by owner of Call Warrant 1/2011

News America (guaranteed by News Corp)(Called 12 /2010 by owner of call warrant) BOUGHT:  50 XFB at 25.5 Added 50 XFB @ 25.39  Finra information on underlying bond: FINRA XFB Prospectus: XFB CALLED BY OWNER OF CALL WARRANT 12/2010

PROCTOR & GAMBLE: Sold GJR, Trimmed GJT & JZH/ Bought 100 GJR at 11.29 GJR is a synthetic floater with no guarantee SYNTHETIC FLOATERS Prospectus for Underlying Bond in the TC: Final Prospectus Supplement TC Prospectus: FINRA INFO UNDERLYING BOND: FINRA  

Qwest: Bought 50 PJA at 19.45 Bought 50 PJA at 24.65  Bought 50 of the TC PJA at 25.06 PJA PROSPECTUS: UNDERLYING BOND PROSPECTUS: FINRA Information Underlying Bond: FINRA 

R R Donnelley  Bought 50 PYS at 20.01 Add 50 PYS at 19.59 Sold 50 PYS at 20.76 Sold  50 PYS @ 24  Bought 50 PYS at 22.6 Sold 50 of the TC PYS at 23.2 FINRA Underlying Bond Info: FINRA PYS Prospectus: Underlying Bond Prospectus:


Sprint: (DKI Called by Owner of the Call Warrant) /Bought 50 of the TC DHM at 21.35 Bought 50 GJD at 17.49 Bought 50 GJD at 17.8-Roth IRA Added 50 GJD at 17.95 Sold 50 of the 150 GJD at 18.59  Sold 100 GJD at 20.2 Sold 50 SLGPRC at $24.76 Sold DHM at 24.4 Bought 50 DKI at 24.95 Bought 50 DHM @ 24.51  FINRA Information Underlying Bond for GJD and DHM: FINRA (2028 Sprint Capital) FINRA Information Underlying Bond for DKI: FINRA (2032 Sprint Capital) Underlying Bond Prospectus for Sprint Capital 2028: Underlying Bond Prospectus for Sprint Capital 2032: GJD Prospectus: DHM Prospectus: Prospectus Supplement DKI Prospectus:  

TIME WARNERBought TC PYI at $19.05/ Bought 50 PYI at 23.98 Sold 50 PYI @ 25.66 PYI Prospectus: FINRA Info Underlying Bond: FINRA PYI Called By Owner of Call Warrant 11/2010

Unum: Bought 50 PJR at 16.72/ /Junk Bonds/ Buys of JWF KSA DIS and NYX/ SOLD KSA BUY OF 50 KSA IN IRA AT 16.31/ ADDED TO PJR at 20.7 Sold 100 of KCC Bought PJR  Sold 50 PJR at 25.79 PJR Prospectus: FINRA Link Underlying Bond in PJR: FINRA KSA Prospectus: FINRA Info Underlying Bond in KSA: FINRA

VALERO Sold PJZ  Buys of JWF KSA  PJZ Prospectus: Finra Information on Underlying Bond: FINRA Underlying Bond Prospectus: PJZ called by owner of Call Warrant 3/2011

WAL- MART: BOUGHT NVS AND SOLD GJO GJO is a synthetic floater with no guarantee /Buy of GJO  Bought 100 GJO at $16.4 SOLD GJO at $17.08 Bought 50 GJO at 18.55 FINRA INFORMATION ON UNDERLYING BOND FINRA

XEROX Added 50 KTX at 25 Bought 50 KTX at 25.14 Roth IRA/ FINRA Underlying Bond Info: FINRA KTX Prospectus: Underlying Bond Prospectus:

It is important to understand how the call warrants contained in the prospectuses will impact the price of the TC and its redemption, when the underlying bond in the TC is selling at a premium to its par value. More on the Call Warrant in TCs Call Warrants and Trust CertificatesCall Warrant Exercised on JZE and JZJThe Trust Certificates can only be understood by reading the prospectuses and doing your homework. In these posts, I explained how I decide to buy one, and the various factors that enter into the decision making process. Some Certificates contain senior bonds, others have junior bonds, some are floaters, some of the underlying bonds are rated junk and others are investment grade with some higher quality names like AT & T and Verizon. Each one has to be considered on its own merits. I am an opportunistic buyer of these securities, so most of them are currently priced at levels that have little or no interest to me. Many are currently classified as long term holds as part of my bond allocation. THIS IS ALSO A FRUITFUL AREA FOR A TRADING STRATEGY CALLED FUNCTIONAL EQUIVALENCE, UNTIL I STARTED TALKING ABOUT THAT TRADE. Functional Equivalence in Bond Trading/Hedge Funds & Independent Adminstration These are links to what I view as important information about these investments, risk management in bonds, inflation and credit risks and bonds in general: Managing Interest Rate Risk Inflation or Deflation: Bond Alternatives/ What is the More Rational Prediction for the Future-Inflation or Deflation Trust Certificates: Issues with Long Term Corporate Bonds Item # 2 Interest Rate Risks- Bonds Managing Risk for Each Security in the Asset allocation  Rising Rates and Your Investments Risks of Investing in Bonds Understanding Interest-Rate Risk Bond Investment Strategies

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