Friday, February 4, 2011

STD/Bought 1 Hawker Acquisition Senior Bond Maturing 2015/Bought 50 of the ETF FRN at $22.37/Sold 100 ANIK at $8.53/Sold 100 GJP @ 23.52 & Bought 50 DRE @ 13.45-ROTH IRA

There is a story in the current issue of Forbes, called "Capital Crunch", that delves into the increasing dire future of several large American cities. For those complaining about state and local taxes  who live in Chicago, Illinois, for example, the current tax burden will become progressively worse in the years ahead.   Many will just pick up their bags and move to lower tax areas of the country, thereby increasing the tax burdens for those who remain.  The article in Forbes referred to a study by two Professors that concluded Chicago will be using 53% of its tax revenue to support its retired employees by 2023, and that conclusion was based on the most optimistic economic forecast of 3% revenue growth and an 8% annualized return on Chicago's pension investments.  The unfunded pension liability in Chicago is among the highest in the nation at $42,000 per household. Moody's predicts NYC's cost of just paying for its retiree health costs will be 2.4 billion dollars in 2014, and NY's unfunded pension liability per household is around $38,900. 

A more upbeat article about the prospects for municipal bonds was written by Dave Kansas and published in the WSJ publication

I recently added a Selective Insurance Group (SIGI) senior bond to the regular IRA,  and that insurance company reported 4th quarter net income yesterday of 43 cents per share and 48 on an operating basis. SIGI reported operating income for 2010 at $1.35 per share.   SIGI closed yesterday at $18.7, up 77 cents for the day.

1. Santander (own common STD and the equity preferred floater STDPRB): Santander reported an attributable profit of 2.101 billion Euros, down from €2.201 in the 4th quarter of 2009.  The average forecast for the 2010 4th quarter was for €1.96 billion. 

Book value in Euros per share rose to €8.58 in 2010 form €8.04 in 2009.  The 2010 "attributable" profit was 8.181 billion Euros.  At the end of 2010, Spain accounted for less than 1/3 of loans, see page 25 at PDF You have to be expecting that operations in Spain will be a drag on earnings, most likely for several more quarters. The coverage ratio was at 58% as of 12/2010. Core capital was at 8.8%.

This report is discussed in an article in MarketWatch and at

2. Bought 50 of the ETF FRN at $22.37 (see Disclaimer):  FRN is an ETF called Guggenheim Frontier Markets.  The very name gave the Old Geezer, our soon to depart Head Trader, chills yesterday, with his hand starting to shake so severely that he almost hit the sell button after typing FRN in the order box, though some staff members thought that this may have been the OG's true intention.

Many moons ago, around 1820, a braver band of the OG's ancestors moved into middle Tennessee from Western Carolina, in search of cheaper land.   Middle Tennessee was then part of the U.S. frontier and land was cheap for a reason.   I am curious why the natives did not establish a register's office for deeds before the white man showed up.   Apparently, saying I own this land on a piece of paper was all that was necessary to become the owner, provided there was a seal of some sort on the piece of paper and a chain of title from some other white man who claimed ownership.

In the SUV Capital of the World, the Indian tribe was known as the Mississippi Indians, who apparently left the area before the white man came with their deeds and register's office.    Good use was made of what the Indians left behind. They buried their dead in stone graves. Federal Register | Notice of Inventory Completion: Tennessee Department of Environment and Conservation, Division of Archaeology, Nashville, TN Later, the plantation owners had their slaves dig up those nice stones and construct stone walls around the Master's home, many of which still stand to this day.   

Anyway, back to FRN,  the expense ratio is capped at .65%.  As of 12/31/2010, the fund had 43 holdings.  A current list can be found at FRN Holdings. This is the geographic weighting as of 12/31/2010:

Chile32.39 %
Colombia13.22 %
Egypt12.93 %
Argentina8.43 %
Peru5.56 %
Kazakhstan4.31 %
Poland4.08 %
Czech Republic3.59 %
Lebanon3.35 %
Nigeria2.84 %

Please note the presence of Egypt with a 12.93% weighting.  And there is yet any end in sight to the turbulence in that country.  I will wait to buy another 50 shares. 

The fact card for this ETF shows that the index for frontier markets has a modest positive correlation with the emerging markets index at .53 and with the S & P 500 at .49.  That correlation is measured over the period between 5/31/2002 to 6/30/2010, so this kind of investment may aid in my diversification effort. /The_Diversified_Growth_Potential_of_Frontier_Markets.pdf

Another alternative is this sector is the CEF FFD from Morgan Stanley, selling at a small discount to its net asset value, but the gross expense ratio is high at 2.05%: Fund Details  This is a link to the last SEC filed shareholder report for FFD for the period ending in October 2010.  There was nothing from Chile, which is one of the largest frontier markets. Nigeria was weighted at 13%; Kuwait at 18%; Kenya at 6.7%; UAE at 5.6%; and Qatar at 8.8%, so it deviates quite a lot from the index for frontier markets.  (as of 2/2, the discount was 7.95%, for current NAV and discount,  see CEFA, the sponsor's web site, or the WSJ page on World Equity CEFs. 

Powershares also has an ETF called the MENA Frontier Countries Portfolio (PMNA), which has a net expense ratio of .7% after a waiver of .25%. This is a narrower ETF, which is tied to an index of Middle East and North African countries.  I was after a broader index.   

{See also the following articles: frontier markets at London's Independent;  Frontier Markets in a January 2011 column by Mike Hogan at Barrons; and CNBC's Frontier Markets.}

3. Bought 1 Hawker Beechcraft Acquisition Corporation 8.5% Senior Bond Maturing 2015 at 75.5 (76.3 with concession)(Junk Bond Ladder Strategy)(see Disclaimer):  LB warned Headknocker that he needs to regain control over the trading desk here at HQ before the Old Geezer and the Nit Wit RB lose all of his money.  And, this latest addition to the Junk Bond Ladder Strategy proves beyond any doubt, reasonable or otherwise, that the OG and the RB are already out of control, the LB concluded.  Headknocker was inclined to agree with the Nerd. 

I did not have a bond maturing in 2015 in my junk bond ladder until I purchased this Hawker bond.  Hawker is a private company that designs and manufactures business jets.  It is also the "primary" supplier of military training aircraft.   Form 10-Q  That last filed Form 10-Q shows that the company had cash of 252.6 million as of 9/30/2010.  Long term debt was shown at 2.058 billion.  The company lost 118.7 million dollars in the 3rd quarter, which was an improvement over the 684 million dollar loss in the 3rd quarter of 2009.  The business jet market was hurt, which is an understatement, by the Near Depression.   Hopefully, and this may be more of a prayer than a hope, Hawker's prospects will continue to improve in the coming quarters as the economy regains its sea legs.  This 1 bond is easily the riskiest bought to date.  

A recent SEC filing noted the resignation of the CFO.  Prospectus Supplement

The debt schedule is shown in note 8 at page 8.  Unfortunately, there is a senior secured loan due in 2014, and it is large at 1.2415 billion as of 9/30. This would be Hawker's credit facility. The note purchased by RB matures in 2015, shown as the senior fixed rate note on that page.  There is another note due in 2015, called a senior PIK-election note. (PAY-IN-KIND, i.e. pay interest with more bonds).   To say that this bond is extremely dicey is an understatement.  (Prospectuses:  Form S-4) But, if RB's prayer is answered, there will be a good return.  

The coupon on the note is 8.5%. The bond matures on 4/1/2015.  Using my total cost number of 76.3 ($760.30 for 1 $1,000 par value bond) that works out to a current yield of 11.14%.  I calculated the YTM using the  Morningstar Bond Calculator as 17.67%.  This one bond raised by yield in the entire junk bond portfolio from 8.99%  to 9.211%. 

4. Sold 100 of 150 ANIK at $8.53 (see Disclaimer): I noticed that Anika was up 19% early yesterday afternoon, and I could not find any recent news to account for that move.  The most recent SEC filing involved an appointment of of Jeffery Thompson to the Board. I also did not find any recent public news by doing a Google search or by checking Anika Therapeutics web site.   Possibly, some positive news will be made public soon.   

Consequently, I sold the 100 shares that had been held for over a year to lock in a long term capital gain, and will keep the 50 shares bought at $6.3 last March. It would have been better to have not seen the jump until later in the day.   ANIK closed at $9, up 25% for the day. 

5. Sold 100 GJP at $23.52 and Bought 50 DRE at 13.45, Both in Roth IRA on Thursday (see disclaimer):  GJP is a synthetic floater tied to a senior Dominion Resources senior bond. While relatively safe, this security does not pay me much now, given that the current rate is the 3% guarantee on a $25 par value.  GJP will start to look better when the 3 month treasury bill rate returns to more normal levels.  This synthetic floater pays the greater of 3% or 1.15% over the 3 month treasury bill rate with a maximum coupon of 8%,   I have been in a trading mode on this security since 2008 and have booked several gains.  Bought 100 GJP at $18.97 (October 2009) Sold 100 GJP at 22.42 (Feb 2010 Bought 50 GJP at 20.55 (July 2010)  Sold: 50 GJP at 23.31  (Oct 2010)  Bought GJP at $17.75 (April 2009).  On that last post referenced, I can not find where I sold the GJP's shares purchased at $17.75.  This last 100 shares was bought a few days ago at $21.95, and I held it long enough to collect one monthly interest payment.  I am probably at the point where I could buy back 50 shares and be playing with the house's money on this security.  I will only purchase Synthetic Floaters in retirement accounts due to tax issues associated with the swap agreement which is how the floating rate is created in these securities.  

I bought 50 shares of Duke Realty Corporation (DRE) at $13.45. I have been familiar with this REIT for a long time.  I do not expect much price appreciation over the short term.   If this buy works, it will be over the long term, as in years rather than months.  Duke Realty is an industrial REIT.  A five year chart shows what happened to the share price as a direct result of the Near Depression.   DRE-  Duke Realty Corp Stock Charts In February 2007, the stock price was hovering near $44.  When the stock was done cratering, the bottom was around $5 in March 2009.  The current quarterly dividend is around 17 cents per share, which will give me a tad over a 5% yield.     

Two competitors of Duke Realty, ProLogis and AMB Property, recently announced their merger, 8k.  I do not view that as a positive for Duke Realty.  DRE shares did pop some on the news, rising from $13.04 a share to close at $13.85 on the day of the merger announcement.

Duke Realty recently released its 4th quarter results.  Core FFO was reported at 28 cents.  Overall portfolio occupancy, including projects under development, was 89.1%, up from 88.9% as of Q/E 9/2010 and 88.5% at the end of 2009.   Duke owns and operates "more than 139 million rentable square feet of industrial and office, including medical office, space in 18 major U.S. cities".

1 comment:

  1. Thanks for the reminder. Now I'll need an extra drink tonight. At least one.

    Great posts.