Friday, May 20, 2011

SOLD: 1 Albertsons 7.75% 2026 Bond @ 88.3 and 1 Dean Foods 7% 2016 Bond at 100.13/Bought 1 Eastman Kodak 7.25% Senior Bond Maturing 11/15/2013 @ 94.875/Sold 100 PJS @ 25.2/Colt Defense

Goldman cut Intel (owned) to sell yesterday, based on its analysis of short term factors that may drive the price down.  WSJ

Another one of my investment grade senior bonds is being called by its issuer. United States Cellular announced yesterday that it will redeem its 7.5% senior exchange traded bond (UZV) on 6/20/2011 at its $25 par value plus accrued interest from 6/15 to 6/20, with the company making its regularly scheduled quarterly interest payment on 6/15.  U.S. Cellular Announces Redemption of 7.5 Percent Senior Notes I sold some of my UZV shares recently.  I still own a 100 shares in a taxable account and 50 shares in the ROTH IRA.

I can also confirm that the trust certificate DKF, containing a senior GR bond, has been redeemed in full by the owner of the call warrant.  I owned 100 shares in the Roth IRA and 50 in a taxable account:

100 DKF Roth IRA Lost to Redemption 5/17/2011/ Net Gain +$202.55 Plus Interest
The 50 shares of DKF bought in March 2009 did generate several interest payments, with the yield at my cost of 10% on this investment grade bond.  

Colt Defense reported a loss of $1.759 million for the Q/E 4/3/2011 on revenues of $48.497 million.  Form 10-Q Cash and cash equivalents fell to $49.88 million from $61.444 million as of 12/31/2010.  The company used $10.338 million in operating activities.  Sales declined from $56.339 million in the year ago quarter. There was a $18.1 million dollar decrease in carbine sales to the U.S. government.  I do not view this report positively, and will not buy another bond.  I own just 1 Colt Defense bond:  Bought 1 Colt Defense 8.75% Senior Bond Maturing on 11/15/2017 at 85.24

1. Sold 1 Albertsons 7.75% Senior Bond Maturing in 2026 at 88.3 on Wednesday (Junk Bond Ladder Strategy)(see Disclaimer): Part of the this strategy is to harvest some profits in the riskier and/or longer term bonds.  All of the Supervalu (SVU) bonds, which include those originally issued by Albertsons, have done well since my purchase, primarily due to the improved operating results reported by SVU and discussed at SVU (4/15/2011 POST). 

I previously mentioned that I intended to sell the longer dated Albertson bonds for a profit, if possible, and to keep the Supervalu bonds maturing in 2014 and 2016 until maturity. (SVU-March 2011 Post)  I have now sold two of the longer dated Albertsons' bonds, the other one sold was a senior bond maturing in 2029. (Sold 1 Albertsons' Bond Maturing 2029 at 84.125 that was bought at 77)   I will now keep the 8.7% Albertson's bond maturing in 2030 for its income generation. Bought 1 Senior Albertsons' Bond Maturing 2030 As noted in that post, the current yield and YTM are both over 10% based on my cost basis for that bond. I am comfortable holding 3 Supervalu bonds.   The 7.75% 2026 bond was bought at 80 (80.8 with commission) last February: BOUGHT 1 Albertsons Bond Maturing 2026 (2/8/2011 Post)

FINRA Information on 2016 SuperValu Bond: FINRA 
FINRA Information on 2014 SuperValue Bond: FINRA
FINRA Information on 2030 Albertsons Bond: FINRA

2. Bought 1 Eastman Kodak 7.25% Senior Bond Maturing on 11/15/2013 (Junk Bond Ladder Strategy)(see Disclaimer): OG who was awaken from his morning nap by a commotion here at HQ, caused by the Nerd's buy of this bond in the Regular IRA.  HK had turned completely red in the face, barely able to control himself, before saying "he was already uncomfortable holding one EK bond, let alone two, and it was just unconscionable for the NERD to buy one in the IRA, a totally inappropriate place for such a risky bond." The LB noted that the OG had recently bought two Edison Mission bonds in the Roth IRA, claiming that it was a mistake, and LB viewed that bond as more risky than the EK bond maturing in 11/2013.  LB views it as likely that EK will survive at least another two years to pay the principal and interest on this bond.  And, after crunching the variables, LB did decline to buy a longer dated EK bond based on the uncertainty about that firm's long term survival. 

LB could not resist adding that it was the RB who bought the last 2013 EK bond:  RB Bought 1 Eastman Kodak Bond Maturing 2013 at 94.9  And LB reminded the Great Leader that the Nit Wit was named BEST HEAD TRADER for 2009, even though it was the Stock Stud who kept everything together, preserving capital, wheeling and dealing, paving the way for a tripling of HK's capital base.  Of course, LB does not hold a grudge against our Great Leader for failing to recognize the LB's many achievements here at HQ. 

Finra Information on 2013 Bond:   FINRA 

The LB would emphasize that this bond has been downgraded since the last purchase just a few weeks ago. The senior unsecured bond rating is currently a lowly CC by S & P with a negative outlook.  The secured debt rating by S & P is currently CCC.  And, the last earnings report was awful, the only word that I would use to describe it.  Form 10-Q EK reported a 246 million dollar loss on net sales of $1.115 billion.

The company also recently sold 250 million in principal amount of a 10.625% senior secured note maturing in 2019.  The preceding highlighted portion is proof to me of significant financial distress.  EK (3/16/2011 Post) The company did repurchase 50 million of the 2013 notes at par with part of the proceeds of that sale, see page 11 of the Form 10- for Q/E 3/2011) The firm does show a cash and cash equivalent balance of $1.3 billion as of 3/312011. (p. 35).

The main profitable business of the company is extracting patent settlements from companies.  Recently, the ITC agreed to review a decision by an ALJ that found no infringement of a EK patent by Apple and RIMM.  Eastman Kodak (EK) (3/29/2011 POST). If the full Commission reverses and finds a violation, then the potential settlement according to several press reports could be in the 1 billion dollar neighborhood. A settlement anywhere near that amount would render it highly probable that EK will survive to pay off this 2013 note.

I did not know when I bought the bond again on Wednesday that the staff of the ITC had sided with EK in the Apple patent dispute:  Bloomberg A decision by the ITC is expected on 6/23/11.

Even without that settlement, the prospects are at least reasonable that the company will survive another 3 years.

My confirmation states that my current yield is 7.577% and the YTM is 9.241% at my total cost.

I could pick up slightly more yield by buying an EK bond maturing in 2018, but LB did not want to take the credit risk. This is a link to the FINRA information on that bond: FINRA  Another EK bond matures in 2023, which is usually available, and I have no interest in that one either for the same reason. FINRA Since I can hold these bonds to maturity, there is no interest rate risk, other than possibly the risk of loss opportunity associated with interest rate risk, that is, buying the bond at a lower price after a rise in rates.  I am more concerned with the interest rate risk associated with holding a long term bond, and only have material concerns about credit risks for short and intermediate term bonds.

3. SOLD 100 OF THE TC PJS AT $25.2 (SEE DISCLAIMER): This TC was sold under a GTC AON limit order which was placed after I bought the underlying bond. BOUGHT 1 CoreLogic 7.55% Senior Bond Maturing 4/1/2028   Some firms do not allow AON orders for 100 shares, such as Schwab and Vanguard, while others do including Fidelity and TD Ameritrade.   In retrospect, it was unbelievable that I was able to buy this TC at $7.2. My best year trading it was 2010 when I had a realized capital gain of $720.47 in the ROTH and $1,000.18 in a taxable account, of which $700.74 was a long term capital gain (plus interest payments). 

PJS 2010 Taxable Account +$399.24 ST and +$700.74 LT  Plus Interest Payments

PJS 2010 ROTH IRA SALES + $358.75 and $720. 47
The 2011 gain was negligible since I just clipped the semi-annual interest payment.  Bought 50 PJS @ 24.6 (November 2010 Post) Bought 50 of the TC PJS at 24.84 (August 2010) (this last post explains why this bond is now an obligation of CoreLogic)  The ex interest date for the semi-annual payment was on 3/2911: Preferredplus Trust Series Far 1, PJS  So I clipped two interest payments on one 50 share lot and 1 semi-annual payment on the lot bought last November, plus a small short term capital gain on the shares. 

I currently own 50 shares of PJS recently bought in the ROTH IRA:   Added: PJS at 24.72 (Oct 2010).  I am content to play with the house's money on this one. 

TRUST Certificates: Links in One Post

4. Sold 1 Dean Foods 7% 2016 Bond at 100.13 on Wednesday (Junk Bond Ladder Strategy) (see Disclaimer):  This bond was bought at at 93.8 last December. I mentioned in Monday's Post at Item # 1 that my two Dean Foods bonds had rallied after DF reported 1st quarter results.  Dean Foods (DF) I used that rally to sell 1 of my 3 DF senior bonds.

Recognizing the risks inherent in my Junk Bond Ladder Strategy, I am taking some profits before I am hit with the inevitable losses.  So far, a few of the bonds that I still own have performed above my initial expectations including the 3 Cincinnati Bell bonds, the 5 SuperValu Bonds (now reduced to just 3), and the Along Krotz Refining and Hawker bonds (both sold).  I am a tad more comfortable with the CBB bonds than with many of the others. This is not to say that the OG is comfortable with any of them. It is all relative. The general idea is to offset the expected losses with gains so that I suffer no dilution in total return generated by the interest payments by the bonds bought under this particular strategy. More on Rationale for Junk Bond Ladder Strategy

Realized capital gains and losses are being tracked in Item # 5 Realized Gains Junk Bond Ladder Strategy As long as that number remains green by any amount, I will be satisfied, even happy, with the result.  

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