Friday, August 26, 2011

Exchange Traded Bond and Preferred Stock Table/AMAT/BAC/European Financial System in Effect Insolvent?/Bought 1 MetroPCS 7.875% Senior Bond Maturing 9/1/2018 at 98/QUICKSILVER RESOURCES (KWK)

Berkshire Hathaway is buying 50,000 shares of cumulative preferred stock to be issued by Bank of America with a liquidation value of $100,000 per share. Berkshire Hathaway to Invest $5 Billion in Bank of America This appears to me to be equity preferred stock that can be counted as part of the bank's equity capital. The dividend rate is 6%. In addition, Berkshire received a warrant to purchase up to 700 million common shares of BAC at $7.142857 per share, exercisable at any time during a ten year period from the closing of the transaction. The value of the transaction is five billion dollars. I believe that this preferred stock will be at the same level of priority as BAC's existing non-cumulative equity preferred stock.  If that is the case, BAC would have to defer Berkshire's dividend in order to eliminate the non-cumulative dividends on its other equity preferred stock. This is a link to the agreement between BAC and BRK: Securities Purchase Agreement

The infusion of equity capital also relieves somewhat the market's concerns about the publicly traded equity preferred shares, which have fallen a lot in value over the past few weeks. They rallied strongly in trading yesterday as did the BAC Trust Preferred stocks. I own two floating rate non-cumulative equity preferred stocks originally issued by Merrill Lynch, later acquired by BAC, and three TPs (CPP, KRBPRD, KRBPRE). Advantages and Disadvantages of Equity Preferred Floating Rate Securities Floaters: Links in One Post

The BAC TP's represent an interest in a bond owned by a trust issued by BAC or one of the companies acquired by it, and that bond would be senior in priority to all equity capital stock and junior in priority to all other bonds in the bank's capital structure.

Reuters claims that buyers are not beating down the door to buy part of BAC's stake in China Construction Bank Corp (601939.SS).

Greece's two year sovereign notes hit a record 43% yield yesterday, as the bailout hit a snag with Finland demanding collateral for its participation.  WSJ 

The German DAX market fell 4.5% in a few minutes yesterday. Scott Minerd, CIO of Guggenheim Partners, claims that the system in Europe is unsteady and there is a fear that Europe will not pull off a successful restructuring. He also maintains that the European banking system is effectively bankrupt if they had to mark their sovereign debt holdings to market. He claims that the financial system in Europe is insolvent.

1. Applied Materials (own): I have been trading this stock in small lots with the last lot bought at $12.45. Bought 50 AMAT at $12.45 (June 2011). After the bell yesterday, AMAT reported its fiscal third quarter results. SEC Filed Press Release. For that quarter, AMAT had net income of $476 million, or 36 cents per share on a GAAP basis, on revenues of $2.79 billion in revenues. The adjusted number was 35 cents.  While that was better than the consensus estimate of 33 cents on $2.68 billion in sales, AMAT guided down for its fiscal 4th quarter to a 15-20% decline in sequential revenue and an E.P.S. in the range of 16 to 24 cents.  The consensus 4th quarter estimate was for 31 or 33 cents depending on the service. The company lowered its outlook in response to the uncertainty in the global economy which has caused several customers to push out orders. The company also referred to "disappointing" PC sales during the back to school season. Orders from AMAT's foundry customers had  softened "significantly" over the past six weeks.  Sales in TVs have also been disappointing causing LCD panel manufacturers to delay new equipment orders until next year.

As of 6/30/11, AMAT has $5.018 billion in cash/cash equivalents, short term investments of $739 million, and long term debt of $1.947 billion.

AMAT is in the process of acquiring  Varian Semiconductor Equipment (VSEA), which was recently approved by VSEA shareholders. I do not believe the Justice Department has cleared the merger yet under the Hart Scott Rodino Act.

AMAT sold debt in June, apparently to help it finance this acquisition.  ($400 million at 2.65% maturing in 2016; $750 million at 4.3% maturing in 2021; and $600 million at 5.85% maturing in 2041).  The offer for Varian was $63 per share in cash or approximately $4.9 billion. Applied Materials to Acquire Varian Semiconductor Equipment Associates | Applied Materials

As noted in this Reuters' article, the downbeat forecast caused a number of firms to cut their price targets.

Applied Materials fell 55 cents or 4.84% yesterday to close at $10.81. I may average down by rounding the lot up to 100 shares.  The dividend yield is approaching 3%. 

2. Bought 1 MetroPCS 7.875% Senior bond Maturing on 9/1/2018 at 98 last Wednesday (Junk Bond Ladder Strategy(see Disclaimer):  PCS is provides wireless broadband mobile services in several large metropolitan areas.

Link to Reuters Profile Page: Metropcs Communications Inc (PCS)

Link to Reuters' Key Developments page.

This is a link to the FINRA information on this bond: FINRA According to FINRA, it is rated B2 by Moody's and B by S & P.

This is a link to this bond's prospectus: Final Prospectus Supplement

Interest is paid on 3/1 and 9/1.

This is a link to the firm's last filed SEC Form 10-Q: MetroPCS 10-Q - 2011 Q2 As of 6/30/11, PCS had $1.856 billion in cash/cash equivalents and another $299.95 million in short term investments. The company reported for that quarter net income of $84.335 million ($75.696 million after certain adjustments) The long term debt is discussed in note 6 at pages 8-9.  Total long term debt stood at $4.714512 billion. For the quarter, PCS reported slightly over $1 billion in revenues and $2.1635 billion for the first six months of 2011. Net property plant and equipment is shown at $3.857 billion. (many numbers are rounded by me)

My confirmation states that the current yield at my cost is 7.97% and the YTM is 8.102%.

3.  Increasing Risk Assessment for Quicksilver Resources (KWK) 2016 Senior Subordinated Bond (KWK) I own one KWK senior bond. Bought 1 QuickSilver Resources 7.125% Senior Sub Bond Maturing 4/1/2016 (December 2010). During the market's downdraft, KWK has fallen from $14.41 on 7/22/11 or about 37%. KWK Historical Prices  The stock price has also been adversely impacted by the new events discussed below which have caused me to increase my risk rating from 3 to 6.  Personal Risk Ratings For Junk Bonds

Some of the negatives are discussed in this Reuters article. The general thrust of that article is that KWK's capital expenditures are rising while the price of natural gas remains low.  The current consensus forecast is for an E.P.S. of 21 cents in 2011 and 34 cents in 2012.

KWK has also recently received a subpoena from the SEC requesting documents relating to natural gas shale well production. Apparently a number of companies involved in that area have received requests for information.  NYT This was after a story in the NYT (6/25/11) questioning whether companies extracting natural gas from shale were overestimating the cost and reserve life of their shale properties. This is link to documents where industry insiders claimed that production from shale may not live up to claims:  Documents: Leaked Industry E-Mails and Reports

KWK does have significant drilling operations in the Barnett Shale. Profile | Of its $696 million in estimated capital expenditures for 2011, $292.4 million is devoted to that area. (page 28:  e10vq)

KWK has been selling some assets.  In October 2010, it sold its midstream assets, Quicksilver Gas Services, for $700 million. It has also been selling its interest in BreitBurn Energy Partners   and still owns 8.6 million units as of 6/30/11 (page 14: e10vq). BBEP is a publicly traded company and is currently selling near $18 per share.

The last earnings report beat the street consensus. KWK reported an E.P.S. of 7 cents, compared to a 5 cent consensus estimate, and estimated that third quarter production volume would be up 3% sequentially.

The Darden family owns about 28% of the company and dropped a plan to take the company private at a much higher price than prevailing today: Reuters

4. Exchange Traded Bond and Preferred Stock Table as of 8/25/2011: This is an updated table of my exchange traded bond and preferred stock table. This list includes only securities traded on the stock exchange. I include in this table baby bonds, trust certificates, synthetic floaters, trust preferred, "principle protected" notes, and equity preferred stocks. I neglected in prior tables to include 150 of the TC PJA which I have owned for some time. Bought 50 PJA at 19.45 Bought 50 PJA at 24.65 Bought 50 of the TC PJA at 25.06. I added 100 WLFCP yesterday which I will discuss in the next post. I have to make two separate snapshots to include all of the securities:

Exchange Traded Bond and Preferred Stock Part 1 of 2
Part 2

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