Wednesday, October 12, 2011

Travelport Update on Secured Credit Facility/Bought 1 Goodyear Tire 8.25% Senior Maturing on 8/15/2020 at 98.5/Bought 100 OPXT as LT at $1.18/Sold 50 of LT BBND at $2.21/Sprint/Added 50 GFW at $25.02

General Mills (owned) was upgraded from neutral to buy at Goldman with a $44 price target. I believe that the long term chart of GIS is an eye opener for young investors.  GIS Interactive Chart

ARRIS (ARRS) has agreed to acquire BigBand Networks (BBND) for $2.24 per share in cash. This will allow me to exit my Lottery Ticket position in BBND as closer to break-even after the stock rose over 70% yesterday.  I sold that 50 shares position at $2.21.  I am working on a New Gateway post for the Lottery Ticket strategy, which will include snapshots of realized gains and losses.

So, the approval of an increase in the European Financial Stability Facility hinges on a vote in Slovakia. Bloomberg Fortunately, our LB can find Slovakia on a map and could recite some of its history. One of the EU's many problems is this kind of vote, the mere fact that Slovakia can throw a wrench into the plans impacting the remainder of the EU. It would be like giving Alabama a veto over the TARP bill passed in 2008. After the market closed yesterday, the Slovakia Parliament rejected the proposed expansion of the EFSF, WSJ, but it is expected to pass on a second vote later this week.

Another WSJ article also highlights that European leaders are openly discussing now that the financial institutions need to take an even bigger haircut on Greek sovereign debt, at least those in the German Bloc are advocating that position. France does not appear eager to compel even greater haircuts since its banks are more heavily exposed to that Greek garbage. WSJ So, are the Greeks really going to change and become more like Germans, or are the Europeans just throwing good money after bad?  Slovakia is poorer than Greece, though far more responsible, and I can certainly understand their unwillingness to bail out the flagrantly irresponsible Greeks.

Travelport has entered into a modification of its secured credit facility agreement. While extending the maturity of that facility (8-k), this modified facility appears to me to be more onerous due in no small part to the use of Travelport's assets to "restructure" the parent's PIK notes. Form 8-K; see Item # 3 Update on Travelport The bond market no longer has much, if any, faith in this company. The  Travelport 2014 senior bond is currently trading near 60% of its par value. I expect to take a loss on my 3 Travelport bonds and not voluntarily. The only questions now are how much will be my loss, and how many interest payments will I receive which will partially offset that loss in principal. Hopefully, I am being too pessimistic.

S & P recently downgraded the senior Travelport bonds to the lowly "C" rating. There is no letter grade below "C" in S & P's rating system other than "D" which means default.  Needless to say, the already heavily indebted Travelport would not be able to survive by refinancing its debt at the current yield priced into its bonds by the market. I currently have a 10- risk rating on the senior Travelport bonds, indicating my belief that these bonds are in the extreme risk category. The senior subordinated bond is rated by me at 10+.  Personal Risk Ratings For Junk Bonds  Travelport has a limited amount of time in my opinion to drastically improve its earnings. I was asked by a reader whether I intended to average down, and the answer is no way.  Item # 2  Travelport I am going to keep plugging away at my junk bond ladder strategy, notwithstanding this kind of problem.

1. Bought 1 Goodyear Tire 8.25% Senior Maturing on 8/15/2020 at 98.5 Last Friday (Junk Bond Ladder Strategy) (see Disclaimer): Goodyear Tire & Rubber Company is a well known American company that needs no introduction.  The current consensus estimate is for an E.P.S. of $1.59 in 2011 and $2.19 in 2012.  GT Analyst Estimates 

The problem is the sheer size of GT's debt. As of 6/30/11, the company had long term debt of $4.786 billion. The debt is listed and discussed starting at page 13 of the filed form 10-q. The company had $1.804 billion in cash and cash equivalents as of that date. 

This is a link to the FINRA information on this bond. According to FINRA, it is rated B1 by Moody's and B+ by S & P. Looking at the one year FINRA chart, this bond was trading near 110 back in July and has most likely fallen due to investor flight from junk bonds rather than any specific news about Goodyear Tire.  

My confirmation states that the current yield at my cost is 8.308% and the YTM is 8.36%.  This is a higher yield than  the trust certificate XKK, which contains a senior Goodyear Tire bond maturing in 2028 as its underlying security. XKK has a 8% coupon on a $10 par value. At a total cost of $10, about where XKK is trading now, the XKK current yield is the coupon of 8%. I recently sold 100 of my 300 shares of XKK at $10.03, shortly after it went ex interest for its semi-annual distribution. Item # 3 Sold 100 of 300 XKK at $10.03 

So, I pick up some yield and lessen the interest rate risk some by substituting one 2020 bond for 100 shares of XKK. Since I view this as basically a swap, I am still allowed to buy 1 junk bond in the bond market during the current month.  

I am going to give this bond an initial risk rating of 5+: Item # 3 Personal Risk Ratings For Junk Bonds 

2. Bought 50 of the Exchange Traded Senior Bond GFW at $25.02 in Regular IRA Last Friday (see Disclaimer): This is another security that I have discussed in several posts, and have nothing important to add. Bought 50 GFW at 22.76 Bought 50 GFW at 22.63 Sold 50 GFW at 25.13 Sold 50 GFW at 25.13 Bought 50 GFW @25.04 Bought 50 GFW at $24.82 Added 50 GFW at 24.9 My last transaction was to sell the only shares owned in a taxable account. Sold 50 of 200 GFW at $25.48 It makes more sense to own bonds in a retirement account. I now own 100 GFW in the Regular IRA and 100 shares in the ROTH IRA. Interest paid by this security would be taxable at my highest marginal rate when paid into a taxable account. In the ROTH IRA, the distributions are tax free, and security becomes in effect an investment grade tax free bond. 

This security makes quarterly interest payments. The coupon is 7.5% on a $25 par value. The bond matures in 2033. Final Prospectus Supplement

The issuer is a non-public company called AAG Holding that owns the Great American Life Insurance Company.  AAG is a wholly owned subsidiary of another non-public company called the Great American Financial Resources, Inc (GAFRI). Lastly GAFRI is owned by the public company American Financial Group

According to (free site, registration required), this bond is rated Baa2 by Moody's and BBB+ by S & P.  I confirmed that rating at AFG's website: American Financial Group, Inc. - Investor Relations - Ratings  GFW is mentioned in the debt section of AFG's  Form 10-Q at Note J, Page 25. The  ratings of the Great American Life Insurance Company are shown as A+ by S & P and A by A.M. Best, as of 12/31/2010: See page 10 of AFG's 2010 Annual Report, Form 10-K.
3. Bought 100 OPXT at $1.18 as LT Last Friday (LOTTERY TICKET STRATEGY)(see Disclaimer): I have previously bought and sold Opnext shares, and I am now playing with the house's money on this 100 share purchase.    Bought 50 OPXT at $1.91 Sold LT Opnext at $3.1 Bought 100 OPXT at 1.89 Sold 100 OPXT at $2.47 Bought 100 OPXT @ 1.6 Sold 100 of the LT OPXT @ 3.15

It was necessary to restrain the LB when summarizing this company. LB wanted to give Opnext a lecture about how public corporations are supposed to earn money, at least those operating in capitalist countries. If a company wants to lose money every year, then it needs to be owned as a hobby by some rich person. 

The current market cap of this company is around $106.55 million. As of 6/30/11, OPXT still had $97.161 million in cash and cash equivalents, down from $100.284 at the end of the March 2011 quarter. The net property, plant and equipment was $58.401. The company lost money, again, in the June quarter.  On the bright side, the company lost 7 cents per share in that quarter, down from an 18 cent loss for the Q/E 6/2010. 

The company was impacted by the Japanese earthquake and tsunami. Page 19 Form 10-Q

I do not understand the products made by the company, one reason among many to keep the exposure small. 

The purchase is made primarily due to the following criteria: Price/Sales=.29; Price/Book=.46; Cash Per share $1.06-Price Paid Per Share $1.18 OPXT Key Statistics 

When Opnext announced its fiscal first quarter results on 8/4/11, it estimated that its revenue for the second fiscal quarter would be between $89 to $95 million. SEC Filed Press Release The consensus estimate before than announcement was $99 million. The shares closed at $1.89 on 8/3/2011. OPXT Historical 

While it is just an opinion, Opnext appears to be a company that needs to be acquired by a larger company, with most of OPXT's employees thereafter finding other gainful employment.  

The goal with this stock is to realized another profit after tax to buy a few cartons of the classic Coca Cola, our favorite soft drink here at HQ.

2011 +136.76
2010 +40.44

2009 +43.49.
Net Total Realized Gains= $220.69. What can I say, commissions eat into the return some, the RB is kept busy with this strategy, and the exposure was always within the parameters permitted by the Lottery Ticket strategy. 

4. Sprint (own 1 bond only):  I own 1 Sprint Nextel senior bond. Bought 1 Nextel 7.375% Senior Bond Maturing on 8/1/2015 at 98.25 At the time of my purchase, I gave this bond a risk rating of 4+. Item # 2 Personal Risk Ratings For Junk Bonds I have raised that risk rating to 8 based on the WSJ article summarizing Sprint's presentation at a recent analyst meeting. These personal risk ratings are fluid. I did not care for what I read in that article. Some of Sprint's issues are discussed in this recent article at MarketWatch. The basic issues are capital expenses of $10 billion in both 2012 and 2013 and the likely large subsidy that Sprint has agree to pay Apple for the IPhone 4S.

I may buy Sprint common shares as a Lottery Ticket if and when the price breaks below $2, but would not buy more than 100 shares. FBR recently added Sprint shares as a top pick after a substantial waterfall decline in the share price. A number of other firms, however, have recently downgraded Sprint's common shares.

I may also buy a minor amount of another Sprint bond. I have booked gains trading Sprint exchange traded bonds in trust certificate legal form, and have received a number of interest payments on those bonds. I currently do not have a position in any of those securities.  Trust Certificates: New Gateway Post

Sprint Nextel common shares closed at $2.38 yesterday, up 16 cents for the day. 

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