Wednesday, November 16, 2011

Sold 200 of the Bond CEF NPT at $12.92/Earnings: AGY Holdings, Solo Cup, Dillard's/BAC Selling More CCB Shares/

The yield of the Italian 10 year bond rose to over 7% yesterday. IT 10Y Govt Bond Benchmark, 10YR_ITA Bond Quote - (ICAPSD)

I did receive my semi-annual interest payment yesterday on EK's 2013 senior bond.

For very good reasons, the EU leaders do not trust Greek politicians. Before dispensing the next 8 billion Euros to Greece, the EU has requested that the Greek politicians sign a pledge in writing that they would honor the austerity demands. I mentioned earlier that the leader of the New Democracy party, Antonis Samaras, refused to sign such a pledge. Samaras and his party have opposed virtually all austerity measures taken to date.  Members of the New Democracy party have also refused to sign that pledge. In addition, 101 members of the Socialist party signed a letter opposing cooperation with the the New Democracy party. Reuters I am not sure why the market believes that the appointment of a technocrat as the Greek P.M. for a short period solves anything. Martin Feldstein called the Greek situation "impossible" in a recent interview. Bloomberg

Using Census data, a study by Stanford found that 44% of families live in middle income neighborhoods in 2007, down from 65% in 1970. In short, the middle class is shrinking.  NYT (copy of report:  RussellSageIncomeSegregationreport.pdf)

It is no secret that the GOP wants to abolish the Environmental Protection Agency, or severely cut its budget and curtail its rulemaking authority under the Clean Air Act. The EPA currently has about 18,000 employees and a budget of $8.7 billion. A large number of inaccurate and false statements are made to justify their positions. A recent example comes from the TB Allen West who claimed that the EPA wanted to hire 230,000 workers at a cost of $21 billion, a claim rated as false by PolitiFact. Earlier this year, the House GOP members overwhelmingly voted to cut the EPA's budget by one-third. There is a continuing effort by the GOP to block EPA regulations impacting the discharge of arsenic and mercury into the air. Times Union The general idea is to permit more pollution by certain industries that are big donors to GOP politicians.

Environmentalists lose support among many mainstream Americans by successfully stopping needed projects based on dubious reasons. Remember the snail darter and the delay in the construction of the Tellico Dam, as just one of many examples?

The Beanpole recently postponed a decision on the construction of a pipeline that would bring Canadian oil production from the oil sands region to Texas and Oklahoma refineries based on the vehement opposition of environmental groups and Nebraska. NYT The concern was that the proposed pipeline route crossed the Ogallala Aquifer, viewed as a critical source of drinking water in the Great Plains. The concern would be that an oil spill would contaminate that Aquifer. Keystone XL Pipeline This appears to be a legitimate environmental concern, and there are alternative routes available to TransCanada (TRP), the Canadian company trying to build the pipeline.    MarketWatch

The pipeline construction would create a number of jobs and reduce U.S. dependence on oil from less friendly nations. While those are important considerations, the environmental concerns are also important and need to be addressed in a more sensible manner. The pipeline route was opposed by officials in Nebraska, including the republican governor Dave Heineman who can not be  labelled a left wing environmental nutcase even by the TBs. The problem for the environmental cause will come on this issue when the pipeline is rerouted and environmental organizations still try to block it for reasons that lack any real substance.  

After the Administration delayed its approval, TransCanada announced that it would reroute the pipeline to avoid the environmentally sensitive Nebraska Sandhills region. That rerouting will require only a 30 to 40 additional miles of pipe and one more pumping station. So the only reason to cross the Aquifer was to save a few bucks for the company.

The N.Y. Federal Reserve reported that is Empire manufacturing index for November rose 9 points to .6. The last five readings were negative. New orders were down to -2.1. Empire State Manufacturing Survey

I sold my Solo Cup bond several months ago, but I will still review briefly the quarterly earnings report for the purpose of determining whether or not to buy it back.  Sold 1 Solo Cup Senior Sub Bond Maturing in 2014 at 92.5 The company reported a loss of $16.61 million on $416.323 million in sales for the Q/E 9/25/2011.  SOLO-10Q-9.25.11 I have no interest in buying that bond back anywhere near its current price. I would add that Solo cups have been available at half price at both Harris Teeter and Krogers located near HQ recently. I bought a package at that discount from Harris Teeter this week and received a $1 coupon from Solo off any purchase at HT, reducing my cost further to around 50 cents for the package of cups.  

1. Dillards (own 1 bond: FINRA)Dillard's reported net income of $26.6 million or $.5 per share on revenues of $1.4165 billion for its third fiscal quarter. Same store sales increased 5%. In the year ago quarter, the company earned 22 cents per share.   

I have bought and sold a Dillards TP (DDT: Trust Preferred Securities: Links in One Post I prefer the senior bonds with shorter maturities. During the Near Depression period, I bought 50 shares at $5.82 and was nervous about it.  (see also: Bought 50 DDT at 18.42 Sold 50 DDT at 22). This TP matures on 8/1/2038 and has a 7.5% coupon. It is now selling close to its $25 par value: Dillard's Capital Trust I 7.5% 

The senior bond has a 7.75% coupon and matures on 5/15/2027. It is of course senior in priority to the junior bond owned by Dillard's Capital Trust I. Prior to a bankruptcy, the main difference in priority is that the distributions can be deferred on the junior bond, whereas that is not an option on a senior bond. When a retailer fails, I would not expect any recovery for a junior bond and the senior bond owners would likely take a big hit. 

The bonds maturing in the 2020s are trading below their $1000 par values. FINRA

2. Sold 200 NPT at $12.92 Last Friday (see Disclaimer): NPT is a leveraged municipal bond fund that pays monthly dividends. I am circumspect about holding for very long leveraged bond funds with long durations. I bought these shares last August at at $12.2.

Nuveen Premium Income Municipal Fund 4 closed at $12.96 yesterday.

3. Bank of America (own TPs, equity preferred and common): BAC announced on Monday that it was selling the "bulk" of its remaining stake in China Construction Bank for a pre-tax gain of approximately $2.9 billion. The transaction is anticipated to result in an after-tax gain of $1.8 billion.   SEC Filed Press Release This is the second large sale of CCB stock by Bank of America, as it attempts to build up its Tier 1 equity capital position.  In the earlier transaction, SEC Filed Press Release, BAC sold CCB shares for $8.3 billion and anticipated then an after-tax gain of approximately $3.3 billion.

4. AGY Holdings (own 1 bond: FINRA)(Junk Bond Ladder Strategy): A few weeks ago, I mentioned that the 2014 AGY bond had plummeted in price to the mid 20s on no publicly available information that I could find.  AGY HOLDING 2014 BOND PLUNGE IN PRICE Since then the bond has recovered to trade in the 70s on light volume.

It is not possible for me to view the earnings report for the third quarter in a positive light. SEC Filed Press Release The company reported a loss of $7.56 million dollars on just $46.602 million in revenues. Revenues declined 6.8% from the second quarter of 2011. I also thought that this language contained in the press release was important:

Due to the continued disappointing earnings reports, and the apparent need to borrow some money on its credit facility to make the  interest payment on the 2014 bond paid yesterday, I am raising the risk rating on this bond to 10 from 9+. I did receive the semi-annual interest payment from AGY on 11/15.

Personal Risk Ratings For Junk Bonds

I was hoping that the market would rally strongly into the close and hit my day limit order to double down on a triple stock short ETF. Instead, the market reversed course and declined into the close.  

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