Thursday, January 5, 2012

Eastman Kodak/Year End Junk Bond Ladder Table/More Asinine Trading Restrictions from Fidelity/Vanguard Lowers Bond Commission For Its Voyager Customers

This article at Seeking Alpha has a table of closed end funds selling at over a 10% discount to their respective net asset values per share, along with the expense ratio of each fund and the current dividend yield.  When looking at CEF dividend yields, it is always important to determine whether the yield is supported by a return of capital. Morningstar will provide recent data showing that kind of information.

This table at provides a table of 4th quarter earnings guidance from ompanies in the S & P 500.

The WSJ claims that Eastman Kodak is preparing to file a bankruptcy petition soon, unless it succeeds in a "last ditch" effort to sell some patents. Based on EK's pathetic operating results (Update on Third Quarter Earnings Report), and Kodak's hideous cash burn rate, a bankruptcy appears to be the best option.

Possibly, a bankruptcy may facilitate the sell of those digital patents and address some overhanging liabilities such as unfunded pension costs. The best alternative for unsecured bond owners may be the quick sell of most operations, including all money losing ones, or a shut down of those operations to preserve capital. I do not anticipate recovering more than 20 to 30 cents on the dollar for my two 2013 EK unsecured senior bonds, and that recovery may require a quick sale of those patents for an amount sufficient to pay off all secured creditors including the debtor-in-possession creditors. EK has suffered over the years from incredibly bad management. Eastman Kodak (EK) Bonds-Own 2013 Senior BondMoody's and Eastman Kodak

Kodak responded that it had a longstanding policy of not commenting on rumors and market speculation. However, as noted in a prior post, EK did say in response to an earlier rumor about a possible bankruptcy filing that it was committed to meeting all of its obligations and had no intention of filing for bankruptcy. (see EK press release dated 9/30/11: Kodak States No Intention to File for Bankruptcy). So much for the purported long standing policy for not responding to "rumors". I am working under the assumption that a bankruptcy will be filed later this month or in February. No one should be surprised by such a filing.

Moody's lowered EK's senior unsecured debt to Ca from Caa3 and kept the outlook as negative.

I was disappointed to learn that Michelle Backmann has ended her quest to become President of the United States. I have always been entertained by Michele but found another former candidate, who ran for the GOP nomination for Governor of Tennessee, to be even more entertaining. Basil Marceaux : The Next Governor of Tennessee - YouTube

1. Year End Junk Bond Ladder Table (Junk Bond Ladder Strategy): This is easily my highest risk strategy. I have not included in this table my 1 AMR and 1 General Maritime bonds, since both firms have declared bankruptcy and are no longer paying interest on their bond obligations. When I can quantify my losses for those bonds, I will include those numbers in my realized gains/losses post.  


Personal Risk Ratings For Junk Bonds

In addition to GMR, AMR, and Eastman Kodak, I have serious and substantial doubts about receiving par value  at maturity for my 3 Travelport bonds,  1 AGY Holdings bond, and 1 Reddy ICE bond.

2. Another Fidelity Trading Restrictions: Fidelity's myriad trading restrictions defy any rational explanation. I will just note them in my blog as I am confronted with yet another one.

Yesterday, I tried to sell my 1 Vulcan Materials 2018 bond. FINRA It has a relatively low yield and popped to over its par value after Martin Marietta made a takeover bid for VMC. I recognize that the bond market does not have anywhere near the liquidity of the stock market. To sell my one bond at Fidelity, I have to wait for a bid to be made which would accept that 1 bond. I would prefer a market where I am at least allowed to enter a GTC limit order at my price, but I accept the lack of liquidity issue.

My problem with Fidelity is that I could have sold my 1 bond yesterday at 102. The bids were 150(10) at 102.206 and 50(1) at 102. The number in parenthesis is the minimum amount that the bidder will buy, so I could not sell 1 bond at 102.206 but could at 102. The difference is meaningless to me. If permitted to make that sale, I would have netted close to a $80 profit on that 1 bond.

Yesterday afternoon, the best bid price had fallen to 102.067 with a 10 bond minimum order. There was a buyer of 1 bond at 102, but I was not permitted by Fidelity to sell to that buyer, receiving the trade message copied below.

Another fact relevant to this trading restriction is that the ask price was really close to the bid prices. I could have bought 1 bond at 103.

I was not allowed to even enter the order to sell 1 bond at the bid price of 102, and instead received this asinine message:

In an email response to my complaint about this matter, Fidelity claimed that there was no bid for 1 bond.  I then sent to them the following snapshot, which shows the bids late yesterday afternoon contradicting their statement. This snapshot was made immediately after my order to sell 1 bond at 102 was rejected by Fidelity with the foregoing trade message:

Vulcan 2018 Bid Book Wednesday 1/4/2012
The "sell" notation above would take me to an order page to sell the bond at that 102 price.

See also, Fidelity Prohibits New Purchases of Exchange Traded Principal Protected Notes Fidelity Brokerage Extends Denial of Trading Opportunities to Synthetic Floaters and Even an Exchange Traded Junior Bond DFP

Another recent addition to the no buy list is the exchange traded hybrid AEB. AEB will average close to 30,000 shares a day and pays a quarterly, qualified dividend of 4% or 7/8% above the three month Libor rate,  whichever is higher, on a $25 par value. I have done very well with that security. See Snapshots at Aegon Hybrids: Gateway Post This is what happened last night when I tried to enter an order for this security at Fidelity:

This same message would pop up if a Fidelity customer wanted to buy the preferred stock HBAPRF, but not for the functionally equivalent HBAPRG from the same issuer, etc. and so on. Ridiculous does not even begin to describe these restrictions. Asinine is too kind of a word to describe them.

3. VANGUARD SUBSTANTIALLY LOWERS COMMISSION ON BOND TRADING: Last year, Vanguard had a flat $50 commission for secondary market corporate bond purchases. I quit using them for those purchases for that reason and instead used other brokers. I noticed yesterday morning that Vanguard had lowered my commission as a Vanguard Voyager commission to $2 per bond, and I bought 1 bond in my ROTH IRA. I will discuss that purchase in tomorrow's post. This is their new commission schedule:

As I will explain in more detail tomorrow, Vanguard is now substantially better than Fidelity for small bond purchases.

I can not sell corporate bonds online at Vanguard, however. I did talk with one of their bond brokers yesterday, and was told that the online commission applies for those broker assisted transactions.  

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