Tuesday, January 10, 2012

Sold 50 PJA at $25.4-ROTH IRA/Sold 1 Apria 11.25% Senior Secured Bond at $104/Bought 100 HUSKF at $23.81

Goldman Sachs predicts that U.S. housing prices will bottom out in 2013 and will not return to their 2006 peak until 2023.  MSNBC  Three out of 10 mortgage defaults during 2010 were by homeowners who could afford their mortgage payments according to a study referenced in that article.

China's exports rose 13.4% in December, above the consensus forecast of 12.5%.

1. Sold 50 PJA at $25.4 Roth IRA Last Thursday (see Disclaimer): These shares were purchased in December 2010. Item # 2 Bought 50 PJA at 24.65 December 2010  I made a $22.52 profit on the shares and clipped two interest payments. Since the profit is less than $30, I will not provide a snapshot of the realized gain in Trust Certificates: New Gateway Post. The trade links in that post will be grouped under "CTL". 

PJA is a trust certificate with a 8% coupon on a $25 par value. I sold this TC to keep my exposure to CTL relatively constant after buying 1 U.S. West Communications bond last Friday in this account. The same kind of trade was made when I bought the same U.S. West Communications bond in a taxable account and sold the TC KCW at $25.44.

My current exposure to CTL is solely in senior bonds and consists of the following:

150 PJA Taxable Account-Unrealized Gain
(Total PJA Cost=$3,479.61)
Total Cost of $5,499.61-current exposure to CTL

Trading Gains from FJA, underlying security a senior Embarq bond (now part of CTL)=$974.04 in two 50 lot transactions.

Excluding interest gains and small profits from other CTL related trust certificates, the net exposure after subtracting the FJA realized gains is $4,525.57.

2. Sold 1 Apria Healtcare 11.25% Senior Secured Bond Maturing in 2014 at 104 Last Friday (Junk Bond Ladder Strategy)(see Disclaimer): I decided to sell the "Series A" bond, which has a 11.25% coupon, after I had an opportunity to sell just 1 bond at 104, recognizing a small profit on that bond plus interest associated with my holding period.  I still own the Series B secured bond, which has a higher coupon, and is selling at a discount to its par value. The main difference in the two series is that the "A" bond has priority in the event of a bankruptcy.  The current yield spread between the two series is significant, and I decided to go with the "B" bond, which has the higher yield and greater potential for profit at maturity.  Bought 1 Apria 12.375% Senior Secured Maturing on 11/1/2014 at 91.625 Bought 1 Senior Secured 11.25% Apria Healthcare Maturing on 11/1/2014

3. Bought 100 HUSKF at $23.81 Last Friday (see Disclaimer):  This brings me up to 200 shares of Husky Energy, with the other 100 shares bought on the Toronto exchange as part of my Canadian Dollar (CAD) Strategy. The HUSKF shares were purchased with USDs on the pink sheet exchange in the U.S. HUSKF Husky Energy

When purchasing foreign securities on the pink sheet exchange, any symbol which ends in an "F" means that the investor is purchasing or selling, as the case may be, "ordinary shares", rather than a ADR. A pink sheet traded foreign security that has a symbol ending in "Y" is an ADR. Research In both cases, the investor is exposed to currency risks.  International Trading and Currency Risks

The Husky shares traded on the Toronto exchange closed last Friday at 24.26 CADs: Husky Energy (link to Toronto exchange Quotes)  I would expect the HUSKF price to reflect that price in USDs. The  HUSKF closed at $23.58 USDs. That tells me that 1 CAD is worth less than 1 USD. CADUSD If I converted 24.26 CADs into USDs based on the closing exchange rate from last Friday, Currency Converter, I would have $23.58 USDs. Now, what if the 1 CAD bought 1.06 USD, which was the case back in late July 2011, then a 24.26 price on the Canadian exchange would translate into a $25.71 price for HUSKF rather than $23.58. Conversely the price could remain at 24.26 on the Toronto exchange but Husky could decline from Friday's close based solely on a decline in the CAD vs. the USD.

While I will end up paying the Canadian withholding tax on the dividend, irrespective of whether I own HUSKF OR HSE:CA, I will receive the dividend in USDs when I own HUSKF, while the dividends for the shares bought on the Toronto exchange will be paid in CADs.  Another important difference is that there is a lot of liquidity when trading shares on the Toronto exchange for this security, with narrow bid/ask spreads, while there is negligible volume in the HUSKF shares.

Husky pays a good quarterly dividend, currently 30 Canadian cents a share. Husky Energy - News Releases Based on the closing price on the Toronto exchange last Friday, this would give me around a 4.9% yield at a total cost of 24.26 CADs. The actual yield will depend on the conversion rate at the time the payment is made and will be reduced by the 15% Canadian withholding tax.

Reuters Profile page on Husky
Reuters Key Developments page on Husky
Link to Press Release on Third Quarter Earnings: husky.pdf

For the third quarter, Husky reported net earnings of $521 million or 53 cents per share. Cash flow was reported at 1.326 billion CADs or 1.39 per share. Price to book is around 1.34, with price to sales near 1. HUSKF.PK Key Statistics The current E.P.S. estimate is for 2.42 in 2011 and 2.01 in 2012. Analyst Consensus and Earnings Estimates

For this investment to work in 2012, Husky will need to do much better than 2.01 E.P.S. this year. I would note that production from the Liwan Gas Project is projected to start in 2013/2014. Husky Energy - The Liwan Gas Project – Block 29/26

The Liwan gas project is a major field located about 300 kilometers southeast of Hong Kong in the South China Sea. Husky's partner in this project is CNOOC, traded in the U.S. under the symbol CEO.

I intend to use my CAD stash to buy other securities on the Toronto exchange. I do save a few bucks in brokerage commission by buying HUSKY rather than HSE:CA on the Toronto exchange.

4. Texas Industries (own 1 senior bond: 2020): TXI continues to put up ugly earnings numbers. A few weeks ago, TXI eliminated its common dividend to preserve capital. Item # 5 TXI. For its fiscal second quarter ending 11/30/11, Texas Industries reported a GAAP loss of $21 million or 75 cents per share and an adjusted loss of $11.2 million. The company CEO noted that the improvement in the economy had not  manifested itself in "increased construction activity in our markets".  Net sales for the quarter were $156.071 million. 

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