Wednesday, February 15, 2012

Call Warrant Exercise for TC XKK/Sold AGNC at $30.14/Sold 1 Boyd Gaming 7.125% Senior Sub Bond Maturing 2/1/16 at 93.25

In 2002, Mitt Romney told a reporter that people "recognize that I'm not a partisan Republican, that I'm someone who is moderate, and my views are progressive".
Last Friday, in a speech to the extremist Conservative Political Action Committee, he told the audience that he was "severely conservative". I doubt that there was a single true conservative in the audience.

Santorum's views on contraception were given in an interview last October. A transcription of the relevant part of that interview can be found at, along with the video itself.   He is opposed to contraception by the way. His views on contraception start at 17:55 into the linked video.

Santorum also believes that a woman impregnated by a rapist must have the baby. He refers to it as a gift from God. Rick Santorum on abortion: A child conceived through rape should be accepted as a "gift from God" - YouTube

1. Call Warrant Exercised for the Trust Certificate XKK (see Disclaimer): The owner of the call warrant for this TC exercised its right to call it. Conditional Full Redemption of Corporate Backed Trust Certificates Goodyear Tire & Rubber Note-Backed Series 2001-34 Trust The call date is today. If the owner of that warrant pays par value plus accrued interest to the trustee, then this security will be called and the owner of the call warrant will take possession of the underlying bonds. Those bonds are senior Goodyear Tire bonds maturing in 2028, bearing a 7% coupon, while the TC XKK has a 8% coupon. Prospectus When the TC has a higher coupon than the underlying bond, it becomes even more lucrative for the call warrant owner to exercise its redemption right, as explained in Item # 7 More on Call Warrants and TCs. This would be true when the underlying bond is selling at a premium to its par value. The GT bond was selling at a small premium to its par value when the owner of the call warrant exercised its call right. FINRA 

The press release announcing this call refers to this redemption as conditional which is the correct description. XKK is redeemed only if the call warrant owner delivers the precise amount of funds to the trustee by the call date. This amount would be the $10 par value plus $.331111111 per TC in accrued interest-obviously very precise There is no obligation to do so, and sometimes the owner of that warrant has backed away and refused to deliver those funds. If that happens, then XKK will not be redeemed and will continue to trade. 

While I have traded this security profitably, my current position of 200 shares was bought near par value and I will take about a $13 loss on the shares. I could have sold the shares last Friday at $10.32 and would have made a profit on the shares. However, I would have received less money during it that way after paying a brokerage commission. I would have considered doing it if the gain was long term taxable at 15%, but those shares were acquired last April and the gain would have been taxed at my highest marginal tax rate with the interest payment taxed at the same rate.  

2. Sold 1 Boyd Gaming 7.125% Senior Subordinated Note Maturing 2/1/16 at 93.25 Last Friday (Junk Bond Ladder Strategy)(see Disclaimer):  I decided to limit my exposure to Boyd to the 1 senior bond, which is higher in priority, that matures in 2018.  Bought 1 Boyd Gaming 9.125% Senior Bond Maturing on 12/1/2018 at 89 That bond has done well since my purchase. I bought the 2016 subordinated bond at total cost of 89.5 back in December 2010. So I made a small profit on that 1 bond plus about 14 months in interest.

I also own BYD common shares in my Lottery Ticket strategy. 

3. Momentive Specialty Chemicals (own 1 senior Borden Chemicals: FINRA): Momentive announced preliminary results for the 4th quarter. Earning Pre-Release Q4 2011 The company expects to record sales of about $1.2B, similar to the 4th quarter of 2010 and to report operating income of $14 to 24 million. Segment EBITDA is estimated at $101M to $111M.  For the year, segment EBITDA is estimated at $630M to $640M. The company estimates that it ended 2011 with $710M in liquidity, of which $430 was cash and cash equivalents. Momentive will issue a more detailed report when it files its 10-K in early March.

4. Sold 35 AGNC at $30.14 Last Friday-ROTH IRA (see Disclaimer): I was content to harvest several $1.4 per share quarterly dividends and to sell the shares for a profit. Mortgage REITs have a number of risks associated with them. The shares were bought at $29.29 back in February 2011. AGNC recently reduced its dividend to $1.25 per share.

American Capital Agency closed at $30.59 yesterday.

5. Tweaking ROTH IRA Investment Strategy: I am considering tweaking my strategy for the ROTH. Previously, my stock selections have been limited primarily to stock CEFs that pay good dividends and a few REITs. The focus has been on bonds and bond like investments.   I may add one or more blue chip stocks with a long history of raising dividends, and then reinvest  those dividends to buy more shares. The general approach would be to hold the investment until I have a 100% total return on my initial investment, though I may sell the shares when and if I sour on the company based on a rational assessment of future prospects.