Monday, April 16, 2012

Dogs Against Romney-A New Grass Root's Movement/Sold 50 SLGPRD at $25.44/CPI/MKN Ends Its Annual Period With Minimum Coupon Payment/Reddy Ice

CPI rose .3% in March 2012. The core index rose .2%. Over the past 12 months, CPI rose  2.7% before seasonal adjustments. The core rate increased 2.4% over the past year. Consumer Price Index Summary

As noted in this article at MarketWatch, there is concern that Spanish banks, with the exception of Banco Santander, will be rendered insolvent by bad domestic real estate loans. Net borrowings by Spanish banks from the ECB rose to €316.3 billion in March, up from €168.86 billion in February.

China estimated its first quarter GDP growth at 8.1%, lower than the consensus estimate of 8.3%, and down from 8.9% in the 2011 4th quarter.

The VIX rose 2.2 or 12.79% last Friday to close at 19.40. There were two closes above 20 last week. ^VIX Historical Prices

My regional bank basket had a bad day last Friday, falling 2.82% versus the S & P 500 decline of 1.25%. KRE, a regional bank ETF, fell 2.83%. KBWR, an ETF offering from Powershares in this sector, declined 3.05%.

P&G increased its quarterly dividend by 3.7 cents or 7%. The new quarterly dividend will be $.562 cents per share.

Mitt Romney is starting to lose the dog lover vote, as more people become aware of the incident where his Irish Setter, Seamus, was strapped in a dog case and placed on top of his station wagon for a 12 hour road trip at high speed.  The Washington Post A new grass roots organization has been formed, "Dogs Against Romney". The OG found some humor at that website.

1. MKN (own): I noted in a prior post that I am not paying much attention to the "principal protected" senior unsecured notes issued by Citigroup Funding and guaranteed by Citigroup. All of those notes mature in 2014 and have minimum coupons paid on a $10 par value. All of those notes have the potential of paying a great deal more, based on the performance of some index or the price of gold.

MKN pays the greater of 3% or up to 33% per year based on the rise of the UBS commodity index from each start date. Pricing Supplement 

I bought 100 shares of MKN at $9.85. Bought 100 MKN at 9.85 January 2010 

I hit pay dirt for the first annual payment received after my purchase. I received $180 in interest in April 2010. Note ON MKN


I hit pay dirt again in April 2011, with an interest payment of $255.53. Stocks, Bonds & Politics:


I noted that MKN paid only its 3% minimum coupon earlier this month, or $30 for 100 shares: 


Distributions are paid annually. 

Since my purchase of 100 shares of this note in January 2010, I have now received $465.53 in interest based on my original investment of $985 plus commission. 

The phrase "principal protected" note can be misleading to some individual investors. If Citigroup is seized by the FDIC, the principal is not protected, and the owner of that note would be an unsecured creditor. The phrase only means that I will receive the $10 par value at maturity provided Citigroup Funding survives to pay it. 

Exchange traded "principal protected" notes can no longer be purchased by customers of Fidelity. Fidelity Prohibits New Purchases of Exchange Traded Principal Protected Senior Notes It is impossible to reason with them. Why would any brokerage firm want to prevent their customers from buying exchange traded senior notes that have the potential of this kind of reward while providing a minimum coupon that actually looks good in the current abnormally low interest  rate environment?

MKN matures on April 7, 2014. So, I have only two more annual payments left. 

I now need to compute the starting value and maximum level for the current annual period. The starting value is the closing price of the UBS commodity index on March 30, 2012. The period ends at the close of trading on 4/1/2013. If the index closes one day above 33% over the Starting Value, there will be a reversion to the 3% coupon, no matter what happens thereafter. I call that provision the "Maximum Level Violation".

A chart of the UBS Commodity index can be found at the

Starting Value 3/31/2012: 141.902 
Maximum Level Violation Number: 188.72966 or 188.73 
Ending Value 4/1/2013= Unknown

If this commodity index closed one day above the Maximum level during the current annual period, then MKN will pay only 3%. However, if there is no Maximum Level Violation, and the index closed at 181.902, then the coupon would not be 3% but 28.19%.

The annual period which ended on 3/31/2012 had a Starting Value of 166.58, so the index lost ground during the prior annual period for MKN.  Any number less than 171.5774 would have triggered the 3% minimum payment as well as one close over 221.55 during that prior period. Stocks, Bonds & Politics April 7, 2011 Post

Citigroup Financial Inc. 3.00% Min Coupon Princ Protected Nts for Dow Jones AIG Community Excess Return Index (MKN) declined 18 cents last Friday to close at $10.03, with 1,300 shares in volume. I would not be interested in buying another 100 shares unless I could pick them up at less than the $10 par value.

2. Reddy Ice Files for Bankruptcy (own 1 2nd Lien Bond): Reddy Ice filed a petition for bankruptcy last Friday as expected. Of course, the rating agencies cut their credit ratings to default. TEXT-S&P

Reddy Ice also filed its 2011 Annual Report with the SEC.

A press release announcing 4th quarter earnings was also filed with the SEC.

For the 2011 4th quarter, the company reported a loss of $33.3 million on revenues of $54.9 million. That quarter included a $1.421 impairment charge.

For 2011, the Reddy Ice recorded a GAAP loss of $69.455 million on revenues of $328.463 million. (page F-9). The loss per share was $3.05.

As of 12/31/2011, the company had $450.8 million in long term debt (page F-24).

Reddy Ice discusses its bankruptcy plans starting at page 60 of its 2011 Annual Report. Subject to bankruptcy court approval, the existing common stock would be cancelled but the existing common shareholders would receive 12 cents per share and another 5 cents in the event the Arctic acquisition is completed.  Arctic is currently in bankruptcy in Canada.

Current holders of at least 25,000 shares of common stock would have the option in receiving stock in the reorganized company. Assuming all converted they would own about 2% of the reorganized company. (page 18).

The plan for reorganization calls for the owners of the second lien bond to receive only common stock and a right to participate in a preferred share rights offering. As a class, the total number of shares allocated to them would be 6,094.327 shares, prorated among those owners according to their bond ownership. The outstanding amount of this bond is $139,407,000. I tentatively estimated that to be 43.624 shares per $1,000 face amount. That is about what I expected, give or take a few shares. The pricing of the second lien note did improve some last Friday. FINRA

Reddy Ice states that this plan for reorganization in bankruptcy court has the support from the owners of 60% of the principal amount of the first lien notes and 58% of the principal amount of the second lien. I own only one of the second lien bonds.

I am skeptical that this plan will be sufficient to right the ship based on its recent operating results. The company will still have $300 million in first lien debt, provided it is successful with the Arctic acquisition. More debt will likely be incurred to finance that acquisition that would apparently be pari passu with the existing first lien debt. If this plan is approved by the bankruptcy court, it would not be surprising to me to see Reddy ICE back in bankruptcy court in a few years.

In the event Reddy Ice is unsuccessful in the Arctic acquisition, then a hedge fund called Centerbridge will exchange $68.18 million in principal amount of first lien notes for the preferred stock with a liquidation preference of $75 million. That hedge fund must have some confidence that it can effectuate that acquisition.

3. Sold 50 SLGPRD at $25.44 Last Friday (see Disclaimer): I am not a long term holder of any REIT preferred stock bought near par value. This security was purchased at $24.7 last October. Bought 50 SLGPRD at $24.7 October 2011 I  received the last quarterly dividend on 4/13/12.

I still own 50 shares of the series C preferred stock in the ROTH IRA. Bought 50 SLGPRC at $24.4-Roth IRA October 2011


SL Green Realty Corp. 7.875% Cum. Redeem. Pfd. Series D (SLG.PD) closed last Friday at $25.44, up 14 cents for the day.

I would consider buying this one back in the ROTH IRA when its current yield exceeds 8%.
SLGPRD pays cumulative dividends at the fixed coupon rate of 7.875% on a $25 par value.

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