Thursday, May 17, 2012

AGY Holding, Edgen Group/Sold 1 Dillard's 7.75% Maturing in 2027 at 99.25/Earnings: CVO, Macy's, BAM, WIN

According to Randall Forsyth, Richard Russell, who has been writing the Dow Theory Newsletter for more than 50 years, told his subscribers to get "OUT" of stocks on Monday. Barrons (quote and large caps originate from Russell)

Sources have told the NYT that J.P. Morgan's trading losses have increased by "at least $1 billion" since the bank estimated the loss at $2 billion last week.

The VIX rose 1.37% yesterday to close at 22.27. This is consistent with the Phase 1 Unstable VIX Pattern in force since August 2007.

I have noted an interesting correlation from last year between the rise in the VIX and gold prices. When there was a spike in the VIX last summer, that is when gold hit its high. The VIX rose from 23.38 to 31.66 on 8/4/11 and then spurted to a 48 close on 8/8/11. Throughout September 2011, there were several elevated VIX readings, meaning anything over 35 and particularly readings over 40. VIX Historical Prices

On 8/4/11, GLD closed at 160.64 and hit 184.24 by 9/2/11. As the VIX started to stabilize in the high 20s and 30s, GLD started to decline back to trading mostly in the 155 to 165 range. GLD Historical PricesGLD Fund Chart GLD closed yesterday at $149.46. If the VIX spikes again, similar to last summer, it will be interesting to see whether gold will reverse its recent downward spiral. I suspect that the VIX will need to spike to over 30 for the correlation to return. The small spike in the VIX so far has probably just sent more people into U.S. treasuries, so far at least.

I sold gold and junk silver coins last September. Those were my first sales ever. Recent Gold and Silver Sales (9/15/11 Post-with snapshot); Sold Some Junk Silver Coins Yesterday (9/13/11 Post). I sold more in January of this year, realizing proceeds of $5,322.25, which will be reported on a separate IRS Form 8949 for the 2012 tax year (i.e. for sales where there is no 1099 and the cost basis is not reported to the IRS.

This is my 8949 Form for 2011 covering just the coin sales made in September 2011.

2011 Form 8969 Coin Sales
The junk silver coins were mostly taken out of circulation at face value back in the 1960s. The exception was a roll of 1964 Kennedy Half dollars purchased for $59 in 1986. I do not own this stuff to make a profit, but as a possible hedge against other assets collapsing in value, particularly those priced in USDs. I incur storage costs to hold these gold and silver coins, which are stored in bank lock boxes. And, I had to pay taxes on the profits after holding those assets for a long time.

GE Capital Capital has resumed paying dividends to its parent General Electric. A quarterly dividend of $475 million was declared for the 2012 second quarter, as well as a $4.5 billion special dividend. I own 506+ shares of GE, and I am reinvesting the dividend. General Electric's share price bucked the downtrend yesterday, rising 61 cents to close at $19.01.

The ECB cut off liquidity to certain Greek bank due to inadequate capitalization. I do not see any rational reason to believe that the June election in Greece will solve anything. The ECB already owns about €52 of Greek government fixed coupon bonds. The ECB has also lent Greek banks billions to keep them afloat.

Merkel seemed to suggest yesterday that Germany was open to discussing stimulus measures for Greece, but Greece must honor its commitments. CNBC Interview While the tone of that interview showed a somewhat softer side to the German steel, the discussion about stimulus was so ambiguous that it lacked substance.

AGY Holding reported 2012 first quarter results on 5/15/12. The company also filed the SEC Form 10-Q for the 2012 first quarter. AGY reported a net loss of $8.4 million on revenues of $47.1 million, compared to a loss of $6.9 million on $44.9 million in revenues for the 2011 first quarter. Adjusted EBITDA reportedly rose to $6.9 million from $4.6 million in the year ago quarter. The company seemed more upbeat in this earnings release than in the prior ones. I am just grateful to receive an interest payment from AGY. I own just 1 second lien bond maturing in 2014, currently rated at 10+ in my Personal Risk Ratings For Junk Bonds. That bond is referenced at page 10 of the Form 10-Q. I received the semi-annual interest payment on 5/15/2012:

Another potentially troublesome bond, Colt Defense, also paid its semi-annual interest on 5/15. The GMAC bonds shown in this snapshot make monthly interest payments, as does the Prudential bond. The PRU bond was bought in 2007 and matures 7/15/12.

Pacific Continental, a LT selection, increased its quarterly dividend to 6 cents per share from 5 cents.

Edgen Group (EDG) filed its quarterly report for the Q/E 3/2012 (actually, for its predecessor company: 10q-03/31/12) The senior secured note, issued by Edgen Murray Corporation, is referenced in note 8 at page 8. Bought 1 Edgen Murray 12.25% Senior Secured Bond Maturing 2015 at 97.5FINRA. That junk bond is currently rated Caa3 by Moody's and B- by S & P according to FINRA. The same ratings were in effect when I purchased this bond back in March 2011.

I received an email notice yesterday that S & P raised its rating on the Edgen bond to B from B-.

1. Macy's (own one  2030 Senior Unsecured Bond Junk Bond Ladder Strategy): The 2030 bond is the one bought pursuant to the Junk Bond Ladder Strategy that has been upgraded to investment grade by the rating agencies. Bought 1 Macy's Bond Maturing in 2030 @ 99.5 (January 2011).

For Macy's first quarter ending 4/28/12, Macy’s reported net income of $181 million or $.43 cents per diluted share, up from 30 cents in the 2011 1st quarter, on a 4.3% increase i revenues to $6.143 billion. The consensus estimate was for 40 cents per share on $6.14 billion in revenues. Net cash provided by operating activities was $265 million, up from $67 million. Online sales rose 34%.

The company maintained full year guidance at $3.25 to $3.3 per share. The market consensus was at $3.39 per share. 

As of 4/28/12, the company reported $1.891 billion in cash and cash equivalents. Long term debt stood at $6.644 billion.

2. Cenveo (own 1 2018 2nd Lien Senior BondJunk Bond Ladder Strategy)Cenveo reported adjusted income (non-GAAP) from continuing operations of $3.3 million or 4 cents per share on revenues of $455.6, hardly a stellar performance. Adjusted EBITDA for the first quarter was $47 million. The GAAP number was a $27.2M loss which included impairment charges on plant closures and a loss on the early extinguishment of debt previously discussed in prior posts.

The consensus estimate, originating from 2 analysts, was for earnings of 3 cents per share on revenues of $475.07 million. The common stock slid badly after this report, falling from a close of $2.58 on 5/9/12 to $2 the next day. CVO Historical Prices The common could only be bought as a lottery ticket given the risk. I have never owned the common shares.

The company has too much debt in my opinion. A list can be found at page 12 of the recently filed CVO-2012.3.31-10Q.  As of 3/31/12, the company had long term debt of $1.229636 billion. Of that amount, $65.8 million would be first lien debt. I own only a second lien note with $397+million outstanding. The remaining long term debt is unsecured senior and senior subordinated debt. The 2013 senior subordinated bond has been reduced to $152.621 million from $284.878 million on 12/31/11. I have sold out of my position in that senior subordinated bond. Sold 2 Cenveo 7.875% Senior Sub Bonds Maturing in 2013 at 95 (March 2012 Post).

The recently issued 11.5% senior unsecured notes would "rank effectively junior to any of our and our guarantors' secured indebtedness, including indebtedness outstanding under our 2010 Credit Facilities and second lien notes, to the extent of the value of the collateral securing such indebtedness",  Prospectus at page 11 (underlining added). I recently bought the second lien note. Bought 1 Cenveo 2nd Lien at 92.499 (May 10, 2012 Post).

The common shares (CVO) closed at $1.79 yesterday, hardly reassuring given the sliver of equity underlying a mountain of debt. The common is nonetheless under consideration for a possible Lottery Ticket purchase. Lottery Ticket Basket Strategy I will not stay up nights worrying about a 50 share buy of CVO at $1.5.

3. Sold 1 Senior 7.75% Dillard's Bond Maturing 5/15/2027 at 99.25 Last Wednesday (Junk Bond Ladder Strategy)(see Disclaimer): This bond was sold near break-even. Bought 1 Dillards 7.75% Senior Bond Maturing 5/15/2027 at 98.625 including brokerage commission (May 2011). So basically I received a year of interest and nothing more.

By selling some of my longer maturities, I reduce my interest rate risk inherent in all long bond purchases. And, I improve a tad my overall composite yield for junk bonds by selling a 7.75% coupon bond near par value. On the other hand, this bond is one of my better junk bond credit risks.

I will receive $38.53 in accrued interest from the seller.

4. Brookfield Asset Management (own 100 shares-Toronto Listed): Brookfield Asset Management reported FFO available to shareholders of $283 million or 40 cents per share, up $52 million from the 2011 first quarter.

The company claims that the "intrinsic value" of its common equity was $42.35 per share as of 3/31/12.

The Toronto listed shares, BAM.A (TOR), closed at 31.80 CADs. The NYSE listed shares closed at $31.69. Brookfield Asset Management Inc. Cl A, BAM

5. Windstream (own 100 shares): Windstream reported first quarter earnings of 11 cents per share on $1.4884 billion in revenues. Adjusted earnings were 13 cents per share. The consensus estimate was for 14 cents or 16 cents, depending on the service providing that information. Business service revenue increased 3.2% to $897 million on a pro forma basis from the first quarter of 2011. Broadband revenue increased 5.9% to $113. Wholesale revenue fell 6% to $225M. Windstream generated $352 million in adjusted free cash flow. Adjusted for acquisitions, total revenue declined by .5%. Net leverage declined to 3.6 times EBITDA.  SEC Filed Press Release

The company also cut its outlook for 2012 to the bottom halve of its previously given target range.

The stock declined significantly when the CEO predicted a 12% decline in WIN's wholesale business in the current quarter. That decline is apparently due to dropping certain wholesale business lines that had previously been offered by PAETEC, a company acquired by Windstream, in response to a FCC statement about business practices. For institutional investors, I suspect that this development has caused them to question the PAETEC acquisition which was completed last December for $2.3 billion. Windstream News Center

In response to this release, Citigroup downgraded the stock to neutral and reduced the price target from $15 to $11, as discussed at Benzinga.

Yesterday, Stifel upgraded WIN to buy with a price target of $11.

Windstream closed at $9.54 in trading yesterday.

Last summer, I did manage to liquidate my holdings for a decent profit considering the rich dividend.  Sold 300 WIN at 12.31 It seemed reasonable at the time to buy back 100 shares  at $11.2 (April 2012). After selling out of the senior unsecured bonds, I am at liberty to average down on the common shares which yield more than the bonds. Sold All Winstream Bonds: Two 2019s at 101 and One 2020 at 103.5

No comments:

Post a Comment