Friday, May 4, 2012

"Americans For Prosperity" and the KOCH Family/Edison Mission Energy//Earnings: PVR LEAP Colt Defense/Bought 100 HTGZ at $24.63/Sold 50 SLGPRC at $25.5 Roth IRA

The ISM services index for April was reported yesterday at 53.5. The forecast was for 55. The new orders component declined from 58.8 to 53.5. Employment declined from 56.7 to 54.2.

PolitiFact has so far rated four claims for accuracy made by the self-styled conservative  "Americans for Prosperity" PAC, giving two of them its infamous "Pants on Fire" rating, one a "false" rating and the remaining one a "mostly false" rating. Telling the truth and being accurate with factual assertions are apparently no longer conservative values.

The Democrats view this PAC to be a front organization for the billionaire members of the Koch family. NYT The elder Koch, Fred C. Koch,  was one of the founding members of the extremist John Birch Society, and his sons make dad look like a liberal. An article written by Jane Meyer, and published in The New Yorker magazine, explores how the Koch brothers are attempting to extend their political influence in the U.S. with their abundant cash. I thought that it was humorous to see an interview with T. Boone Pickens, one of the main contributors to the Swift Boat Veterans for the Truth, where he blamed Koch Industries for a lack of a U.S. energy plan, claiming that the brothers want to keep natural gas prices low for their fertilizer and chemical businesses, according to T. Boone.

(see analysis of claims made by Swift Boat Veterans)

SandRidge Energy reported adjusted net income of $21.2 million or 4 cents per share, two cents better than the consensus estimate.

1. Penn Virginia Resource Partners. L.P. (own 1 2018 senior bondJunk Bond Ladder Basket Strategy): PVR Partners reported first quarter earnings of 20 cents per unit, down from 48 cents in the year ago quarter. Revenues declined 3% to $246.5 million reflecting lower natural gas prices and coal royalty volumes.  
2. Leap Wireless (own 1 2020 Senior BondJunk Bond Ladder Basket Strategy) LEAP reported a net loss of $96.2 million in the 2012 first quarter on a 5.9% increase in revenues to $825.6 million. Service revenue increased 14.1% The churn rate for the quarter was high at 3.3%, and the company predicted a 4.2% churn rate for the second quarter. The company reported a 258,000 net gain in customers. LEAP generated $35.4 million in cash flow for the first quarter. As of 3/31/2012, LEAP had $636.7 million in cash and marketable securities. Total debt was $3,222.5 billion. SEC Filed Press Release

Investors reacted negatively to this earnings report, driving the stock down from $7.71 close on 4/25/12 to $5.84 last Friday. LEAP Historical Prices The 52 week high was $17.66. The earnings report is discussed in articles at the Motley Fool and Zacks

Morningstar has a four star rating on the common stock. I have no interest in the stock even as a LT.  
3. Sold 50 SLGPRC at $25.5 Last Monday-ROTH IRA (see Disclaimer): As previously noted, I am not going to hold a REIT cumulative preferred stock for very long when the security is bought near par value. I view the upside as limited, and the downside risk is shown by their prices during the Near Depression period. On a few occasions, I was able to buy SLGPRC at less than 50% of its $25 par value:

2010 SLGPRC 30 Shares +$377.63 Realized Gain Regular IRA
2010 SLGPRC 50 Shares +$697.02 Realized Gain Roth IRA
The last 50 share purchase was made near par value last year. Bought 50 SLGPRC at $24.4-Roth IRA October 2011

SL Green Realty Corp. 7.625% Cum. Redeem. Pfd. Series C, (SLG.PC) rose 8 cents in trading yesterday to close at $25.58.

4. Bought 100 HTGZ at $24.63 Last Monday (see Disclaimer): HTGZ is a new exchange traded bond. The issuer is the Business Development Corporation Hercules Technology Growth Capital. I also own the common shares in the ROTH IRA. Bought 100 HTGC @ $9.7 (1/26/12 Post).

I attempted to buy the bond in my ROTH IRA, but Vanguard would not accept online orders for this security last Monday which was its first day of trading. In the ROTH IRA account, the security would be, in effect, a tax free bond.

Rather than fooling with a call to a broker, I elected instead to buy the shares in a taxable account where I have too much cash earning nothing. I say nothing, which is not technically accurate, but correct in a substantive sense. For the week ending 4/24/12, the Fidelity Cash Reserves money market fund was paying .01% or about $100 per year on one million USDs. Taxable Money Market Mutual Funds  Another way to look at that number is that $100 will fill my gas tank up twice, provided the tank is not entirely empty and I use regular gas.  

HTGZ is a senior bond, with a 7% coupon on a $25 par value. The bond matures in about seven years on 4/30/19. Prospectus  Interest payments will be made quarterly. 

While I view Hercules to be one of the better BDCs, there is an inherent risk in buying even senior bonds issued by BDCs and REITs. In both cases, the corporation maintains its tax status by distributing at least 90% of its income to common shareholders. This avoids double taxation on the amounts so distributed but the disposal of so much income to the common shareholders obviously disadvantages bond owners who would prefer to see capital kept to insure timely payment of interest and principal at maturity. 

Other limited protections provided in the bond's indenture are discussed at pages S-14-15 of the Prospectus. 

My current and YTM yields will slightly exceed the 7% coupon due to purchasing this bond at a discount to its par value.

Hercules Technology Growth Capital Inc. 7% Sr. Notes due 2019 (HTGZ) closed at $24.95 yesterday.

5. Colt Defense (own one 2017 bondJunk Bond Ladder Strategy): Colt Defense reported a net loss for the Q/E 4/1/12 of $6.61 million on revenues of $44.577 million. Form 10-Q The loss for the the Q/E 4/2/11 was much less at $1.759 million. The cash balance decreased to $29.28 million as of 4/1/12 from $38.236 million.

I own just one bond, and would not buy another one. Bought 1 Colt Defense 8.75% Senior Bond Maturing on 11/15/2017 at 85.24 I am not optimistic about the company surviving to pay par value in 2017.

The company did report an increase in its backlog to $212.3 million as of 4/1/12 from $176.7 million as of 12/31/11. (10-Q at page 19)

See discussions of Colt Defense in the following posts: S & P Downgrade Colt Defense Senior Unsecured Bond (5/1/12 Post); Colt Defense (2/27/12 Post);  Colt Defense (8/24/11 Post)

Based on this last report, I am raising my risk rating to 8- from 7-. Personal Risk Ratings For Junk Bonds The bond has declined several points since this earnings release. FINRA

6. Edison Mission (own 1 2016 senior unsecured bond: Junk Bond Ladder Strategy): EME announced that it was shutting down the Fisk and Crawford coal plants in 2012, earlier than previously estimated by the company. In addition, EME is in the process of turning over the Homer coal units to GE.  Reuters

As previously discussed, I have sold 4 out of 5 EME bonds due to concerns about the impact of new environmental regulations on EME's operations and other matters including the persistence of low merchant power prices. Sold 2 Edison Mission 7.75% Senior Bonds Maturing in 2016 at 73.25; see also Item # 3  Edison Mission Bonds

EME also released its quarterly report for the first quarter. EME 2012 Q1 EME reported a first quarter loss of $84 million and a core loss of $60 million. (page 25).

No comments:

Post a Comment