Wednesday, May 9, 2012

Colt Defense-Raising Risk Rating to 9+/Thompson Creek/Regional Bank Table/Sold 70 PLXT at $6.66/Earnings Apria SNMX NLY SHO HCA

S & P placed the credit rating of Colt Defense under review with negative implications. According to that report, TEXT-S&P, the U.S. Army recently award Remington Arms Company with a $84 million dollar contract to supply M4 rifles through 2017. Colt had previously been the sole supplier. This just turns me further into negative territory on Colt's prospects, and its ability to survive to pay off the 2017 note at maturity. (see discussion in Item # 5 Colt Defense, and posts linked therein). In that post, I discussed why I was raising the risk rating on the Colt Defense bond to 8- from 7-. {Personal Risk Ratings For Junk Bonds} I did not know then about the loss of this contract. I am now raising the risk rating to 9+.  I own only one 2017 bond and will not buy another. The bond closed at 57 yesterday.

Colt filed a protest with the U.S. GAO regarding this contract award to Remington.

Colt Defense was split off from Colt Manufacturing in 2002. This is explained at page 3 of the 2011 Annual Report of Colt Defense. The later company manufactures the weapons sold to consumers. Colt's Manufacturing LLC

Colt Defense is controlled by the private equity firms Sciens Capital Management and the Blackstone Group.

The company does have a $50 million bank line of credit and had no borrowings under that line as of 4/1/12. Form 10-Q for the Q/E 3/31/12 at page 8 The 2017 bond has $250 million outstanding.

Bloomberg ran a story yesterday comparing the number of private sector jobs created under Democrat and Republican Presidents. Even with crediting the Beanpole with job losses in his first year of office, the average for the Democrats was 150,000 additional private jobs per month, more than twice the 71,000 average for the GOP Presidents.

Thompson Creek's share price has been torched this year based largely on cost overruns for its Mt. Milligan project. Recently, the shares took another dive after the company announced financing plans to meet those costs. That financing including the issuing of $200 million in senior notes due in 2019 with a 12.5% coupon. Although I do not own any TC bonds, I have noted the existence of a 2018 senior bond with a 7.375% coupon. That bond has fallen from a high of around 100 in March 2012 to 84.25 yesterday. Even at that price, the YTM is around 11% which suggests to me that the 2018 bond needs to fall more in price given the pricing of the 2019 bond.  I am just keeping an eye on the bonds.

Another part of the financing package, an offering of 6.5% tMEDs, is just too complicated of a security to discuss in this blog. That security has a $25 par value and 8.8 million units were sold by the company. I have no interest in it.

1. Apria Healthcare (own one senior secured bond: Junk Bond Ladder Strategy): I have not been pleased with Apria's earnings reports since I first started to purchase its bonds. I sold one of them to clip a small profit:  Sold 1 Apria 11.25% Senior Secured Bond at $104--Bought 1 Senior Secured 11.25% Apria Healthcare Maturing on 11/1/2014

I still own another one which is junior in priority to the one sold. Bought 1 Apria 12.375% Senior Secured Maturing on 11/1/2014 at 91.625

Apria reported another loss. For the Q/E 3/31/2012, the company reported a loss of $19.6 million on a 11% increase in revenues to $595.7 million.  SEC Filed Press Release

The long term debt is discussed in the last filed Form 10-Q starting at page 13.

2. Senomyx (own 300 shares): SNMX is a developer of "savory flavor ingredients".  One of its products, a sucrose enhancer called S6873, is in the initial stages of a commercial launch. That product reportedly enables a 50% reduction in sugar in all food categories and selected beverages. The general idea is to keep the sweet taste with less sugar.

Senomyx reported $8.2 million in revenues for the first quarter and a net loss per share of 5 cents. As of 3/31/12, the company had $51.3 million in cash. The company reiterated its previous guidance for 2012.

I am sitting on a small unrealized loss on the 300 shares recently purchased at $2.73. Headknocker was not pleased with the OG buying more than 100 shares of this stock. On 5/3/12, the day of the earnings release, the shares skidded over 5%. SNMX Historical Prices

This is a link to the Earnings Call Transcript.

Senomyx rose 4 cents to close at $2.29 yesterday.

3. HCA Holdings (own 2 senior unsecured bonds: Junk Bond Ladder Strategy): HCA reported earnings of $1.18 per share, which was 19 cents better than the consensus, on a 4.3% increase in revenues to $8.4 billion. Same facility equivalent admissions increased 4.8% during the first quarter compared to the 2011 first quarter. Cash flow from operations declined 13.2% to $797 million. As of 3/31/2102, HCA had $471 million of cash and cash equivalents and total debt of $27.902 billion. The company operated 164 hospitals and 109 freestanding surgery centers as of 3/31/12.

The company increase its E.P.S. guidance for F/Y 2012 to $3.57 to $3.77 per share.

Bought 1 Senior 7.5% HCA Bond Maturing 12/15/2023 at 96.854
Bought 1 Senior 7.69% HCA Bond Maturing 6/15/2025 at 92.26

4. Sunstone Hotel (own cumulative equity preferred stock):  SHO reported FFO for the first quarter of 12 cents per share, excluding non-recurring items, which was 4 cents better than the consensus estimate. Revenues rose to $205.2, much better than the estimate of $196.69. Comparable revenue per room increased 5.5% to $117.45. The company also announced its acquisition of the 417 room Chicago Wyndham Hotel for $88.4 million. That acquisition will be financed by using cash on hand and by issuing $58.4 million of SHO common shares to the seller at $10.71 per share. SEC Filed Press Release

I recently sold  50 shares of SHOPRD at $25. I still own 50 shares of SHOPRA.  Bought 50 SHOPRA @ 24.35 (May 2011 Post).


Sunstone Hotel Investors Inc. 8% Cum. Redeem. Pfd. Series A (SHO.PA), which is still owned, closed at $24.88 in trading yesterday.

5. SOLD 70 PLXT at $6.66 Last Thursday (Lottery Ticket Basket Strategy)(see Disclaimer): As previously noted, PLXT is being acquired by IDTI. Acquisition of PLXT by IDTI I bought 70 shares of  PLXT at $3.37 as part of the Lottery Ticket Basket Strategy back in February 2011. For most of the time that I owned the stock, I was near break-even on the shares, but ended up with a 88% long term capital gain on those 70 shares:

2012 PLXT 70 Shares +$214.38
This brings my realized gains for this basket strategy to $10,406.18 as of 5/3/12. Snapshots of LT gains and losses that exceed $30 can be found at the end of Lottery Ticket Strategy: New Gateway Post.

6. Annaly Capital Management (own 50 shares ROTH IRA):  I bought this security solely for its income generation. By owing this security in the ROTH IRA, I in effect convert the dividends into tax free distributions. As a mortgage REIT, NLY is of course a high yielding security. If I am able to sell those 50 shares at any profit down the road, I will be satisfied with the investment.

Annaly reported earnings of 54 cents per share for the first quarter, beating estimates by 6 cents. GAAP earnings, which include unrealized gains or losses on certain securities, was reported at 92 cents. The spread between the average yield on investments and the cost of borrowed funds narrowed to 1.71% during the quarter. This was a 46 basis point decrease from the spread for the 2011 first quarter. NLY's leverage as of 3/31/12 was at 5.8x, down from 6.3x at the end of the 2011 first quarter. Book value per share was at $16.13 as of 3/31/12. SEC Filed Press Release I captured these numbers and others in the following snapshot taken from NLY's earnings release:

The shares have trended up some since this release reported on 5/2/12. NLY Historical Prices Around 4/24/12, the stock moved above its 50 day moving average.  NLY Interactive Chart

Annaly Capital Management rose 16 cents in trading yesterday to close at $16.47.

After the close yesterday, Annaly announced that it intends to offer $750 million in convertible senior notes maturing in 2015, with an over-allotment option of up to an additional $112.5 million. That offering will likely place some downward pressure on the stock today.

In addition, Annaly announced that it intends to offer $25 par value cumulative preferred stock.

7. Regional Bank Basket Table (Regional Bank Basket Strategy): This is my table of the stocks currently in my regional bank basket. The dividend yields shown in this table are at the closing price from yesterday. In most cases, my yield would be higher. I view dividends to be an important component of my potential total return.  I am not including reinvested dividends in this table. This basket had a good day yesterday, rising 1.22%, in spite of the market's decline.  The SPDR S&P Regional Banking ETF rose two cents or .07% in trading yesterday.  The iShares Dow Jones U.S. Regional ETF declined 15 cents or .61%.

Snapshots of the realized gains can be found in the gateway post for this strategy.

I do not blame myself for the unrealized loss in First Niagara shares. I was bushwhacked by the Board and the CEO: First Niagara: Just Another Incompetent Bank Board of Directors  First Niagara Dividend Slash 

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