Thursday, May 10, 2012

Defeat of Senator Lugar/DOLE PCS STKL/SOLD 388 BTZ AT $13.38/Sold 50 of the Stock CEF IDE at $18.61/Bought 1 Cenveo 2nd Lien at 92.499/XIN

The DJIA initially declined over 180 points yesterday in response to news emanating from Europe. That news included the ongoing fiasco with Greece and the developing one with Spain. The market rallied strongly after the EU decided to deliver €4.2 billion to the Greek government, with most of that money (€3.3B) earmarked to pay back the ECB, and then slid into the close.  WSJ

After consuming other's people money, many Greeks are annoyed about conditions being placed on the delivery of more funds, even after lenders took a bath on the previous loans. As noted in this article at Mail Online, banks and other private investors agreed to write-off €90 billion of that old debt.

Spain's 10Y government bond went over the 6% yield mark. The 10 year issued by our destitute Uncle Sam has been rising in price and falling in yield since mid-March, and now yields about 1.83%. Chart - The 10 year U.S. TIP has a negative current yield.

The Barrons' technical analyst argues that stocks may be in for an Ugly Slide. I am ready for that eventuality.

I thought that this story at the WSJ was interesting. Beazer Homes has joined with Kohlberg, Kravis Roberts & Co. to create a REIT to buy single family homes, which would then be rented out.

Dole Food Company, a LT selection, recently reported disappointing first quarter results, and announced a "strategic review". Bought 30 DOLE at $8.34-Lottery Ticket  The common shares (DOLE) popped 5.26% yesterday after Bloomberg published an article titled "Dole Food Breakup Seen Bearing Fruit With 58% return". The general idea is that the parts are worth more than the whole according to some analysts and investors. S & P reaffirmed its credit rating, but changed the outlook to developing from stable. TEXT-S&P

For the 2012 first quarter, Xinyuan Real Estate, a LT selection, reported net income of U.S. $23.2 million or $.31 per ADS share, up from U.S. $11.7 million in the 2011 first quarter. The estimate, made by one analyst, was for $.25. XIN Analyst Estimates The shares rose 16 cents or 4.88% to close at $3.44 yesterday.

Valley National (own) was ex dividend for its 5% stock dividend yesterday. That dividend will be paid on May 25. Valley National Bancorp Board of Directors Declares a Five Percent Stock Dividend

CNO Financial Group, a LT selection, initiated a quarterly dividend of 2 cents per share.

SunOpta, a LT, reported net income of $5.892 million for the first quarter, or 9 cents per share, on revenues of $274.252 million. This was 1 cent better than the consensus estimate. SunOpta shares bucked the market decline yesterday, rising 4.06% to close at $5.89.

Lottery Ticket Strategy
Lottery Ticket Basket Strategy: Links in One Post

MetroPCS (PCS) rose over 14% yesterday after Bloomberg reported that PCS was discussing a merger with Deutsche Telecom (DTE). As noted in a recent post, I had the common under observation for a possible LT addition. Item # 1  PCS  I own 1 senior bond issued by PCS as part of the Junk Bond Ladder Strategy. Bought 1 MetroPCS 7.875% Senior Bond Maturing 9/1/2018 at 98 (August 2011)

Senator Richard Lugar (R), a six term U.S. Senator, lost the Republican primary to the tea party backed Richard E. Mourdock. NYT I discussed the campaign against Senator Lugar in a recent post. "Americans For Prosperity" and the KOCH Family A similar event happened in Utah where the extremist Mike Lee won the 2010 GOP convention in that state to unseat the incumbent Senator Bob Bennett. I would view the foregoing to be just another example of the GOP moving further toward extremism and the embrace of a rigid, uncompromising ideology. The GOP's Movement Toward An AYN RAND Vision for America That rigidity prevents the acceptance of all accurate information that does not confirm the ideology and renders those so afflicted unable to learn from experience. Fail to Remember or Refuse to Learn? (March 2009 Post)

In 2010, social security, medicare, and defense spending accounted for 53.6% of federal spending. Interest payments on the national debt took up 5.7%. Other spending components include Medicaid at 8.1%; unemployment compensation at 4.6%; education 3.7%; parks and natural resources 1.3%; veterans 3.1%; transportation 2.7%; and other health care at 2.6%.  Fiscal FactCheckBudget Puzzle: You Fix the Budget

To balance the budget in 2010, without cutting Medicare or Social Security, and continuing to pay interest on the national debt, all other federal spending would have needed to be cut by 60%.

The corporate tax rate as a percentage of GDP has declined substantially over the past few decades, as shown by a chart at Barry Ritholz's blog The Big Picture. In his blog at Reuters, Felix Salmon has a chart of corporate taxes as a percentage of total U.S. tax revenue, which shows a decline from over 30% in the early 1950s to about 5% in 2010. The GOP wants to cut that percentage even further.

1. SOLD 338 of the Bond CEF BTZ at $13.38 Last Thursday (see Disclaimer): These shares were sold in two accounts. I disposed of 200 shares in the ROTH IRA at a very slight profit.  Bought 200 BTZ in ROTH IRA at 13.23 (September 2010 Post). I also sold the remaining 188 shares in a taxable account.

Along with 200 shares sold earlier in a taxable account, I was able to eliminate this position by selling every share at a profit:

2012 BTZ 388 Shares +$279.07
I view any investment in a bond fund to be successful when I am able to exit the position at a profit.

BTZ page at the CEFA.

Last Thursday, the shares closed at a -7.31% discount to a net asset value per share of $14.51.

BlackRock Credit Allocation Income Trust IV (BTZ) closed at $13.36 yesterday.

2. Sold 50 of the Stock CEF IDE at $18.61 Last Thursday (see disclaimer): I noticed that on 5/2/12, the day before my sell, the discount to net asset value per share had shrunk to just 1.9% for IDE. I will periodically reduce or eliminate a CEF position based on a narrowing of that discount. I bought those at $17.18 and received two quarterly dividends at a $.45 per share rate. The last dividend was paid on 4/16/12: ING The gain may be adjusted upward to reflect a return of capital connected with the last dividend payment:

2012 IDE 50 Shares +$55.58

IDE page at the CEFA.

ING Infrastructure Industrial & Material Fund (IDE) closed at $17.88.

3. Bought 1 Cenveo 8.875% Second Lien Note at 92.499 Maturing 2/1/2018 at 92.499 Last Thursday (Junk Bond Ladder Strategy)(see Disclaimer): Cenveo is a diversified printing company. Cenveo website 

This is a snapshot of an order page for this bond taken shortly before I hit the "buy" button at the top right corner:


As noted on that page, the bond is currently rated B3 by Moody's and B- by S & P. That information corresponds to the ratings found at this bond's page at FINRA

This is a snapshot of the pertinent part of the confirmation:

The confirmation states that the yield to maturity at my cost is 10.601%.  When I made this purchase at Vanguard, the Fidelity order page for this bond did not show the availability of a one bond buy at the 92.499 price. The minimum purchase quantity was 5 bonds at Fidelity at a slightly different price.

Whenever I see a bond described as a second lien note, I want to know the nature and amount of the first lien. Sometimes, the first lien will be another bond. More frequently, it will be a bank credit facility. The bond will have a fixed amount outstanding, whereas the bank credit facility may be anywhere from zero to maxed out. 

In this case, the first priority lien is a bank credit facility. This is how the prospectus for the second lien note describes the security: 

I want to know now the size of the credit facility since the lien created by that agreement is superior to my note. As of 12/31/2011, the balance owed on that credit facility was $284.878 million. (page 49: 2011.12.31-10K)

I had previously sold two senior subordinated Cenveo notes maturing in 2013 which would be junior in priority to the 2018 second lien note. I no longer own the 2013 bond. Sold 2 Cenveo 7.875% Senior Sub Bonds Maturing in 2013 at 95-Averaged Down by Buying 1 Cenveo 7.875% Senior Subordinated Maturing 12/1/2013 at 81.5

I have also recently discussed CVO's difficulties in refinancing its debt. CVO (3/26/12 Post). S & P revised CVO's debt outlook to negative based on that difficulty. TEXT-S&P 

The company did issue $225 of 11.5% senior unsecured debt maturing in 2017, and later registered those bonds with the SEC. Those proceeds, along with another convertible offering, were used to redeem 96.02% of its outstanding 10.5% 2016 senior unsecured notes and 99.92% of its 8.375% senior subordinated notes maturing in 2014. SEC Form 8-K

This bond is lightly traded. A seller willing to accept a 1 bond purchase order is rare. 

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