Thursday, May 3, 2012

Earnings: UBSI CLGX BYD/Decline in Sandridge Energy Shares/SOLD 3 United Refining 10.5% Senior Secured Bonds at 104.125

I noticed that Edward Munch's painting "'The Scream" sold for $119.9 million. I did not know that Munch painted four versions of that painting, and consequently I do not know now which one that I saw at the Frist Center for the Visual Arts in Nashville.

S & P raised its rating on Huntsman debt to BB. TEXT-S&P

Fitch raised Macy's senior unsecured debt to BBB from BBB-. TEXT-Fitch

Markit reported yesterday the final April European PMI numbers for manufacturing. The index hit a 39 month low at 45.9. Any number below 50 indicates contraction. The German PMI hit a 33 month low. The PMI numbers for Spain and Greece were 43.5 and 40.7 respectively.

The unemployment rate in the 17 nation Eurozone hit 10.9% in March, the highest level since the launch of the Euro. Spain's unemployment rate hit 24.1% in March.

I suspect their will be a mounting backlash among most other Eurozone countries to Germany's austerity push.

ADP reported yesterday its private payroll numbers for April. According to that report, private payrolls increased by 119,000 in April. The consensus forecast was for 177,000. The March number was revised down to 201,000 from 209,000. adp.pdf ADP estimated that large businesses added just 4000 jobs, whereas small businesses, defined to mean businesses with 1 to 49 employees, added 58,000. Large corporations will generally be the first to fire and last to hire, preferring to hoard their cash and to do more with less.

The forgoing data points may cause me to tweak my stock allocation some.

I thought that the 9.6% decline in Sandridge Energy shares yesterday on extremely heavy volume was due mostly to a new revelation about the activities of Chesapeake's (CHK) CEO Aubrey McClendon, who allegedly was actively involved in a hedge fund called Heritage Management for at least four years between 2004-2008, according to Reuters. This fund invested in energy futures which raises all kinds of legal and conflict issues, since CHK would also be involved in the same type of contracts.  Forbes

CHK shares declined $2.86 yesterday to close at $16.74. Lower than expected results for the first quarter did not help. WSJ The Reuters' article points to Tom Ward being involved in the same hedge fund at a time when both Ward and McClendon ran CHK. Ward is now the CEO of Sandridge. I would not even consider buying CHK shares until McClendon is removed from any position of responsibility. I have a LT position in SD.

1. United Bankshares (ownRegional Bank Basket Strategy): UBSI reported net income of $21 million or 42 cents per share for the first quarter, up from 41 cents in the first quarter of 2011. SEC Filed Press Release

The consensus estimate, originating from 10 analysts, was for 43 cents.

As of 3/31/12, the net interest margin was 3.78%; NPLs to total loans stood at 1.23%; the coverage ratio was 97.1%; and the return on average assets was 1% during the quarter.

The capital ratios are good:

Bought 50 of UBSI at $16.65 (November 2009).

United Bankshares closed at $26.18 yesterday.

2. Sold 3 United Refining 10.5% Senior Secured Bonds Maturing 2/28/18 at 104.125 Last Friday (Junk Bond Ladder Strategy)(see Disclaimer): The three United Refining bonds were bought in two lots. Bought 2 United Refining 10.5% Senior Secured Bonds Maturing 2/28/2018 at 94.5 (January 2012); Bought 1 United Refining 10.5% Senior Secured Bond Maturing 2/18/2018 at 97.25 

Due to a higher than anticipated default rate in my junk bonds, I have elected to harvest gains in several positions, purchased at discounts to par value, when the price pops over par value. I hope to use those profits to offset losses from the defaults. The goal of this strategy is simply to have a total return equal to the interest payments received and to break even on the bonds. If I am able to accomplish that result over the life of this strategy, the total annualized return will exceed 10% due to the high yields. 

Besides profit taking, another reason for selling this bond was the lackluster results for the Q/E 2/29/12,  recently reported by the company. Form 10-Q

I received $54.25 in accrued interest from the buyer. The realized gain, as presently computed by my broker, was $232.4:

3. Sold 100 SGL at $10.672 Last Friday-Regular IRA (see Disclaimer): SGL is a low yielding bond CEF that pays monthly dividends. I purchased the shares at at $10.03.

Strategic Global Income Fund closed at $10.78 yesterday.

4. Corelogic (own 1 2028 senior bond: Junk Bond Ladder Strategy): CLGX reported net income from continuing operations of $29.1 or 27 cents per share for the 2012 first quarter. SEC Filed Press Release for Period Ended March 31, 2012 Revenues rose 13.2% to $358.1 million.  As of 3/31/12, the company had unrestricted cash of $256.4 million, and total debt was $856.7 million, down $51.6 million from 12/31/11. The available capacity on CLGX's credit facility was $498.3 million. Free cash flow for the first quarter was $49.2 million.

5. Boyd Gaming (own 1 senior 2018 bond: Junk Bond Ladder Strategy and the common as part of the Lottery Ticket Basket Strategy): BYD reported first quarter net income of $5.8 million or 7 cents per share, up from a loss of $1.2 million in the 2011 first quarter. Revenues increased 12.1% to $633.1 million. Q1-2012 8-K I was just label this one another lackluster report from Boyd. I do have an unrealized gain on this bond: Bought 1 Boyd Gaming 9.125% Senior Bond Maturing on 12/1/2018 at 89 The bond is now trading several points above par value and consequently may be sold at anytime.

I may need to give the LT a few years before categorizing it as a failure. Given the small amount of capital devoted to each LT, it is possible for even the OG to be sanguine about the success or failure of a LT selection. 

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