Tuesday, August 14, 2012

SUSQ Redemption of TPs/KO STOCK SPLIT/GE Position Now Profitable Again/Sold 50 SIR at $25.17/Earnings: JCP/Harland Clarke/WIN

This post was scheduled to be published on Monday. I moved it to Tuesday since yesterday's post is viewed as more important.


I received on Saturday, 8/11/2012, my Coca Cola stock split shares:

KO Stock Split Shares=  132.998 shares  
As noted previously, KO shares underwent a 2 for 1 stock split with the additional shares payable on or about 8/10/12. The shares closed at $78.79 last Friday, which will be equivalent to $39.395 adjusted for the stock split. The split, of course, does not change the value of my holding.

Prior to the split, I owned 132.998 shares (see snapshot at KO STOCK SPLIT, which shows the average cost data at $50.83 pre-split, now at $25.425 per share post split). My account now shows 265.996 shares.

Goldman Sachs downgraded KO to neutral from a conviction buy, with a $42 split adjusted price target, based on a difficult macro environment and currency exchange headwinds.

I have quit reinvesting the dividend and will not resume the reinvestment option unless the price sinks below $55 per share.

My General Electric position has moved back into profit territory. My average cost per share is $20.01, with the highest cost shares being acquired in the low 30s several years ago. I averaged down during the Near Depression period (see snapshot at Item # 4 ADDED 30 GE at 19.95 with Cash Flow, includes adds to 4/21/11)

After about 4 years in the red, the position has only recently turned profitable again. I am reinvesting the dividends at below $25:

510+ GE Shares Unrealized Gain as of 8/10/12=$554.11
I may sell some of the highest cost shares using FIFO accounting when and if the share price crosses $35. The shares were trading near $37 in early 1999 and last traded over $35 in April 2008. GE Interactive Chart


The VIX has now fallen below 15. Last Friday the VIX fell 3.53% to close at 14.74.

Yesterday, the VIX declined even thought the S & P fell. The VIX fell .86 to close at 13.88.

The Vix has now moved below 20 for 33 days. VIX Historical Prices As previously mentioned, I did not restart the 3 month count with the 20.47 close on 7/24/12. To end the Unstable Vix Pattern, which was formed in August 2007, I will require three months of continuous movement below 20, allowing for slight and a temporary movement above 20, without restarting that count. VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern

Once that occurs, a Stable Vix Pattern will be declared, which requires a new trading book. Vix Asset Allocation Model Explained SimplyMark Hulbert and the Use of the VIX as a Timing Model  Trading and Asset Allocation in Stable and Unstable VIX Pattern More on VIX AND ASSET ALLOCATION

Stable Vix Patterns:

May 1991 to October 1997 Trigger Event: VIX and S & P Compared 1990 to 1997

March 2004 to August 2007 Trigger Event: More on VIX AND ASSET ALLOCATIONVix Charts from 2004 2005 2006 Stable VIX Patterns Phase 1 and Phase 2


In a Reuters article, it was noted that the stock market has risen 74% since Obama became President on 1/20/2009. On his inauguration day, the S & P closed at 805.22. S&P 500 Historical The S & P 500 closed at 1,405.87 last Friday. No republican would give the Beanpole any credit whatsoever for any of that rise. To get a rise out of a GOP tribe member, ask them to compare stock market performance under Bush Junior with either Clinton, much reviled by them, or Obama even more reviled than any previous Democrat. United States presidential inauguration 

Bush 1/20/2001 to 1/20/2009: S&P 500 Start=1,342.55   End Value=805.22   Negative 40%

Clinton 1/20/1993 to 1/20/2001 S&P 500 Start=433.37 End Value 1,342.55 Positive 209%

A paper published by a Pepperdine professor shows both the nominal and inflation adjusted returns of the S & P 500 for each President since 1949: Manuscripts .pdf

I do believe that the U.S. job picture will be considerably better during the next President's term, irrespective of who wins in November.

Moody's lowered Edison Mission's bond rating last Friday to Ca with a negative outlook. 


One of the many interesting factual issues about the GJN situation is why did the trustee wait so long to send out a notice. The notice reproduced at www.quantumonline.com is dated July 17th, after the delisting and redemption of the GJN trust certificates. In other prior redemptions of trust certificates, that notice would be sent out on a wire service several week before redemption and would be picked up by investors at financial websites including quantumonline. 

Even with just a week's notice, a lawsuit could have been filed seeking to temporarily enjoin the $12+  million dollar distribution until a hearing could be held for a preliminary injunction. If granted, WFC would not have the money now. So, why did the trustee wait so long to send out that notice? Of course, it is better for one party to have the money in the bank while the other party has to fight for its return. 

So, I am curious about something about the trustee's GJN redemption notice which told GJN investors that $12+ million was going to be given to WFC. Was there a discussion involving WFC and the trustee about the timing of that notice? Why exactly was that notice given so late?


Motley Fool article noted that Pennant Capital Management has acquired 9.3 million shares of Terex (TEX) or 8.5% of the outstanding shares. This is a link to Pennant's 13-G filing.  

Xinyuan Real Estate, a LT, reported a surge in net income to U.S. $69.4M or $.94 per ADS share including a tax benefit of 36 cents per share or $26.6M, up from 40 cents in the year ago quarter. Cash, including restricted cash, was at $604.7M as of 6/30/12, up from $515.7M as of 3/31/12. Earnings Call Transcript - Seeking Alpha The only explanation for the share price appears to be skepticism about all of these numbers.  Last Friday's action: XIN: 2.95 +0.36 (+13.90%) 

Merrill Lynch Depositor Inc. PreferredPLUS Cl A 8% TRUCs QWS-2 for Qwest Capital Funding Inc (PJA) was ex interest last Friday for its semi-annual distribution. I own 150 shares. Trust Certificates: New Gateway Post

Provident New York Bancorp (own) completed its acquisition of Gotham Bank which will serve as PBNY's "cornerstone" for serving "middle market commercial banking" in NYC.

The IRS has released data from 2009 tax returns for 400 individuals with highest adjusted gross income. The average income for this group was $202M. NYT This data shows that the ultrarich are in need of more tax breaks that will enable them to create more jobs. The data reveals that 6 of the 400 paid no tax at all and 27 paid less than 10%. Eight-nine paid between 10-15%. None paid more than 35% 

1. Susquehanna Bancshares Announces Redemption of SUSPRA (own): I own 80 shares of SUSPRA,  TP issued by Susquehanna Bancshares I with a 9.375% coupon on a $25 par value.

Susquehanna Bancshares announced yesterday that it will redeem this security on 9/18/12 at par value plus accrued interest (CUSIP: 86910P201).

I expected that SUSQ would redeem this high cost TP even though it was grandfathered as TIER 1 equity capital. Item # 1 SUSQ  SUSQ could redeem this TP after 12/12/12 at par value plus accrued interest.  Final Prospectus Supplement

The TP could be redeemed prior to that time after a Capital Treatment Event:

SUSQ Capital Treatment Even/90 Day Time Limit After Capital Treatment Event
Under Dodd-Frank, it is my understanding that this TP could still be used as Tier 1 equity capital since SUSQ had less than $15 billion in assets as of 12/31/09. Item # 2 Bought 50 SUSPRA at $25.25 ROTH IRA As of 12/31/2009, SUSQ had $13.689+ billion in assets. Susquehanna Bancshares Inc--2010 Form 10-K at page 33.

So if the Capital Treatment Event was not the Collins Amendment that became part of Dodd-Frank, what is the Capital Treatment Event for SUSQ? This does involve something new.

SUSQ does not say in its notice. I believe that the bank must be relying on the proposed rule of the Federal Reserve that would phase out the use of TPs issued by bank holding companies having under $15 billion in assets over a ten year period under Basell III. For those banks, and SUSQ would be one, they could still use 90% of the carrying value in 2013 as TIER 1, with annual 10% reductions until fully phased out in January 1, 2022. Federal Reserve Proposes Revised Bank Capital Rules (Harvard Law Review blog)

So, this change by the Federal Reserve would be something new for SUSQ. This proposed rule was the first indication of a Capital Treatment Event for SUSQ, but not for JPM or WFC. 

I would view SUSQ's use of the Capital Treatment Event language as appropriate for it, provided the redemption is occurring within ninety days after the publication of the proposed rule change. I do not know the exact date of that publication, except that it was sometime in mid-June. So it is close on that 90 days. At least SUSQ is paying attention to that time limit which is more that I can say about other banks.

In any event, there is less than three months interest remaining on SUSPRA before it could be redeemed at par plus accrued interest without relying on the Capital Treatment Event exception.

Please note that the Federal Reserve's proposed rule does not impact the phase out period for the banks with more than $15 which is the same as under the Collins Amendment to Dodd-Frank. District Court Decision in Turkle Trust v. Wells Fargo (N.D. Cal)/Summary of Argument: JPM Potential Obligation to Pay Make Whole for its Recent 2035 TP Redemption/Other JPM Capital Trust Preferred Securities: Language on Make Whole Payment and Capital Treatment Event

SUSQ recently raised $150M from the issuance of  a 5.375% senior note maturing in 2032. It will use the proceeds from that bond issuance and available cash to redeem SUSPRA and another TP.

I previously claimed that STLPRA would fall under the grandfather clause of the Collins Amendment. While that is true, that TP would have to be phased out as Tier 1 equity capital when and if the Federal Reserve adopts the foregoing rule change. I believe that SUSPRA and STLPRA are my last remaining bank TPs.

2. Sold 50 SIR at $25.17 (see disclaimer): This selection achieved my price objective after crossing above $25, so it was sold for that reason. 

2012 SIR 50 Shares $149.58
Bought 50 SIR at $21.86 (5/29/12 Post)

I will also receive one quarterly dividend of 49 cents per share ($24.5), of which 9 cents is a one time special dividend. Select Income REIT Announces Its First Common Share Dividend 

That brings my total return after commission costs to $174.08 or 15.81% annualized in slightly over 2 months.

SIR Stock Quote (closed at $24.75 yesterday)

3. J.C. Penney (own 2 senior bonds: 2017 an 2020-Junk Bond Ladder Strategy): J. C. Penney reported an unexpectedly pathetic quarter. The CEO has no intent on changing his strategy after JCP reported a fiscal second quarter loss of 37 cents (excluding charges) on a 22.6% decline in revenues. Comparable store sales declined 21.7%. JCP withdrew its fiscal 2013 guidance of a Non-GAAP E.P.S. of $2.1. 

Shares rose based on investor's faith that the new CEO's turnaround plan will work over the long term. MarketWatch During the conference call, the CEO claimed that sales have picked up in August and noted impressive numbers from the new shop in store concept. 

Shares last Friday: JCP: 23.40 +1.30 (+5.88%) 

The results are discussed in articles at MarketWatchCNBC and Bloomberg.

I have limited myself to 3 JCP bonds, and I am going to hold off buying number 3 until I see something more positive. I may even wait until the 4th quarter earnings report to see how Christmas went for JCP.

I would agree with Johanna Bennett, who stated in her Barrons' column that the likelihood of a turnaround can not be determined at the present time.

This author of an article published by TheStreet believes that the CEO may be delusional. That may be on the harsh side in addition to being somewhat premature.

Morningstar has a 4 star rating on JCP common. 

Moody's downgraded JCP debt to Ba3 from Ba1. Further deterioration of same store sales is expected by that rating agency. 

4. Windstream (own 100 Shares): Windstream reported unfavorable second quarter results. Net income per share fell to 9 cents from 19 cents in the year ago quarter on SEC Filed Press Release On an adjusted basis the company reported net income of 12 cents per share. Wholesale revenues declined 12% due largely to the decision to suspend certain wholesale products. Business services rose 2% on a pro forma basis. Total revenues declined 1% to $1.54 billion.

I recently sold my entire position in the ROTH IRA. Sold 100 WIN at $10.12 (8/6/12 Post)-Bought 100 WIN at $9.35-ROTH IRA

I sold my larger position in August 2011. Item # 3 Sold 300 WIN at 12.31

Free cash flow was $109M during the quarter. The dividend payment was $147M. Windstream likes to an adjusted cash flow number, which excludes nonrecurring expenses. That number was $135M, also below the dividend payout.  

I would agree with the analysis found in a Seeking Alpha article that the generous WIN dividend is in danger of being cut. 

I am not likely to buy back any shares in the ROTH IRA above $9. If I buy more shares, I most likely would buy 50 shares rather than 100. This last report makes WIN a more risk stock to own, unless there is a substantial improvement in unadjusted free flow cash generation in the upcoming quarters that would soothe concerns about a dividend cut. 

Morningstar has a 3 star rating on Windstream and a consider to buy price at $6. That seems to low to me. I was able to buy some shares at $6.36 during the Near Depression period and hopefully those conditions will not return soon.  I would certainly be a buyer at that price. 

I have also sold out of my Windstream bonds: Sold All Windstream Bonds: Two 2019s at 101 and One 2020 at 103.5

Last Friday's close: WIN: 9.41 +0.11 (+1.18%) 

5. Harland (own 3 senior  2015 bonds: Junk Bond Ladder Strategy): Harland reported a second quarter loss of $7.7 million, which included a $41.7 million before tax charge for anon-cash fair value adjustment related to an acquistion and a $13.2 before tax gain from the sale of securities. Revenues for the quarter were $405.9 million. SEC Filed Press Release 

SEC Form 10-Q: HCHC-2012.6.30-10Q The debt is discussed starting at page 15 of the 10-Q. The total debt is excessively high at $1.821 billion, of which $1.701 billion originates from a senior secured credit facility.  Both the total size of the debt and the large amount of senior secured are matters of deep concern for those owning the 2015 senior unsecured bond.

ADDED 2 Harland Clarke 9.5% Senior Bonds Maturing on 5/15/2015 (June 2011). 

No comments:

Post a Comment