Wednesday, March 12, 2014

Another Partial Call by the Owner of the JZJ Call Warrant

ADDED 3/14/14: I received the redemption proceeds this morning:


I received an email notice this evening that the owner of the JZJ call warrant is doing another partial call:

If the trustee receives payment on the call date, then I will shortly thereafter receive the $25 par value for 94 shares plus accrued interest in the amount of $.52682292 per TC. 

JZJ is the Class A-1 certificate. 

The first partial call took away 82 shares in 2010, when I lost all of the functionally equivalent JZE:

2010 100 JZE and 82 JZJ Lost to Call Warrant Exercise/Total Realized Gain=$1,809.44 on total investment of $2,740 

As I have discussed, it is in the interest of the call warrant owner to redeem this security at its $25 par value, plus accrued interest, take possession of the AT & T senior bonds owned by the Grantor Trust, and then sell them for a risk free and substantial profit in the bond market. The call warrant feature is just one of the many ways that large brokerage firms enrich themselves at the expense of he moms and pops. If there was no call warrant feature, then the TC would be priced at a similar premium as the underlying bond which has a make whole provision rendering it unlikely to be called by AT & T. An optional redemption by AT & T would be punitive. 

I discussed the likely call of this security in comments to a SA article: Seeking Alpha

This is what my existing position looks like: 

The redemptions of my higher yielding bonds is making it more difficult to achieve an acceptable level of income generation from bonds for the risk. 

This chart of historic junk bond yields should give any prudent investor pause:

I view that chart as most worrisome. 

No comments:

Post a Comment