Bought 50 UZV at $25.15/Sold 50 of the TC PYS at 23.2/Sold 50 of the TP ARSVP at 25.8/Bought 1 Borden Chemical 8.375% Bond Maturing 4/15/2016

I watched a video clip of Senator Jon Kyl (R), where the good senator claimed on the floor of the Senate that abortion is "over 90% of what Planned Parenthood does".  No federal dollars are used to perform abortions. As noted earlier, the TBs were about ready to shut the government down over 363 million dollars in federal funding to family clinics, including those operated by Planned Parenthood. Kyl's statement was offered as part of his principled justification for opposing that funding. As it turns out, the actual figure is just 3%, rather than 90%, and Kyl claimed that his representation was not "intended to be a factual statement", though it appeared to be.  This caused Steven Colbert to make a series of "not intended to be factual statements" about Senator Kyle. CNN.com Blogs (e.g. John Kyl is one of Gaddafi's sexy Ukrainian female bodyguards, John Kyl cheated on Sandra Bullock, etc. "not intended to be a factual statement".)

I am not sure Colbert is being fair to Kyl, since it is well known that the sine qua non of True Believers is to routinely create non-factual information to support their beliefs. This is a link to Jon Kyl Tweets Not Intended to Be Factual Statements - The Colbert Report - 4/12/11 - Video Clip | Comedy Central

PolitiFact has another description of Kyl's claim, referring to it as a "false" statement.

In case there are any super models who regularly read this blog, and want to know more about the OG hopefully, he used to # play shortstop for the New York Yankees, regularly runs five miles a day in just twenty minutes and performs a warm up exercise each morning of 300 push-ups with each arm to keep his slim and muscular body in top physical condition for a man of his age-just 21 by the way, and has so much hair on the top of his head that he regularly donates some to those less fortunate.  Oh, forgot to mention, the OG won the Nobel Prize in Economics for his groundbreaking work titled "Efficient Markets Theory as BullShit: How True Believers and RBs Influence Irrational Pricing in Stock Prices"   ( # not intended to be factual statements)

1. SOLD 50 of the TP ASRVP at 25.8 on Tuesday (see Disclaimer):  This TP originates from a micro cap bank, AmeriServ Financial, that has a market cap of around 49 million at a $2.3 share price. I made a small profit on the shares and collected a couple of interest payments, which is all that I am trying to do with TPs now.  Bought:  50 ASRVP @ 25 (Nov 2010 Post). I noted in that post that the common stock was then hovering around $1.5. 

Apparently, this was in response to the last quarterly earnings report, where the bank earned 4 cents per share. SEC Filed Press Release  Any buyer of this type of security, at current price levels, has minimum upside potential on the shares and significant downside risk.  

2. Bought 1 Borden Chemicals 8.375% Senior Bond Maturing in 2016 at 96.85 on Tuesday (Junk Bond Ladder Strategy)(see Disclaimer): Borden Chemical is now part of a private company Momentive Specialty Chemicals, Inc. that is owned by Momentive Performance Materials, a holding company controlled by investment funds affiliated with Apollo. Momentive Performance Materials Holdings LLC (see also p. 3 of 2010 Annual Report) That history tells the casual reader that Momentive Specialty Chemicals is a highly leveraged company which is the case. The 2010 annual report does show that the company was profitable in 2010, earning 214 million dollars on revenues for the year of 4.818 billion.  2010 Annual Report for Momentive Specialty Chemicals The total net debt is shown as of 12/31/2010 at 3.48 billion.   On 1/31/2011, Momentive completed the sale of its Inks and Adhesive resin business for 120 million in cash plus certain adjustments. SEC Form 8-K This is a link to the  SEC Filed Press Release announcing 4th quarter earnings.

The liquidity and capital resource section of the Annual Report can be found at pp. 34-38. The note that I bought is referenced in the table at page 37. Please note that there is a substantial amount of senior secured debt.  The debt is also discussed starting at page 65 under "10. Debt and Lease Obligations". At page 67, there is a note about the 8.375% bond, which has a "sinking fund" requirement: "The 8.375% Debentures have a sinking fund requirement of $20 per year from 2007 to 2015. Previous buybacks of Debentures allows the Company to fulfill sinking fund requirements through 2013"

This bond is of course rated well within junk territory.  The current rating is Caa2 by Moody's and CCC+ by S & P according to FINRA.

Link to Momentive's SEC Filings: EDGAR 

My confirmation states that my current yield at my cost is 8.576% and the YTM is 8.968%.

3. Pared Trade: Sold 50 of the Trust Certificate PYS at $23.2 and Bought 50 UZV at 25.15 on Wednesday (see Disclaimer):  This is another low yielding long term bond.  I am not going to take significant positions in any long term bond yielding less than 7%. Any positions established will be traded for small profits, with the main purpose being the capture of one or more interest payments.  

PYS has a $25 par value and a 6.3% coupon.  The TC and the underlying senior bond from R. R. Donnelley mature on 4/15/2029. PYS just went ex interest for its semi-annual interest payment, and I will soon receive that payment on the 50 shares sold on Wednesday.  I clipped a small profit on the shares bought a few weeks ago  at 22.6. I did better in an earlier trade. Sold: 50 PYS @ 24 (11/18/2010 Post)  Add 50 PYS at 19.59 (June 11 2010). I also did a similar clip earlier in 2010:  Bought 50 PYS at 20.01 (3/27/2010 Post)  Sold 50 PYS at 20.76 (7/28/2010 Post). RB just asked whether the Nerd Machine LB was bragging about those picayune profits?

The underlying bond has a coupon at 6.625%: FINRA

In the place of PYS, I added another 50 shares of the senior exchange traded bond issued by United States Cellular, whose common stock trades under the symbol USM.  I have discussed this bond, with the symbol UZV, on multiple occasions and have traded it for small profits. Bought 100 UZV at $24.42 (2/17/2010 Post) Added to UZV at 25.12 Added to UZV at 25.01 Sold 100 UZV @ 25.67 (2/22/2011 Post)

Anyone buying long bonds now can not rationally expect anything more than small profits. The downside risk is in my opinion far more pronounced than any upside potential in the bond's price. At best, I hope to exit long bond positions acquired over the past year or so at break-even after capturing one or more interest payments.

This baby bond has a $25 par value, a 7.5% coupon and a maturity date on 6/15/2034.

Prospectus:  www.sec.gov  This bond is rated investment grade. According to QuantumOnline, it is rated Baa2 by Moody's and BBB- by S & P, comparable to the R. R. Donnelley bond that I sold, except I pick up a slightly higher current yield with UZV and interest payments are made quarterly.  PYS pays semi-annually.

I bought the UZV shares in the ROTH IRA with a day limit order. I was filled when the price sank to $25.12 intra-day.

Another reason for buying UZV is that I am about to lose my senior exchange bond, TDA, to a call.  TDA is a senior bond issued by Telephone and Data Systems (TDS), a company that controls United States Cellular through its 81% stock ownership. So, in effect, I am using some of the soon to be received TDA proceeds to buy more of UZV.

United States Cellular is the 6th largest wireless phone company in the U.S.

For comparison purposes, I did look at the yield for a U S Cellular bond maturing in December 2033 that trades in the bond market.  That bond has a 6.7% coupon. FINRA (symbol USM.GC/Cusip 911684AD0)

Exchange Traded Bonds:

If Headknocker does not blow a gasket, OG will discuss two more junk bonds purchased on Wednesday in the next post.  

Bought: 50 NWBI at 10.45, 50 RFPRZ at 24.49, 50 MRK at 34.78, 50 ASRVP @ 25/Sold 100 of 200 NQS at $14.55

The initial unemployment claims number declined by 34,000 to 407,000 on a seasonally adjusted basis for the week ending 11/20. ETA Press Release: Unemployment Insurance Weekly Claims Report This number is volatile around Thanksgiving.

The savings rate was at 5.7% in October, as Americans continued to repaid their balance sheets. BEA : Personal Saving Rate Personal income increased in October by .5% and disposable personal income increased by .04%. News Release: Personal Income and Outlays, October 2010

Orders for durable goods, excluding transportation, fell 2.7% in October (Economic Indicators.gov), while the consensus estimate for that number was an increase of .6%.

Consumer spending rose .4% in October.

1. Added 50 MRK at 34.78 on Tuesday (see Disclaimer): When I bought 50 shares of Merck at 35.55 in early September, I intended to round the lot up to 100 shares, provided I could do so at a lower price.  The purchase on Tuesday of 50 shares at $34.78 did lower my average cost by a small amount. The dividend yield at my cost is over 4%. Merck recently declared its regular 38 cent quarterly dividend with a 12/13 ex date.  I am going to reinvest my dividends into additional shares.   


The news about Merck has been favorable since I last discussed this company. On 11/17, Merck reported at the annual meeting of the American Heart Association that its drug anacetrapib raised good cholesterol by 138 per cent while lowering LDL by 40 per cent. BusinessWeek Bloomberg Video - WSJ.com Promising results were found in the interim phase 2 study of ridaforolimus in the treatment endometrial caner, a development discussed in this Seeking Alpha article. That drug was developed by Ariad(ARIA), which I have owned in the past. Bought Another 100 ARIAD And Merck released results from a 9,000 patient study which showed that Vytorin "significantly reduced major vascular events in patients with chronic kidney disease". Merck News Item Merck also a trial involving  a patient's claim  that the use of Merck's drug Fosamax caused her severe jaw problems. 

2. BOUGHT 50 RFPRZ at $24.49 on Tuesday (see Disclaimer): I hold Regions Financial (RF) is less esteem than Zions. It is just impossible for me to say anything positive about the managers responsible for the huge losses suffered by this banking institution over the past two years. I am not able to see a ray of light for its shareholders.  I recently sold my 50 shares in RF at $6.57, having bought those shares at $3.47.  I have previously bought and sold RFPRZ at lower levels, satisfied to make a few bucks on the shares and to collect one quarterly interest payment. Bought 50 RFPRZ at 22.88  Sold RFPRZ at 23.46

RFPRZ is a typical trust preferred stock except in one important respect.  Unlike most bank TPs which permit deferrals of interest payments for no more than five years, Regions can defer payment for up to 10 years, though an alternative payment mechanism may become applicable after five years of deferral. The prospectus for this TP has standard stopper language that would prohibit Regions from paying a distribution on a junior security during any such deferral period. (see page S-40 Final Prospectus Supplement) In effect, this would mean that Regions would have to eliminate its meager one cent common share dividend and defer payment on the government's equity preferred stock before it could defer payment on RFPRZ.  

A junior bond is senior in priority to equity preferred stock.

In effect, this security is a junior bond issued by Regions Financial. The coupon is 8.875% on a $25 par value. By buying this security at $24.49, I raise the yield to me to slightly over 9%, paid in quarterly installments. RFPRZ is a trust preferred stock that represents an undivided beneficial interest in the assets of the trust, and those assets are a junior bond issued by Regions: " Each Trust Preferred Security represents an undivided beneficial interest in the assets of the Trust. The Trust will sell the Trust Preferred Securities to the public and its common securities to Regions. The Trust will use the proceeds from those sales to purchase $300,010,000 aggregate principal amount of 8.875% Junior Subordinated Notes due 2078 of Regions " Page S-1, Final Prospectus Supplement

This security is deservedly rated junk at Ba2 by Moody's and BB+ by S & P, according to QuantumOnline.com (free site, registration required).

This is a link to the last filed FORM 10-Q.  RF has not earned any money for at least two years. FORM 10-K

I would classify myself as a weak holder of this security.

I would add that Regions has more than 15 billion in assets and will have to phase out the use of TPs as equity capital under the "financial reform" legislation recently passed by the Democrats. Trust Preferred Securities & Financial Reform  The same is true for Zions' TP.

Trust Preferred Securities: Links in One Post

Regular Preferred and Trust Preferred

3. Added 50 NWBI at $10.45 on Tuesday (Regional Bank Stocks' basket strategy)(see Disclaimer): Northwest Bancshares has not performed well, and is one of my losers in the regional bank basket. This last purchase of 50 shares was an average down from prior purchases  at $11.88, $11.47 and $11.10. I am reinvesting the dividend to buy more shares. I discussed its last earnings for the Q/E 9/2010 in Item # 2  NWBI.

This bank, based in Pennsylvania, is currently paying a quarterly dividend of 10 cents. At a total cost of $10.45, that equates to a dividend yield of 3.83%. The bank reported a tangible book value per share of $10.28 as of 9/30/2010. Press Release The latest capital ratios are set out at page 34 of the last 10q filing. As 9/30, the total capital to risk weighted asset ratio was 20.58% and the Tier 1 capital to risk weight assets was at 19.33% (6% well capitalized).  NWBI has 171 banking offices.


Possibly, some of the share price loss is due to the current P/E. At a price of $10.5 a share, and a consensus estimate of 66 cents for 2011, the forward P/E is 15.9. But that 66 cents is almost a 18% increase over the estimate of 56 cents for this year. NWBI is one of the larger positions of Scout Capital Management as disclosed in its latest Form 13 F SEC filing. NWBI recently authorized a stock repurchase program of up to 10% of its outstanding shares. Due to a regulatory consideration, the stock purchases could not commence prior to 12/18/2010.

The regional bank basket gained $791 on Wednesday or 1.75%.  NWBI is the third largest loser in that basket. First Niagara has recently moved slightly into the plus column after being a laggard since I started to purchase shares.  While FNFG is still trading below its 200 day moving average line, it has moved above its 50 day average:  First Niagara Financial Group I Stock Chart | FNFG 

4. Bought 50 of the TP ASRVP at $25 on Wednesday (see disclaimer): This is another TP viewed as too risky for the retirement accounts, and I could barely muster enough courage to buy 50 shares at its $25 par value. ASRVP is a typical trust preferred stock.  It is atypical in that the responsible bank is tiny. The common stock of AmeriServ Financial (ASRV) is currently hovering around $1.5, and has a market cap at the current price of less than 33 million. It is headquartered in Johnstown, Pennsylvania. I counted 19 branch offices at the bank's web site: AmeriServ Financial

The bank's TP has a $25 par value and a 8.45% coupon (originally issued under the name of USBancorp Capital Trust I, the bank changed its name to Ameriserve). As previously discussed ad nauseum, the bank forms a trust controlled by it, and that trust issues preferred stock to the public. The trust then uses the proceeds realized from the sale of preferred stock to buy a junior bond from the bank. The preferred stock represents a beneficial interest in that bond. The TP pays interest, not dividends.  

The underlying bond owned by the trust and the TP both mature at the same time, in this case with ASRVP on 6/30/2028. Payments may be deferred for up to five years but will accumulate and earn interest at the coupon rate (see page 9 of the prospectus  www.sec.gov). There is at that same page in the prospectus what I would label a typical stopper provision, that is, the bank can not defer payments on this TP and make a distribution to the owner of a junior security.   


The bank is not paying a common dividend, but it is paying the government a government a dividend on 21 million in equity preferred stock. That stock is junior to the bond owned by the trust. If the government's payments are deferred, I would expect the bank to defer the payments on the junior bond too, but it is conceivable that would not happen. My thinking on that subject is that a bank would not likely stiff the government and continue to pay the private owners of a more senior TP. The important point from my perspective is that the bank would have to defer paying the government in order to defer paying interest on the bond owned by the trust. 


To find the SEC filings for this small bank, I had to use its old name as the search term, since the SEC's web site returned no results under its current name.  The bank did manage to earn a 2 profit per share for the Q/E 9/2010. Form 10 Q. I thought that the following statement contained in that report was significant and this representation made by the bank pushed me over the edge to make this chicken buy of 50 shares:


"The Parent Company had $17.3 million of cash, short-term investments, and securities at September 30, 2010, which was down $2.6 million from the year-end 2009 total.  We have elected to retain $14 million of the total $21 million in funds received from the CPP preferred stock at the Parent Company to provide us with greater liquidity and financial flexibility. ($7 million of the CPP funds were downstreamed to our subsidiary bank to help the Bank maintain compliance with our own internal capital guidelines.)  

Additionally, dividend payments from our subsidiaries can also provide ongoing cash to the Parent. At September 30, 2010, however, the subsidiary bank did not have any cash available for immediate dividends to the Parent under the applicable regulatory formulas because of the loss it incurred in 2009. The Bank will not provide any dividend support to the Parent Company in 2010. As such, the Parent Company will use its ample supply of cash and short term investments to continue to meet its trust preferred debt service requirements and preferred stock dividends which approximate $2.1 million annually"


Of course, this may change if the condition of the operating bank worsens, and the parent company has to shore it up. But I did note in that last 10 Q filing that the bank had established allowances for loan losses equal to 84% coverage of NPLs as of 9/30/2010.     


5. Sold 100 of the 200 NQS at $14.55 (see Disclaimer):  NQS is one of the leveraged municipal bond CEFs that I picked up a few days ago, at a time when the municipal bond market was undergoing a sharp correction which was magnified in the realm of leveraged municipal bond CEFs, as one would anticipate.  I mentioned buying 100 of this CEF in a post. Actually, I bought 200 shares and I reduced the position by 1/2 by selling 100 shares at $14.55 on Wednesday. Bought 100 NQS @ 13.7  The OG is fortunate to do as well as he does keeping up with all of this trading, being well past his prime.  


I  look at the WSJ pages every day on the closing net asset values for CEFs. When I was buying the municipal bond CEFs a few days ago, most of those funds had gone from selling at small premiums to discounts to NAV, and those discounts were expanding by significant amounts every day during the municipal bond selloff. I noticed on Tuesday night that the market price for NQS had moved from around a 5% discount when I purchase shares to a +3.94% premium to net asset value, as of 11/23, WSJ. That move was sufficient to cause me to trim my position, but I like the TF yield at the $13.7 cost enough to keep 100 shares for now. 


The remaining trades from Wednesday will be discussed in the next post. I sold two stock CEFs on Wednesday.