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Update Discounted Bonds

There has been a change with Erickson Aviation.

music selection:  “Strange Currencies” — R.E.M.

On 7DEC2015, I bought two 8.250 coupon 1MAY2020 maturity bonds from Erickson Aviation.  Last November, the company entered bankruptcy with Debtor In Possession financing.  I got word from my broker last Wednesday that something was afoot.

On Tuesday, my bonds were removed from my brokerage account and replaced with 2.3254 shares of the newly formed Erickson Aviation (ERICK).  It is too soon to try to cash out.  When a company exits bankruptcy this way, there is forced selling of the shares.  In the same way that many bond funds must sell their bonds when the credit rating changes, many bond funds that were able to hold through bankruptcy are legally prohibited from owning equity shares.

Share prices for ERICK should be greatly depressed from their reasonable market value for several  month.  In the meantime, the company has shed a great deal of debt and now is likely an attractive acquisition target.  My cost basis in the new shares is 521.20 each so it is unlikely I will see full recovery of my investment.  But I am going to get something if I’m patient.

Devour your prey raptors!

{ 7 comments… add one }
  • financialfreedomsloth May 4, 2017, 6:33 pm

    I did figure out how to by the bond but had no takers at the 2.25 cent level and i di not want to pay the ask of around 5 cent so i didn’t get assigned. But now that I know how, I’ll be on the look out for another change to gain some experience with this asset class

    • The Lizard King May 4, 2017, 10:13 pm

      Hang tight. Credit moves in cycles and its a sure bet we’ll see attractive pricing across the board again soon.

  • MD May 6, 2017, 7:43 pm

    Is this the stock in question? What would be the reasonable valuation when you’d plan to sell? https://www.google.com/finance?q=NASDAQ%3AERIC&ei=0SYOWfmxDIebUOCciZgL

    • The Lizard King May 6, 2017, 9:29 pm

      That’s not it. That Ericson is a telecom company. This Erickson (with a “K”) is a helicopter aviation company. The ticker per my broker is ERICK but Yahoo Finance and Google Finance have not picked up the feed yet. It probably hasn’t started openly traded yet. I’m at a loss for how to value the shares until I see post bankruptcy set of financials from the company. The website no longer even has an “investor relations” tab. I’m going to have to continue to be patient.

      • MD May 8, 2017, 12:51 am

        Thanks for great explanation King

  • registered investment advisor May 7, 2017, 8:38 am

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