music selection: “Stone Cold” — Rainbow
Ordinarily, on Friday’s I highlight three possibilities in closed end funds invested in debt and debt like instruments. I much prefer to invest in steeply discounted corporate bonds. I haven’t done that recently as there has been some mania in the pricing of high yield bonds lately. The credit cycle may finally be turning over and I have found three bonds that I consider worthy of buying at the available price. This is my preferred way to invest. The yields are excellent and the risk is much lower than with stocks or options.
I sold three closed end funds that were under performing to raise capital for my bond purchases. I sold 1,250 of JRO, purchased at 12.00 for 10.58. My long term capital loss is 1,775. I sold 337 units of EFR, purchased at 14.83 for 14.24. My long term capital loss is 199. I sold 2,488 shares of GIM, purchased at 8.04 for 6.11. My long term capital loss is 4,799. It should be noted that these investments were in the black after considering the distributions collected during the holding period. These efforts raised a little over 33,000 for redeployment in more attractive assets.
On 3JUL2018, I bought 9 units of the Community Choice Financial 10.750 coupon 10MAY2019 maturity bonds (CUSIP: 20367QAB3). I paid 75 cents on the dollar. That makes my coupon yield 14.33% and my potential capital gain 33.33% over 311 days. CCFI is a payday loan lender with fat profit margins. They have run into some regulatory pressure that has driven down the price of the bonds. With the election of Trump, it is evident that regulatory pressure is easing. I expect the bond to pay in full as I think the company can refinance.
On 2JUL2018, I bought 10 units of the Monitronics International 9.125 coupon 1APR2020 maturity bonds (CUSIP: 609453AG0). I paid 65 cents on the dollar. My coupon yield is 14.04% and my potential capital gain is 53.85% over 639 days. Monitronics International is a home security monitoring firm that has suffered a recent loss of revenue. The key to the business is customer retention as the cost of acquiring revenue is often greater than a year’s subscription payments. The company has recently licensed the Brink’s name which is expected to improve customer retention and thus profit margins. I expect the company to be able to refinance.
On 5JUL2018, I put in a good til canceled order for 9 units of the Revlon 5.750 coupon 15FEB2021 maturity bonds (CUSIP: 761519BD8). Two of the nine bonds cleared market and I’m waiting for a fill on the rest. I paid 75 cents on the dollar. My coupon yield is 7.67%, which is enough to make waiting for capital gains worth my while. The potential capital gain is 33.33% over 956 days. The company is majority owned by a former executive and board member. Thus, we have an influential member of management with billions of dollars of skin in the game. I expect him to pull out all the stops to ensure the company can refinance.
Devour your prey raptors!