Today I’m detailing my bond positions and the stink bids I have out for more bonds.
music selection: “No Matter What” — Badfinger
First up is the bonds I’ve already purchased. I’m a little overweight in “C” grade bonds and hope to get more stink bids out on “B” grade bonds next week. Annualized yield is a weight average estimate of the return of capital assuming normal default rates and normal recovery rates, plus the coupon yield over cost.
| Date | Ticker | What | Grade | Expiry | Coupon | Price | Annualized |
| 08-Dec-15 | BBEP | Breitburn Energy | C | 15-Oct-20 | 8.625 | 28.263 | 81% |
| 19-Nov-15 | BTU | Peabody Coal | C | 15-Nov-18 | 6.000 | 20.500 | 133% |
| 08-Dec-15 | CLF | Cliffs nat res | C | 15-Jan-18 | 5.950 | 29.538 | 107% |
| 07-Dec-15 | EAC | Erikson | B | 01-May-20 | 8.250 | 60.500 | 28% |
| 08-Dec-15 | LINE | Linn Energy | C | 15-May-19 | 6.500 | 23.000 | 122% |
| 17-Nov-15 | NOR | Noranda Aluminum | C | 01-Jun-19 | 11.000 | 20.500 | 141% |
| 20-Nov-15 | NRP | Natural Res Partners | B | 01-Oct-18 | 9.125 | 68.000 | 29% |
| 07-Dec-15 | SGMS | Scientific Games | B | 15-Sep-18 | 8.125 | 79.000 | 19% |
| 08-Dec-15 | SSE | Chesapeake | C | 15-Nov-19 | 6.625 | 36.550 | 60% |
| 20-Nov-15 | VNR | Vanguard | B | 01-Apr-20 | 7.875 | 55.000 | 26% |
| 08-Dec-15 | X | US Steel | B | 01-Feb-18 | 7.000 | 63.000 | 36% |
| Weighted Average Annualized Return (Estimate) | 49.7% | ||||||
I have some stink bids open on a few more “C” rated bonds that are not clearing. I’ll add more stink bids to “B” rated bonds next week.
| Ticker | What | Grade | Expiry | Coupon | Bid |
| CMLS | cummulus radio | C | 01-May-19 | 7.750 | 33.150 |
| EXXI | energy xxi | C | 15-Feb-18 | 8.250 | 25.000 |
| IHRT | iheart clear channel | C | 15-Jan-18 | 10.000 | 30.600 |
| MPO | midstates petroleum | C | 01-Oct-20 | 10.750 | 13.600 |
| REXX | rex energy | C | 01-Dec-20 | 8.875 | 20.400 |
I have no estimated return for these as I need an open date to calculate such.
I’ll get these added to the open positions tab shortly.
Devour your prey raptors!
Current Discounted Bond Positions
Given the deteriorating balance sheets, liquidity and cashflow positions of several of the C rated companies, how did you make your investment decision on which bonds to purchase?
Thanks
Rob
Robert,
It is more art than science. First I look to see if there is interest coverage from cash flows (even 1x gives me comfort). Else, I try to learn about their assets and determine if the collateral has value. Chesapeake is a good example of that. They may not continue to have sufficient cash flow but their assets are the best in the business. Buyers can be found. Assets can be spun off and loaded with some of the debt in the process. And they can dilute shareholders to raise cash.
But I want to be at least half B rated companies. I’m already there on a weighted average cost basis but I want to be there on an issue count basis as well. The C rated companies are still a great bargain under 40 cents but bankruptcies can take time, which ties up capital into non performing assets.