I entered six new stink bids on Monday for discounted bonds.

music selection:  “Love Struck Baby” — Stevie Ray Vaughan and Double Trouble

The market is a mess today.

I have stink bids out on two C rated bonds and four B rated bonds.  The companies include a restaurant chain, an offshore driller, two manufacturers, a mining company, and a financial company.

Logan’s restaurants operates a chains of casual dining eateries.  I bid 19.000 on two 15OCT2017 maturity 10.750 coupon bonds.  These bonds have a C credit rating.

Square Two Financial is a debt collection company that buys charged off debt for pennies on the dollar and pursues collection via call center operations and a network of independent law firms.  I bid 44.000 on two 01APR2017 maturity 11.625 coupon bonds.  These bonds have a C credit rating.

Graftech is a manufacturing company.  I bid 42.000 on two 15NOV2020 maturity 6.375 coupon bonds.  These bonds have a B credit rating.

Allegheny Tech is another manufacturing company.  I bid 55.000 on two 15JAN2021 maturity 5.950 coupon bonds.  These bonds have a B credit rating.

Atwood Oceanics is an offshore drilling company.  I bid 45.000 on two 01FEB2020 maturity 6.500 coupon bonds.  These bonds have a B credit rating.  This order has been filled.

Freeport McMoran is a large mining company.  I bid 72.000 on two 15MAR2018 maturity 2.375 coupon bonds.  These bonds have a B credit rating.  This order has also been filled.

I’ll be back Friday with a review of which open positions are likely to be assigned.  And on Monday with follow up trades.

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Stink bids on more discounted bonds

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4 thoughts on “Stink bids on more discounted bonds

  • January 24, 2016 at 5:39 am
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    Freeport has a huge amount of debt but it is high likely to stay in business for another 2 years.

    Reply
    • January 24, 2016 at 4:18 pm
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      FCX has a lot of debt but also some real trophy assets. I see them as able to roll debt (possibly at a punitive interest rate) but bond holders should be safe. I’m very happy to have gotten in where I did.

      Reply
  • January 24, 2016 at 5:37 pm
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    I agree with you that the company has trophy assets if copper and oil prices rebound. In the case that the commodities price rebound, I see the company be able to roll debt. Today, I can’t see this happening since the bonds with two year maturity have being trade at 62 cents on the dollar, yielding 26%. Who will lend money to this company?

    Do you know if the company is selling any assets?

    Looking to debt amortization, I think you have a good bet here. As of September 30, 2015, debt maturities totaled $259 million for the year 2016 and $1.5 billion for the year 2017. Since interest expense relative to cash flow is low (~14%), the bonds maturing in 2018 should be good.

    I will dig a little more and see if I will build a position here. I like the 03/01/2017 bonds yielding 18% since it will have only $259MM before the company pay me back.

    Reply
    • January 25, 2016 at 1:53 pm
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      The bond wouldn’t be discounted if the market wasn’t perceiving some risk. That is why it is critical to be diversified with a portfolio of discounted bonds. Some will default sooner or later (and you will on average collect about 40 cents on the dollar). You need to make enough from the ones that pay par to cover your inevitable losses. Good luck!

      Reply

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