I sold a bond and bought a bond today.

music selection:  “Santa Monica” — Everclear

First the sale.  Breitburn Energy has been in default and operating as ‘debtor in possession’ for some time.  I’ve been waiting patiently for the company to come out with a reorganization plan and see what I might recover.  Recently, there was talk of putting representatives from the bondholder class on the revised board of directors and the bond price rallied and set off my limit order.

I originally purchased the BBEP 15OCT2020 maturity 8.625 coupon bonds (2) for 28.263 cents on the dollar on 8DEC2015.  I paid 12 dollars in commissions and 26.35 in accrued interest for total out of pocket of 603.60.  Today, I sold the bonds for 45.50 cents on the dollar and paid 2.75 in commissions.  During the holding period, I collected one coupon for 86.24.  Subsequent coupons were not paid as the bond went into default.

The trade was in force for 276 days and yields 85.42% on an annualized basis.  This goes to show good things can happen, even with a bankruptcy when you buy a bond at the right price.  Price is what you pay, value is what you get.

I also bought two units of Alliance One International’s 15JUL2021 maturity 9.875 coupon bonds for 88 cents on the dollar.  I paid four dollars in commissions and 32.37 in accrued interest.  This is an upstream tobacco company that buys and cures raw tobacco for sell to cigarette manufacturers.  It got beaten up by an SEC probe into its inventory accounting practices.  That seems to be blowing over and the bond and stock are in an uptrend.  I’ll earn a 11.22% adjusted coupon yield (yield on cost) while I wait for the final 12 cents of price appreciation.  I see little chance of bankruptcy as the balance sheet is solid and the underlying product is addictive.  If this starts trading at par due to roll forward of the current period due debt, I’ll cash out for a quick profit.

Devour your prey raptors!

Update Discounted Bonds

Never miss another opportunity to devour prey!

2 thoughts on “Update Discounted Bonds

  • September 12, 2016 at 4:42 pm

    Hi Raptor

    On the UVXY trade, why not sumply buy the ATM Strike PUT? That would easily return 100% in the same timeframe you use with the OTM PUTS, or I am missing something?

    • September 12, 2016 at 7:05 pm

      JRBROKER, It’s about “delta”. The out of the money put moves a greater percentage with a fall in the underlying than the ATM/ITM puts. ATM will certainly work, I just like the risk/reward profile better about 30% out of the money.


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