I have an update on Seventy Seven Energy (SVNT)
music selection: “The Freshmen” — The Verve Pipe
On 15NOV2015, I purchase two Seventy Seven Energy bonds at 36.55 cents on the dollar. The company later filed bankruptcy. Upon exiting bankruptcy, I received 65 shares of the newly constituted and debt free SVNT. Today, a deal was announced with Patterson UTI (PTEN) that sent shares soaring 67%. My position is now worth 2,860 (original basis was 731). After accounting for coupon payments and commissions, the annualized yield (over 371 days) is now 289.31%. I got lucky in that limit orders to sell for much less never filled as liquidity of this over the counter stock has been very low. Today, I received a gift from Mr. Market.
I will be closing my limit order to sell SVNT and await an exchange for 1.7725 shares each of PTEN. Liquidity of that issue is a lot higher and I should have no problem executing a sale thereafter.
Devour your prey raptors!
Congrats! I bet it felt horrible the whole time while you were almost tripling your money, lol.
I have a hard time coming up with an expected downside of my high-yield bonds, to balance against the easy-to-calculate upside. If my companies declare bankruptcy, how much does the average bondholder get back? I suppose the bond’s price expresses the market’s expectations, anyway, but I’m curious if anyone has statistical sources to answer this question.
Chris,
My information is old, it comes from an MBA finance class in 2000. But back then, average recovery for bondholders was 40%. That of course is a distribution and it is worst during periods of high defaults (the bottom of the credit cycle). I did find and interesting article here: https://www.moodys.com/sites/products/DefaultResearch/20034000004277132.pdf