Updated guidance on Chuck E. Cheese bond.
music selection: “Heavy In Your Arms” — Florence and the Machine
I have been waiting some time to get into the Chuck E. Cheese (CEC) 15FEB2022 maturity 8.000 coupon bond. Yesterday, a few bonds traded at 83.5000. I have updated my Good Till Canceled order to 84.0000.
CEC is was purchased by a private equity firm in 2014 for 1.3 billion. The company had 577 locations and annual revenue of about 800 million at the time. By 2016 revenue had grown to 900 million.
Boom times were short lived. Quarterly revenue and same store sales started to decline in 2017 and the bond began trading at distressed levels. I think there is a real opportunity for patient investors who buy at the right price.
The company has added free wi-fi, increased employee training, and introduced a weekday buffet. Same store sales are back on the upswing. The bond could rally as a result.
I’m confident management can turn this iconic pizza chain around. If not, it is not likely the company can pay off bondholders in a liquidation. So this is not for the rent money but could result in a quick buck if the company finds a buyer or goes public again.
If you were to buy CUSIP: 125137AB5 today for 84 cents on the dollar, the annualized yield to maturity would be 15.64%. That is composed of 19% or so in capital gains between now and February 2022 and 9.52% yield from the coupon on your cost basis.
If the bond can be sold for par sooner, your return only improves from there. I recommend putting no more than 3% of your portfolio in this investment.
Devour your prey raptors!