Not seeing much that is attractive in fixed income right now so reviewing holdings.

music selection:  “Union of the Snake” — Duran Duran

I believe in having a strong fixed income allocation in early retirement.  I’m mostly in closed end funds invested in debt and debt like instruments.  But I am increasingly wanting to shift my focus to high yield corporate bonds bought a discount to par.  The underlying yields are similar but there is upside in the way of capital gains when the bonds pay out at par.  The risk can be very low if you buy intelligently.

My AmTrust Financial bond (CUSIP: 032359AE1) was purchased 18OCT2018 for 95.0000 cents on the dollar.  The bond is currently priced at 86.4695. I am confident the family that took the company private will make good on this bond.  They stand to lose literally billions in personal wealth if they don’t find a way to refinance.  The bond had been range bound between 95 and 100 when I bought it and my hope was to flip the bond repeatedly.  It declined on the news the company was going private.  I am content to hold to maturity (15AUG2023) for an annualized yield of 7.54%.  An earlier recovery will boost my returns above that level.

My CBL Associates bond (CUSIP: 12505JAA1) was purchased 19OCT2018 for 83.7000 cents on the dollar.  The bond’s current pricing is 81.6000, leaving me up about 43 dollars after coupons received or accrued.   Holding to maturity (1DEC2023) would result in an annualized yield of 10.08%.

My Community Choice Financial (CUSIP: 20367QAB3) is in the dumps.  It was purchased at 75.0000 cents on the dollar on 3JUL2018.  The company was in discussions with institutional investors for a tender offer that would have made the remaining retail bonds money good and allowed for a quick score.  Negotiations soured and now it is uncertain the company will be able to finance on attractive terms.  The bond has not been trading and last traded at 35.  I am down 3,600.

My play in Monintronics (CUSIP: 609453AG0) is similarly suffering.  A deal had been negotiated with institutional investors to exchange the existing bonds for new bonds with later maturity and a mix of cash pay and payment in kind coupons.  The company later forced all bond holders and not just the institutional investors to accept this treatment.  The bond is money good but the complicated structure has scared away buyers.  Current price is 26.6350.  I am down 3,800 but expect to recover fully at maturity as the company is now on solid financing.

A bond in Pyxus International (CUSIP: 018772AS2) was purchased 13NOV2018 for 87.0000 cents on the dollar.  It currently trades for 83.2400 and I am up after coupons about 83 dollars.  This should return an annualized yield of 16.97% by maturity.

A final bond in the portfolio is from Avon (CUSIP: 761519BD8).  This bond was purchased on 5JUL2018 for 75.5000 cents on the dollar.  It currently trades for 83.5000.  I am up a little over 1,100 dollars and expect to earn 20.01% on an annualized basis by maturity.

Finally, I have a good till canceled limit order open in a Chuck E. Cheese bond (CUSIP: 125137AB5) at 84.0000.  Current pricing is at 85.9000, leaving me 2.26% away from a fill.  If the bond were to fill today, the annualized yield to maturity would be 15.68%.  I feel confident this bond is money good and the company is being unfairly punished for a decline in same store sales that is likely temporary and still leaves the chain enormously profitable.

Devour your prey raptors!

Update discounted bonds

Never miss another opportunity to devour prey!

2 thoughts on “Update discounted bonds

  • January 14, 2019 at 4:54 pm

    If the prognosticators are correct, it will take a strong stomach to hold high yield through the coming recession. I wonder if you could offset some of your risk and generate income with bear spreads on HYG or JNK?

    • January 14, 2019 at 7:01 pm

      That is an interesting idea. HYG and JNK are doomed to get hammered. The trick is knowing “when” the other shoe is going to drop. Let me explore if their options have any kind of liquidity. Might be a Monday post soon.


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