I sold JCP and will exchange UNTUS.
music selection: “Radio Ga Ga” — Queen
I have been trying to catch a bid on the JC Penny bond for several weeks. I finally sold CUSIP 708130AD1 for 97 cents on the dollar today. I originally bought the bond at 89.912 cents on the dollar on 19JUL2019. The trade was in force for 119 days and yields about 7.8%. That annualizes to about 24% and you can add in the coupon rate of 5.65% for a total annualized return of almost 30%. Not bad for a sleepy bond that was always money good.
Unit Corporation is making a tender offer for its 6.625 coupon bonds (CUSIP 909218AB5) with 15MAY2021 maturity. There are three options: 1) do nothing and keep your existing bonds 2) exchange for 735 in principal on a 10% coupon bond maturing 15DEC2024 3) exchange for 1,000 in principal on a 7% coupon bond expiring 15DEC2025. It should be noted that the existing bond is UNSECURED. The 10% bond is SENIOR SECURED and the 7% bond is JUNIOR SECURED. The existing bond is thus moving down in the capital structure.
I am going to exchange for the 7% coupon bond. It pays a better interest rate, has more time for gas prices to rise, and has better bankruptcy protection than the existing bond. Secured bonds are collateralized by the firms assets. The thesis for this bond has always been that the bond tracks, rather irrationally, the price of natural gas rather than the cash flow position of the company. With 4 years left there is a lot of time for the price of gas to rally and the bond to trade at par. My original yield to maturity was about 26%. The YTM on the new bond is about 20% but if the bond rallies to par because of natural gas price strength, the return will be much higher.
Ravenous lizards might be tempted by the 10% senior bond’s tasty coupon. Don’t fall for it raptors! The yield to maturity there is only about half that of the 7% bond.
Devour your prey raptors!