I closed CUSIP 12505JAA1
music selection: “Under The Milky Way” — Metric
On 19OCT2018, I bought the CBL properties 5.25 coupon bond with 1DEC2023 maturity for 83.7 cents on the dollar. I picked up 8 bonds for cash out lay of 6,696, paying 15 dollars in fees and commissions as well as 165.67 in accrued interest for total out of pocket of 6,876.67. The shopping mall owner was distressed but in a turnaround plan, selling off underperforming assets and paying off debt with the proceeds. Before COVID-19, I estimated the bond to be ‘money good’.
COVID-19 sent the company into bankruptcy. The bankruptcy deal I was expecting unsecured bondholders were expected to receive around $0.36 on each dollar of principal by exchanging their bonds for new June 2028 secured bonds. In addition, the collective group would receive 90% of the equity in the new common stock of CBL after the company exited bankruptcy. That didn’t sit well with institutional holders and the deal is now equity and preferred stock with no bond compensation. I don’t like my chances in a move down in the capital structure so I’m taking my exit.
I sold today for 39.084 cents on the dollar paying 8.75 in fees and commissions. Since the bond is in bankruptcy, it traded “flat” and I received no accrued interest. I did collect 1,078.00 in coupons during the holding period, easing the loss. The loss is 2,680.70 or 38.98% over 817 days (17.42% annualized). It doesn’t feel good to take another COVID related bond loss (JC Penny) but that is the price you pay when you invest in distressed bonds. I expect strong total returns over the long term with some lumpiness along the way.
New bond investments are hard to find as there is a cheery consensus and near record low spread between Treasuries and high yield bonds. That is going to end badly for a lot of yield chasers. And it is going to spell opportunity when the economic cycle finally rolls over.
Devour your prey raptors!