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Subject:  Re: Stonemor’s 10.25’s of ‘17 Date:  2/12/2013  3:23 PM
Author:  globalist2013 Number:  34782 of 36309

…I expect this bond to be called promptly at the company's first opportunity (12/1/2013). Pay attention to the YTC.

At Fido, the quote (as of 2:55 Eastern on Feb 12) is 105.998 x 8(5) and 105.00 x 500(5). In other words, the spread is very tight for a junk bond, which would imply that the issuer might intend to call, or at least that trader’s aren’t (yet) very worried about a default. As for the call (105.125 on 12/01/13), it isn’t adverse even if commish, taxes, and inflation are considered. As doing the math will suggest, the net-yield would still be positive.

But what should be of concern is the size one would have to buy. With one’s entry price pretty far from a Chapter 11 workout, one’s ‘risk’ is nearly equal to one’s ‘exposure’. But let’s guess that a workout might be two-bits on the dollar. With a 106.158 entry on five bonds, risk becomes roughly $4k. To bring that down to 2% of AUM would require an account of $200k, which is roughly twice the investment assets of 80% of investors. And to bring the risk down to where it really should be for one’s B3/B- rated tranche --0.25% to no more than 0.5% -- the asset base needed to manage the risk becomes humongous.

In other words, five of Stonemor’s bonds is a good example of a high-yield position that is probably bigger than most accounts should be taking on. One bond? Yeah. Maybe two. But not five, unless it is part of a basket of such bonds whose risks can be charged against an account that is at least $500k. But I suspect the bond is widely owned by bond funds. And that would be a safer way for small accounts to access it *provided* they're trailing the fund with a stop.
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