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Author: TMFAgewone Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 48  
Subject: Re: CVB Date: 12/7/2010 4:22 PM
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edy,

Thanks for the questions, and the kind words.

To run down the list, the value of bond/stock does go up and down based on matters of market perception. So, dependent upon the market's belief that the debt will be paid, interest rates, or spreads on debt--the price of the underlying debt may vary. That being said, because the debt is underpinned by a relatively reliable cash flow stream--those of Kinder Morgan--the likelihood of it being repaid, and the shares eventually trading at par value ($10) is relatively high.

Bear in mind, that's about 8% lower than today's rates, and in the interim, prices are likely to vacillate, but with much less volatility than common stocks. The real risk for debt, in today's market, is inflation. The other risk, which I think is more muted, is that KMI ends up unable to pay, or in financial distress. Since its cash flow are underpinned by KMP, I'd wager that's a pretty low likelihood--barring some seriously boneheaded moves by management.

As a matter of edification, the 7.75% is the yield at par. That means payments are 7.75% if purchased at $10. At today's prices, 10.88, it yields something like 7.1%. Interest is paid semi-annually, and the money should appear just a dividend. By that measure, holding in a Roth or traditional IRA isn't a bad idea, particularly if the dividend tax break ends up killed.

Thanks again, and happy Tuesday.

-Mike
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