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Author: altstrat91 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Patriot Coal Bonds - recovery rating 3 Date: 7/5/2012 1:16 PM
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so this is interesting.

cusip 70336TAC8
redemtpion 4/30/2018
coupon 8.25
annual yield 30%+


according to a recent analysis by S&P, these bonds have a recovery rating of 3. the bonds are currently trading potentially below this range. often with commodities related companies, their analysis can be on the more conservative side.

these bonds tanked straight down from $85 to upper $38 and now while the stock price has surged nearly 300% on an obvious squeeze, the bonds are firming a tad at $42.

i have not come across an opportunity like this where the recovery rating analysis was above what the bonds are trading for in the open market. do your own DD and just wanted to pass this case along.
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Author: altstrat91 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34243 of 35400
Subject: Re: Patriot Coal Bonds - recovery rating 3 Date: 7/5/2012 1:17 PM
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link for S&P recovery rating/analysis case


http://www.reuters.com/article/2012/05/23/idUSWNA79442012052...

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Author: trader2012 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34246 of 35400
Subject: Re: Patriot Coal Bonds - recovery rating 3 Date: 7/15/2012 9:31 AM
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A S&P recovery rating of ‘3’ (aka, an expected recovery in the range of 50-70%) is so much at odds with the price of the bond (currently trading low 40’s) as to reaffirm S&P own warnings that “credit ratings are [merely informed] opinions.” http://www.standardandpoors.com/aboutcreditratings

The most direct trade on Patriot Coal’s troubles would have been to bypass the bond and to short the stock. A compromise play would have been a ‘married trade’ (i.e., long the bond and short the common) which, depending on the entry price of each leg, might have offered the chance to break even, or maybe even make a few bucks.

These are my own numbers: 10/13/11, bought one the 8.5 of '18 at 91.750 and 06/26/12, sold short 200 PCX (now PCXCQ) at 1.115. My expectation is an eventual workout for the bond in the range of 10-30 (aka, an S&P's rating of '5') and a decent profit on the short leg, meaning, I'll lose money overall but not as much as if I hadn't sold the stock short once it became obvious that the company was going to file Ch 11.

But the real profit on this trade, the thing that will make me money in the future, is that I gained a valuable lesson about how to set up these kinds of trades. In other words, this time, I was too early into the bond and too late into the stock for failing to track the things I should have been tracking if I'm going to mess with spec-grade bonds. I can't say that bad timing will never happen again, but at least I'll be able to minimize it.

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Author: blacktreechaser Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34251 of 35400
Subject: Re: Patriot Coal Bonds - recovery rating 3 Date: 7/16/2012 7:44 PM
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Did you notice all the activity in this bond a short while ago? From scrolling down the transaction list, looked like 30 or 40 trades in one day.

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Author: blacktreechaser Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34261 of 35400
Subject: Re: Patriot Coal Bonds - recovery rating 3 Date: 7/23/2012 11:44 AM
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I have the impression you're just going to let this position play out...but did you notice its priced on etrade today 48.5/50 ??

Rumors abound...but thats all they are to me. As the saying goes...believe none of what you hear and half of what you read.

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Author: trader2012 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34262 of 35400
Subject: Re: Patriot Coal Bonds - recovery rating 3 Date: 7/23/2012 3:26 PM
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Yeah, I covered the short leg to lock in profits, and I'm going to let the bond ride.

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