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Author: folgore Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Researching municipal bonds Date: 7/27/2009 7:22 PM
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Per junkman's recommendation, I've started an E*trade account to deal with bond purchases. Their commissions are very reasonable and E*trade isn't as fee happy as it was 8 years ago when I closed an account because they started charging numerous fees for those who weren't rich day traders.

Anyhow, one thing I've quickly researched are municipal bonds for my home state of Ohio. The two Ohio bonds with the highest yields were "Ohio Tobacco Settlement" and "Mahoning County Hospitals." The first is rated Baa/BBB and yields 10%. The second is rated Baa/A and yields 9%. The only information given by E*trade aside from the Call Dates is that they are "sinking funds" and I also saw the acronym "OID." Obvious questions: what are sinking funds and what does "OID" mean?

What are the risks here? I suppose for the Tobacco Settlement bond, the two negative possibilities that come to mind are 1) the possibility that the case against the tobacco companies will be thrown out and 2)the tobacco companies can no longer afford to pay the settlement money and go bankrupt or have to renegotiate the settlement. (I don't see either happening.)

For "Mahoning County Hospitals" (I actually come from this part of Ohio), I assume they've borrowed money (via the bonds) to improve the hospitals. Mahoning County has had a somewhat depressed economy for a rather long time -- since the Steel mills closed down -- and one of their largest employers is a GM plant which is also a vulnerability.

What am I missing? Where can I go to find out more about both of these bonds? There's a part of me that looks at the large yields and wants to buy, reasoning that with at least a BBB rating, there's an 80% I will receive the yearly yield and get back the principal when the bonds are called. But would I be right in this assumption?

I don't suppose anyone has done for municipal bonds the kind of analysis that junkman does for corporates?
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Author: KingOfTown Three stars, 500 posts Old School Fool Global Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28305 of 35400
Subject: Re: Researching municipal bonds Date: 7/27/2009 9:03 PM
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OID = Original Issue Discount
http://www.investopedia.com/terms/o/oid.asp

Sinking Fund:
http://www.investopedia.com/ask/answers/05/053105.asp

Not sure that will give you the advice you are seeking, but at least it handles the definitions.

I don't think you can count at all on the ratings to actually provide you with that simplistic a percentage. In any event, even if your DD allows you to come to the conclusion that there is an 80% chance of survival, that doesn't really help on an individual bond basis. The result will be either 100% (all payments met and $1000 returned at maturity) or some other value (unlikely to be 80%) that comes from the total of payments received and some work-out value in the bankruptcy. For corporates, one can make some assessment based on the assets of the company. For muni's, I'm not sure how a bankruptcy would work. I suspect it depends on whether the bond is backed by some income stream of the underlying asset that the bond funded or whether it's a general fund obligation.

Regards,
Les
- who bought his first individual bond last week, but used Charley's spreadsheet formulas for calculating yield. Pretty sure I didn't get a great bargain, but you have to start somewhere and the amount was small (and it apparently last traded 3% higher than I paid). Learn by doing.

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Author: grold Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28315 of 35400
Subject: Re: Researching municipal bonds Date: 7/28/2009 3:17 PM
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http://www.emma.msrb.org/

see if the above site provides any additional information about the muni bonds.

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Author: grold Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28317 of 35400
Subject: Re: Researching municipal bonds Date: 7/28/2009 3:26 PM
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Is this the bond?

http://cxa.marketwatch.com/finra/BondCenter/BondDetail.aspx?...

Check out the recent trades option at the bottom of the page.

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Author: folgore Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28330 of 35400
Subject: Re: Researching municipal bonds Date: 7/29/2009 11:35 PM
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grold, yes, that's the bond more or less. The one my search engine comes up with has a different maturity date but it's definitely issued by the same people.

Check out the recent trades option at the bottom of the page.

I looked at your link. What did you see that was peculiar?

I did do some further research and found out that the bonds were issued specifically by "Forum Health" of Youngstown. More research revealed that Forum Health is under Chapter 11. Why most searches still show ratings of BBB or A for this bond baffles me! On E*Trade, they show the same thing but when you click on the bond's link to take a closer look, you see "underlying ratings" of C! So, what's this bond's real rating? I'm not sure. It is insured -- by AMBAC I think -- though AMBAC doesn't have the greatest rep.

When examining the tobacco settlement bonds, I get the same ratings no matter where I check. The biggest drawback to these seems to be the Maturity date of 2047. I don't mind 20years out, but 38 is too long-term!

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