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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35367  
Subject: Union Carbide (DOW) 7.75 of '96 Tender Offer Date: 3/1/2011 8:15 PM
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Fools,

I received a notice of tender offer yesterday for my 11 Union Carbide bonds. They were purchased for 88.50 plus interest on 4/7/2010 for a total of $9,761.05. Market value of these bonds today is $11,335.50 with an offer at 103.25 for a YTM of 7.505%. So far I've received only one dividend payment of $426.25.

According to E*Trade, the terms of the tender are:

UNION CARBIDE CORP
CUSIP:905581AS3
CUT OFF DATE:EARLY CUTOFF 03/04/11 LATE CUTOFF DATE:03/20/11
"DUTCH AUCTION TERMS:
HOLDERS CAN TENDER AS FOLLOWS
NOT LESS THAN THE MINIMUM SPREAD WHICH IS 260 per 1000 OR GREATER THAN THE
MAXIMUM SPREAD WHICH IS 290 per $1000. TENDERING NOTES IN THE
TENDER OFFERS IS TO SUBMIT A BID SPREAD THE AGGREGATE P.A.
OF NOTES FOR EACH SERIES TENDERED AT A PARTICULAR BID SPREAD MUST BE IN
AN AUTHORIZED DENOMINATION. THE BID SPREAD THAT YOU SPECIFY FOR EACH
$1,000 P.A.OF EACH SERIES OF NOTES MUST BE IN INCREMENTS OF
1 BASIS POINT. THE AGENT HAS CONFIRMED THAT THE 7.750% DEBENTURES DUE 2096
MAY ONLY BE TENDERED IN DENOMINATIONS OF $1,000 PRINCIPAL AMOUNT AND
MULTIPLES OF $1,000 P.A. IN EXCESS THEREOF THE UNIQUE
DENOMINATION FOR THIS ISSUE OFFER IS SUBJECT TO PRORATION. THERE IS AN EARLY
TENDER PAYMENT OF $30.00.


I think I understand what a Dutch Auction is; but I don't think I have any practical experience with them and I am unsure of what to expect.

I know what a basis point is as well; but I'm unsure how they are applying it in this context. If I understand correctly, they are offering a minimum of 2.60% above par and a maximum of 2.90% above par. That amounts to an offer price of 102.6 to 102.9. If I respond this week, I get an extra $30/bond for a total price of 105.6 to 105.9. Is this correct?

As I understand it, I can state a price anywhere within their range and all bond holders that tender will all get the highest price required to satisfy the terms of the tender.

This bond is rated Baa3 / BBB- by Moody's / S&P. Moody's updated their rating 11/01/2010; S&P last updated on 12/11/2003. That ranks them as bare minimum investment grade - my kind of bond. I assume it's mainly the ultra-long date that pushes the yield up to about 7.5%; but that kind of yield is really hard to replace with any minimum investment grade issue today, so cashing out might mean deploying the funds into another asset class.

BTW, this is a non-callable issue, so there's no chance DOW will turn around and call the issue in the near-term. I'm also fairly happy with the current yield, so I'm thinking about ignoring the tender completely. Alternately I could tender a portion just because this is my single largest bond holding.

I suppose I need to check with DOW to get the exact wording of the tender offer.

Thoughts?

- Joel
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