No. of Recommendations: 1
Wow! The second of my bond holdings to have trouble this week!

This default is the farthest thing from trouble for me… The restructuring plan feels like “snatching victory from the jaws of defeat”.

The proposed plan sure beats attempts by Icahn and gang to move (raid) bondholder assets into a separate ring-fenced entity before the bankruptcy was declared. This would have preserved assets for equity holders ahead of bondholders.

The distressed prices that Dynegy bonds were trading at before the announcement reflected the manipulation attempt. Prices rallied on the news of the bankruptcy restructuring plan.

My average cost for 2 Dynegy issues is approximately $68 and I received about $5 of interest for an overall cost of about $63. They are talking about exchanging for something like $10 cash, $25 in seven-year notes and $52 in four-year convertible PIK notes. This totals about $87 per bond. Not too bad an outcome for an investment cost of $63 and defaulted. I feel I dodged a bullet on this one, and I've had quite an education following the ongoing saga.

What I do call “real trouble” is my defaulted Newpage subordinates bonds. I expect a recovery rate of next to nothing on this one. Lesson learned here (for me) is think twice before buying deeply distressed SUBORDINATED bonds.

Oh well, with junk you gotta be prepared to “win some and lose some”. It keeps things interesting. It’s the bottom line that counts!

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