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With a large percentage of companies out there suspending share buybacks, and with corporate bonds trading at sometimes sizeable discounts to face value, is it possible for a company to repurchase it's own bonds the way that it repurchases it's stock?

I'm looking at retailers such as Home Depot and Sears Holdings. Both have debt trading for less than 85 cents on the dollar. Could they buy their own debt back? If they can, how would this impact shareholder equity?

thanks!
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<<<<<can companies buyback their own debt>>> the short answer is "yes". Several Reits that I follow have been doing just that.
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can companies buyback their own debt

Yes, they could buy back on the open market. But they also often have cal provisions and it is easier to exercise those (though not always at a timely fashion). But right now most companies are strapped for cash and don't have access to short term capital for day to day operations, so I would think there would be few examples (missash's REITS apparently being the exception).
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As already mentioned, yes, they can buy back their own debt just like consumers can prepay most loans.

The thing is, though, that a company whose debt is selling at a significant discount is unlikely to be able to issue new debt at terms that were as favorable as the debt they buy back. And perhaps even more pointedly, if a company's bonds are trading at a significant discount because of credit concerns, they are unlikely to have the financial position to buy the debt back (otherwise the market wouldn't be heavily discounting their bonds because of credit fears).

#29
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Bobert,
I actually finally saw my trade executed today for some Sears Acceptance Corp(a wholly owned subsidiary of SHLD) Exchange Traded Debt.

In 2005, Sears tendered and bought back 50% </> of two such security - both $25 Liq Pref paying 7% and 7.4% ($1.75 & $1.85). The day later they delisted these securities due to reporting requirements.

Sears holding generates quite a bit of cash flow and the debt is rated Ba1 for what that is worth, but it now trades on the OTC as a security with no market maker - tough to buy and sell as no bid or asks are posted. But I picked up shares today for $5. $5 with a coupon/dividend of $1.85 per year as long as Sears Holding doesn't vanish from the face of the earth... almost for ever - 2043 or until Sears has more cash than they know what to do with and decide to buy back the debt again.

36% yield until I get "my" principal back.
plus a lump sum of at least 393% when It matures or is called.

I've built a small portion of my portfolio in the past few weeks in several of these severally depressed debt / preferreds paying 30-50% yields with the though that even if have the companies vanish, I still would be getting an amazing yield.

Time will tell if this pans out for me or not.

Scott
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can someone tell me more about how to buy this type of debt from sears ?
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can you tell me more about how to acquire this debt ?

thanks
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You can research it on quantumonline. It is sold on the OTC with ticker SBCKP.

You'll need to talk to your broker to figure out exactly how to put an order in - with Scottrade it took a phone call as it is too thinly traded and lacks a market maker.

The fact that there is no market maker makes this a TOUGH stock to trade in. Some days no shares trade, some days 200 or 300 shares.

You really need to do some homework before jumping in on something like this and be comfortable with what you're buying. You likely need to buy 100 shares for any chance of the order going through, and you may not be able to liquidate it at all if you need the money in a pinch down the road.


Scott
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