No. of Recommendations: 3

I know I'm late to this party, but...

In response to aj485 you wrote, Thanks for your reply, but the semantics "trading flat but nonetheless paying interest" are a sophistry I'd rather avoid, especially when their "normal" bonds offer better effective yields than the hybrids.

I don't see how this is sophistry. Trading flat is a common terms for this type of instrument. Just because you don't understand it doesn't mean it's sophistry. Of course you can either choose to learn about it, or you can choose to ignore it. But calling something you're ignorant of sophistry is just childish.

FWIW, I happen to think all of the Entergy income securities are marginal opportunities at best, but your argument that their "normal" bonds offer better effective yields than hybrids sounds fallacious to me. A quick search of Entergy bonds in E*Trade shows that Entergy's longer maturity issues are priced more in the 4% YTM range. A far cry from the 6+% yield offered by EMZ. And yet the security interest offered by these issues appear to be on par with the 1st mortgage bond issues. Admittedly you should be paid more for the longer dated maturity, but a 2% premium seems fair to me.

Of course buying into any Entergy income security merits a close examination of the issue. Not all Entergy bonds or preferreds are created equal. Entergy is a holding company that owns several utilities across the nation in different states and each of the issues are guaranteed by the subsidiary. Depending on the terms, these mortgage bonds may have limited or no recourse against the assets of the holding company should they default. And after 20, 30 or 50 years, you have no idea if the facility securing the bond will be worth anything. (I'm sure it will be worth something, but I don't know enough about the industry to hazard a guess at recovery rates.)

- Joel
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