No. of Recommendations: 1

At E*Trade, min-purchases in the book on the 8.25's was just amended to include 5's and 10's. Thus, by 'paying up', a smaller lot could be bought. But the question still to be answered is whether their debt should be bought at all. This isn't classic, Ben Graham-style "value-investing". It's new-issue, junk-bond investing, which is an entirely different game.

Take at look at their yield-curve. It is flat, flat, flat, offering a max YTM of about 8.5%. On an after-taxes, after-inflation basis, the situation is even worse.

Cpn Due AdjYTM
8.500 05/15/18 1.08%
9.000 04/15/19 1.30%
7.875 08/15/19 -0.61%
9.875 08/15/19 1.47% <<==tactically, a better buy than the 8.25's of '21
8.250 02/15/21 1.37%

Do you really want to put capital at risk that offers, at best, a real gain of 1.47%? A couple of quick scalps would offer more than that, and the rest of the year one could sit in cash.

Always, always, always, in the investing/trading game, this question has to be answered: How much reward is being offered for how much risk? I'd be willing to bet that Reynolds will survive. But I'm not wiling to lend them money at current prices.
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.