No. of Recommendations: 2
Do you know if XFJ is also affected by this potential call?

Potentially. There was an "any and all" tender offer for the bonds underlying XFH (5.22% debentures due in 2097). The bonds that underlie XFJ (6.5% debentures due 2028) appear to be part of the Dutch Auction tender offer presented in conjuntion with the "any and all" offer: http://mediacenter.motorola.com/Press-Releases/Motorola-Anno...

Is there any published documentation of the notice you received? My broker cannot locate the notice. Bloomberg says nothing.

US Trust (the trustee for XFH) supplied the notification to me after I called them. It was not well distributed, as neither of the brokers I used to buy XFH could find it either, even after I told them I had gotten it directly from US Trust. One of the brokers claimed that even if they did have it, it wasn't their responsibility to send it on to the holders of the certificates because it was just a request for a vote by the certificateholders, not an actual tender offer for the certificates.

Was the claim made that they wanted to call 100% of the issue?

No, but that was what was implied, if the vote had been in the affirmative. The specific wording was "Without the affirmative direction of 100% of the Certificateholders, the Trustee cannot participate in the Tender Offer." So, assuming that 100% of the certificateholders had replied in the affirmative, US Trust would have presumably tendered 100% of the underlying bonds. Since it was an "any and all" offer, that would have resulted in redemption of 100% of the bonds, which would have resulted in a call for 100% of the trust certificates. And there would have been a nice little profit for the BK Trustee to distribute, since Lehman still owns the trust.

The Dutch Auction offer is still open, but the early results of the Dutch Auction offer for the bonds underlying XFJ http://mediacenter.motorola.com/content/detail.aspx?ReleaseI... indicate that that offer is oversubscribed, so I would not expect a 100% call for XFH even if the underlying bonds are 100% tendered.

This is exactly the kind of situation I am looking for, but this one is tricky. I think XFH is heading lower as the economy peaks and Europe worsens. It's a trade off between a long term trend that could send XFH to $16 to $20 versus a short term hope that you get called and pick up very small profit from that.

Actually, I'm pretty happy with collecting my 9% return (based on purchase price) for now, since I originally bought XFH for the income. Capital gains is a nice-to-have extra, and in actuality, could have been a bit of a pain, since I would have had to find something else to re-invest in at only a slightly lower yield in order to hit my income target, if XFH had been called. If the price does decrease, increasing the yield, I will probably consider purchasing more.

AJ
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
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.