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There are shares available around 24.66 of this newly issued mortgage bond. It's hard to find an A- rated utility issue like this under par and over 6%. Ex-div is close also for a small bonus...............Xot


From Q-Online
Entergy Mississippi, 6.00% Series First Mortgage Bonds due 5/1/2051
Ticker Symbol: EMZ CUSIP: 29364N835 Exchange: NYSE
Security Type: Exchange-Traded Debt Security

SECURITY DESCRIPTION: Entergy Mississippi Inc., 6.00% Series First Mortgage Bonds, due 5/1/2051, issued in $25 denominations, redeemable at the issuer's option on or after 5/1/2016 at $25 per bond plus accrued and unpaid interest, and maturing 11/01/2032. Distributions are paid quarterly on 2/1, 5/1, 8/1 & 11/1 to holders of record at the close of business on the day previous to the payment date (NOTE: the ex-dividend date is at least 2 business days prior to the record date). Distributions paid by these debt securities are interest and as such are NOT eligible for the 15% tax rate on dividends and are also NOT eligible for the dividend received deduction for corporate holders. The bonds are expected to trade flat, which means accrued interest will be reflected in the trading price and the purchasers will not pay and the sellers will not receive any accrued and unpaid interest. See the IPO prospectus for further information on the bonds by clicking on the ‘Link to IPO Prospectus’ provided below. Entergy Mississippi Inc. is a wholly-owned subsidiary of Entergy Corp. (NYSE: ETR).
Stock
Exchange Cpn Rate
Ann Amt LiqPref
CallPrice Call Date
Matur Date Moodys/S&P
Dated Distribution Dates 15%
Tax Rate
NYSE
Chart 6.00%
$1.5 $25.00
$25.00 5/01/2016
5/01/2051 Baa1 / A-
4/19/11 2/1, 5/1, 8/1 & 11/1
Click for MW ExDiv Date
Click for Yahoo ExDiv Date
No
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By way of beginning to benchmark this possible opportunity, their 1st mortgage 6.25’s of ’34 are trading at 104.241 for a YTW of 5.6% and a YTM of 5.9%. http://cxa.marketwatch.com/finra/BondCenter/BondDetail.aspx?...
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Entergy has 7 First Series Morrtgage bonds that trade on the NYSE......3 from Mississippi, 2 Louisiana, 1 Texas, and 1 Arkansas. All are A- rated except Texas at BBB+. They have others on the OTC but these are illiquid. These are listed on my spreadsheet on lines 489 thru 495 for easy comparison. Q-Online comments are in the symbol cells...............Xot


https://spreadsheets.google.com/ccc?key=0Ai6nAWjRjzKlcHh3bzN...
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Entergy has 7 First Series Mortgage bonds … All are A- rated except Texas at BBB+.

LordXOT,

If you wouldn't mind, I have a tiny question for you. Why do you say they are rated A- when Moody’s has them notched at BBB+? Why do you report only the more favorable rating rather than both ratings?

Also, if I may, I have another tiny question. The description of the newly-issued EMZ clearly says The bonds are expected to trade flat, which means accrued interest will be reflected in the trading price and the purchasers will not pay and the sellers will not receive any accrued and unpaid interest. See the IPO prospectus for further information

Why would what amount to a very long-dated, zero-coupon bond be attractive to an investor seeking current-yield? Much thanks in advance for your thoughts.

Charlie
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The description of the newly-issued EMZ clearly says The bonds are expected to trade flat, which means accrued interest will be reflected in the trading price and the purchasers will not pay and the sellers will not receive any accrued and unpaid interest. See the IPO prospectus for further information

Why would what amount to a very long-dated, zero-coupon bond be attractive to an investor seeking current-yield?


"Purchasers will not pay and the sellers will not receive any accrued and unpaid interest" does not mean that it's a zero coupon bond and that the issuer will not be paying interest. All it means is that, when bought/sold on the secondary market, accrued interest is expected to be reflected in the price that is paid, and not paid as a separate item, as it is with many bonds.

Per the prospectus http://www.sec.gov/Archives/edgar/data/66901/000006598411000... the issuer will pay interest:

We will pay interest on the bonds on February 1, May 1, August 1 and November 1 of each year, beginning on August 1, 2011. Interest will accrue at the rate of 6.0% per year and will start to accrue from the date that the bonds are issued. As long as the bonds are registered in the name of The Depository Trust Company (“DTC”) or its nominee, the record date for interest payable on any interest payment date shall be the close of business on the Business Day (as defined below) immediately preceding such interest payment date.

AJ
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AJ,

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 remember looking at Entergy's bonds a couple years back when they were more attractively priced and backed away then, too. Maybe it was a mistake, maybe not. There are only so many hours in a day one can give to analysis. So things fall through the cracks.

Charlie
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Thanks for your reply, but the semantics "trading flat but nonetheless paying interest" are a sophistry I'd rather avoid

To each his own. The expectation that EMZ will reflect accrued interest in the price is no different than many other debt securities that trade on a stock exchange rather than through a bond desk.

And your characterization of this exchange traded debt as a 'zero coupon bond' when the prospectus specifically says that interest will be paid reaches the same sophistry level, IMO.

AJ
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"If you wouldn't mind, I have a tiny question for you. Why do you say they are rated A- when Moody’s has them notched at BBB+? Why do you report only the more favorable rating rather than both ratings?"


Personally i find S&P ratings easier to remember and rank. If you look at any rating on my sheet, they are all S&P. None are cherry picked as you imply for reasons i don't have a clue. In actual fact, i don't use ratings and only note them in passing as i know others do. I certainly wouldn't take the time to type in two of them so i standardize on the one i prefer. I always use S&P.

"Also, if I may, I have another tiny question. The description of the newly-issued EMZ clearly says The bonds are expected to trade flat, which means accrued interest will be reflected in the trading price and the purchasers will not pay and the sellers will not receive any accrued and unpaid interest. See the IPO prospectus for further information
Why would what amount to a very long-dated, zero-coupon bond be attractive to an investor seeking current-yield? Much thanks in advance for your thoughts."


Trading flat simply means there is no accrued interest since the last dividend/coupon payment.

"Trade Flat definition: For convertibles, trade without accrued interest. Preferred stock always "trades flat," as do bonds on which interest is in default or is in doubt. In general, trade in and out of a position at the same price, neither making a profit nor taking a loss."


There aren't a lot of utility etd's/pfds/ trading under par and over 6% or with much liquidity. The market finds utility issues to be highly desirable. I'll speculate the only reason this issue is doing so is it started trading Tuesday and there's liquidity around a new IPO. As to why it's so cheap, my speculation is the same. I also think this situation will be temporary. Entergy has three 6.00% Series First Mortgage bonds. Two from Mississippi and one Louisiana. The other Mississippi issue (EMQ) trades at 25.25 yielding 5.94% callable in 2007. If anything, i think this past call situation would tend to depress the price of EMQ. The Louisiana issue (ELB) trades at 26.11 yielding 5.74%. It's logical to think that EMZ can at least move to rough parity with the other issues as to price and yield. A yield of 5.94% puts it at 25.25.

There's an opportunity here to pick up a gain of roughly 2.72% if EMZ rises to 25.25 plus there is an upcoming ex-div good for a partial dividend. I thought enough of the short term gain potential here to make some sales today of recent ex-div fully priced pfd issues to pick up 1225 shares. Nothing i know of the pfd/etd market tells me this issue won't pass par in short order. It's depressed due to a temporary situation not related to fundamentals and out of position in relation to sister issues....imho. And that means buy to me. If my scenario doesn't work out, this is a good utility issue with ample current liquidity and a suitable holding.

Please note the manner and civilty of my answers to your questions....................Xot
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AJ,

Setting aside for now how each of us characterizes the supposed interest paid (with you equating an "interest credit" as the same as interest actually paid and received), you still fail to answer my question as to why you represented these bonds as having an A- rating when, clearly, they have a BBB+ rating. Why did you wan to put a falsely positive spin on them?

S&P says A-, and Moody's says BBB+. So clearly, the bonds are "split-rated", though it would have to be determined from independent credit- analysis which, if either, might be closer to the truth.

That fact they are 1st mortgage bonds might offer would-be buyers a bit of safety, but that, too, would have to be determined from examination of their financial statements. (A 1st mortgage on a negative net-worth is a very worthless lien.)

As I see this situation, you are touting what is likely to prove to be a piece of trash for as yet unknown reasons.

Have a nice day.
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Setting aside for now how each of us characterizes the supposed interest paid (with you equating an "interest credit" as the same as interest actually paid and received), you still fail to answer my question as to why you represented these bonds as having an A- rating when, clearly, they have a BBB+ rating. Why did you wan to put a falsely positive spin on them?

Please show me where I characterized these bonds at any rating. I was only replying to your question about accrued interest and your characterization of EMZ as a zero coupon bond. I believe you are confusing posters, and LordXot (the OP) has replied to your question about why the ratings were shown the way they were in the original post.

As I see this situation, you are touting what is likely to prove to be a piece of trash for as yet unknown reasons.

I am not touting anything. I am just trying to make clear that exchange traded debt trades differently than bond desk traded debt and to try to paint them with the same brush, as you seem wont to do, is incorrect.

AJ
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You write: Please show me where I characterized these bonds at any rating.

AJ, Sir.

Are you so forgetful that you don't even remember what you've written? I hereby quote the first sentence which you launched this thread.

There are shares available around 24.66 of this newly issued mortgage bond. It's hard to find an A- rated utility issue like this under par and over 6%. Ex-div is close also for a small bonus...............Xot

Are you now saying that you did not write that sentence? Are you now saying that someone else wrote those words? You pimped those shares as A- , which is the sort of half-truths that securities touts often use.

As for the title you used to launch the thread, EMZ- liquidity now, that is a very sick joke when the prospectus clearly points out that no liquidity can be assured. Are you fronting for the underwriters, trying to stir up interest is this piece-of-trash bond?

Charlie
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I'm the original poster. Not AJ. The quote you snipped is mine.

I've responded in a mannerly fashion to the queries you've made which i don't regret as that is my nature. However, I do regret responding at all.

I an through with this thread. You are a wack job.



Xot
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I have to say that seeing only one side of this exchange was a bit baffling so I clicked un-ignore to figure out what was exchanged which was strangely humorous and sad at the same time.

To the original post though, Xot (or AJ... hahahah), I have to say that long term 5.5-6% taxable yields don't seem too rewarding (whether A or AA or not).

There are still a few municipals insured by Berkshire/BHAC (AA+ I believe)) with underlying ratings of A where you can pull down 5.5%+ yields that are tax free with less duration risk than these mortgage bonds, and I think fundamental credit backing that is superior and more liquid in an extreme event than the issue under discussion. (235036PG9 is one example that I have an interest in)

In the exchange traded space, I'm not sure you can do as well, but I think you're definitely short changing yourself at this point if you are getting into these kinds of issues anywhere near par... looking at OTC bonds is a nice thing in conjunction with these exchange traded issues.

Thanks for sharing your spreadsheet over the years by the way Xot.

Ben
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AJ, Sir.

Are you so forgetful that you don't even remember what you've written? I hereby quote the first sentence which you launched this thread.

There are shares available around 24.66 of this newly issued mortgage bond. It's hard to find an A- rated utility issue like this under par and over 6%. Ex-div is close also for a small bonus...............Xot

Are you now saying that you did not write that sentence? Are you now saying that someone else wrote those words? You pimped those shares as A- , which is the sort of half-truths that securities touts often use.

As for the title you used to launch the thread, EMZ- liquidity now, that is a very sick joke when the prospectus clearly points out that no liquidity can be assured. Are you fronting for the underwriters, trying to stir up interest is this piece-of-trash bond?


Yes, I am denying it. As I pointed out before, you are confusing me with the original poster, LordXot. I am aj485, not LordXot.

In your confusion, you also seem confused about the fact that this security does actually pay cash interest. If you had bothered to read the prospectus, which I was kind enough to provide you a link to, you would have read that there is interest quarterly.

AJ
- who is not a sir, either - m'am would be more appropriate
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FWIW

TT Interest coverage ratio 4.12
Current Ratio 1.42
Capital structure 58% debt, 42% equity
Free cash flow positive to the tune of 1,077,000,000
A- is a fair grade based on the above, BBB+ is mildly conservative unless there is junk tucked in the notes I didn't bother to look at.

A debt heavy utility, who would of thought :P

I would not touch their debt for less than 7.45% but current environment is not going to price it that way so if you need debt you may have to except the lower payout for the accepted risk.

Relatively speaking the money to be made is on the equity side. The stock is mired in ties to things nuclear. The current administration was kicking the nuclear can down the road with pleasant rhetoric. With the incident in Japan no pro nuclear rhetoric is politically prudent. Regulators at the state and fed level have also put the brakes on nuclear projects from proposal to ground all ready broken. Toss in Vermont has decided that ETR's Yankee plant should be shut down. ETR has tried to work through the process and recently resorted to suing the state to keep the plant open.

The dividend yield is 4.88% and if they can put the current issues behind them $75 - $80 is a fair price for the stock. That is one big IF.

As near as I can tell there is no reasonable compensation for the risk taken on either the equity or the debt side. If forced to choose the equity side seems to have the better risk reward profile.

YMMV

jack
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Jack:

As usual, very nice brief analysis.

Did you happen to notice the corporate structure of Entergy?

Based upon nothing more than the Yahoo! Finance profile for ETR, ETR appears to be a holding company with both regulated and unregulated business segments.

Again based upon nothing more than the Yahoo profile, it appears that the nuclear power generation business is the non-regulated portion of ETR while ETR also owns Entergy Texas, Entergy Mississippi, Entergy Lousiana, and Entergy Arkansas which are probably regulated utilities.

As you are aware, a particular regulated subsidiary's balance sheet may be in far better or far worse shape than the parent holding company's balance sheet. One would have to look at Entergy Mississippi's balance sheet and also assess the regulatory envirnnment in Mississippi.

Either way, I'm not interested in the bonds.....I'm just saying I don't think you can equate the balance sheet of the corporate holding company to the security of the bonds issued by one of the regulated utilities (Entergy Mississippi in this case).
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Prophet,

Good and fair points. Once we enter the realm of holding companies things can get odd for bonds so I have no argument.

I treated the exercise using the last one holding the bag approach. It takes some fancy legal tap dancing to spin the thing off before the debt holders get their claws into things. What things they can get their claws into are interpreted by the courts based on the language of the debt issue and legal precedent.

I am willing to bet dollars to donuts that they financed their debt using the best rating they could which could be the holding company or the subsidiary. The holding company's rating matches the listed bond rating, coincidence or because that is the link? Hard to tell with the little scratching the two of us have done.

caveat emptor

jack
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charliebonds,

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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charliebonds,

Again, maybe I'm late to the party here, but...

You wrote, Setting aside for now how each of us characterizes the supposed interest paid (with you equating an "interest credit" as the same as interest actually paid and received)...

That seems to be misquoting aj485.

Also, there is nothing supposed about the interest paid. aj485 and I both hold a number of exchange traded debt securities like EMZ. They do exactly as she says. They pay interest every month, quarter, semiannually or whenever they say they do.

Trading flat just means the issuer doesn't expect the exchange to require the seller to hand over a separate amount for interest. The price the shares were sold / purchased at includes any expectation of interest you might have had - there will be no separate partial interest payment - unlike the cr*p they do with bonds. The description is all there in the prospectus if you care to read it and parse the legalese.

-------------------------------------------------

The rest of this stuff where you confuse aj485 (my girlfriend, BTW) with LordXot because you're too busy responding rather than reading and understanding what's being said is just too funny!!! (Though I know she didn't think so at the time ...)

- Joel
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charliebonds,

You wrote, AJ, Sir.

Are you so forgetful that you don't even remember what you've written? I hereby quote the first sentence which you launched this thread.

...


Oooh!!!!! Stop! Please! This thread is just too funny! You're killing me...!

Man! What I miss when I fall behind for a couple weeks! This stuff is almost as good as the Colbert Report!

- Joel
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