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So I have looked at several bond issues that no longer have all of their bonds outstanding. Sometimes there are between 10-30% of the original offering. And I have read about exchange offerings and tender offerings.

So are these offerings pretty much limited to the institutional bond investors and what remains open is the average investor? I can see why they might limit it to institutions to limit the number of entities to deal with. I am guessing that is the main reason. But if there is another reason, I would like to know.

Do individual investors ever get access to these offerings?

I realize that most often the offerings are with distressed companies looking to push out maturities, or maybe REITs looking to refinance.

But since I am still new to bonds, I am trying to learn all I can. Thanks in advance.
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So are these offerings pretty much limited to the institutional bond investors and what remains open is the average investor?

Not necessarily. Partial tender limits are set by the company offering the tender, and are often for more than one security, with the securities laddered on how many of each security they will accept. That way the company can strategically deploy their capital. If the partial tender is oversubscribed, even if only institutions can participate, then there will obviously be some institutional holders who will still be holding.

I can see why they might limit it to institutions to limit the number of entities to deal with. I am guessing that is the main reason. But if there is another reason, I would like to know.

Maybe. But I suspect it's more to provide them with some legal cover, especially when the tender offer has complexities - which most seem to. Institutions and/or accredited investors are expected to have a better knowledge of those complexities than individual investors who aren't accredited. It could also have to do with the complexities of implementing a partial tender when dealing with individual investors, rather than just the number of entities.

Do individual investors ever get access to these offerings?

Sometimes. But you should be aware that if you do decide to accept a voluntary tender offer, there typically a fee from your broker for voluntarily accepting the 'corporate action' of about $30. If you have only a few bonds that you are tendering, that can put a big dent in your potential gains - especially if the tender is oversubscribed enough that you only end up being able to tender 1 or 2 bonds.

I realize that most often the offerings are with distressed companies looking to push out maturities, or maybe REITs looking to refinance.

Sometimes, but not always. They can also be just a high rate instrument issued by any company (REIT or not) as non-callable, and the company would like to rid themselves of the expense year after year. It can be that they have refinanced the debt by issuing another bond or preferred, or they may just be pulling from their capital to pay off the debt.

AJ
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Hawk,

In my experience, tenders are made as often to us retail investors as they are restricted to 'qualified buyers' whose exact definition I don't remember, but whose asset and income requirements are way beyond most of us. More than the effort to limit dealing with small quantities, those making the tender want to get the bonds off their books. I don't remember the proper SEC terminology, something about 144 (or whatever).

Suggestion. Nobody writes a better intro to bond investing than Sharon Saltzgiver Wright. Get hold of a used copy and mark up it as you would a textbook. Whoever coached her knew his stuff. The info is solid. The next level up is Barnhill's book on high-yield bonds. After that, the lit is most aimed at "professionals", and it tends to be highly mathematical and mostly unreadable. So let me repeat what I said earlier.

Bond investing boils down to making one of two bets: on the level/direction of interest-rates, or the level/direction of an issuer's credit-worthiness. Tying to make interest-rate bets will drive you crazy, and it best left to the institutionals. Making credit-worthiness bets, OTOH, is nothing but classic, Ben Graham-style, value investing, and it easily done by us retail investors. Just run through the same process you'd use to vet a stock tip and then ask whether you'd lend the company money.

Lastly, I know nothing about your circumstances and how much money you're trying to put to work. But sooner or latter, you'll need to set up an account at IB, because selling bonds is such a hassle through anyone else. At IB, you have direct access to the network and don't have to screw around with soliciting bids. If your order meets the min size, you can buy or sell immediately, as well as use limit orders to split the spread. What IB doesn't have is a good bond search engine. For that, you need an account at shop like ETrade.

Arindam
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Thank you aj485 and Arindam for your responses.

I will check out Sharon Saltzgiver Wright's book. Already on order.

I do view bonds more as a Graham investment rather than a interest rate play. And, I have recently opened an account with IB. Thanks for the tip.
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Hawk,

You're doing all the right things. You'll be a winner. It's just a shame this isn't 15-20 years ago when bond investing was easy and the money fat.

The downside of IB is their data subscription fees. Be careful you only sign up what what you really need. OTOH, one of the good things about IB is there's plenty of third-party apps written to their API. E.g. Bracket Trader and ZeroLine Trader, both of which do have free versions that have a "sim" mode. That means you can paper-trade the futures contracts on the 10-year and the long bond, as well as equity indexes like ES, NQ, and YM.

Again, a refresher. There is no "bond market", nor do most brokers carry much in-house inventory. There are just networks of underlying desk whom they re-quote from and execute trades on behalf of. Thus, if Schwab, Fido (whomever) is quoting a specific lot of bonds, at a specific price and minimum-purchase amount, IB likely will be, too. However, sometimes, by shopping around it's possible to get a smaller min at IB than elsewhere and, sometimes, the opposite is the case.

What I would suggest, though, is never, ever buy less than two bonds. A single is almost never marketable if you want to sell or to accept a tender. Exceptions? Sure. Odd-lots are often deeply discounted. If the issuer is a high-quality credit you wouldn't mind holding to maturity, then pick it up, and park it. But if it is anything you might need to get out of down the road, buy at least two.

Lastly, all investing books talk about the need and virtue of "diversification" as a means of reducing 'risk', which is total bullsh*t. When markets are under stress, correlations go to 1.0. Therefore, from the getgo, only buy what offers a favorable reward/risk ratio and size your positions properly with respect to your account size, which requires a word of explanation.

Conventional wisdom is that $50k is needed if one wants to buy their own individual bonds and achieve "proper diversification". Again, nonsense, because there's no requirement that the position-sizing can't be done diachronically (which is a topic and post for another time).

Basically, bond investing is just value investing, about which Graham makes this point. If you over-pay for a top-tier credit, you've bought junk. If you buy "junk" for pennies on the dollar and the issue has a reasonable chance of paying off, you've made a high-quality investment. So shop carefully, and bargain shrewdly.

Arindam
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