No. of Recommendations: 1
Hawk,

I, too, noticed that FTR seems to have been paying down on those bonds. One way to find out would be to grind through the 10Qs. Another would be just to call their Investor Relations Dept and ask. And you're right they might be working side deals with "qualified buyers" to get the debt off their books.

Frankly, FTR's debt is a lottery ticket that scares me more than I'm willing to invest much time exploring whether the reward/risk ratio is viable. If its stock hadn't crashed to pennies, then going long the bond and short the common would be the obvious trade. That could be done by selling the common short or by buying puts. The hassle with shorting the common is the often abusive borrow fees. The hassle with puts is the cost of buying enough time.

But it's a trade I've done and turned a profit doing.

Another possibility with FTR is this. Size a tiny position and accept the fact you might lose all of it (if the workout is adverse). But across a basket of such bets, you're likely to do well.

Lastly, there's the problem of valuing one's time. If you spend X hours researching a trade that should be sized so that risks are no more than 1/2% of AUM, what other (better?) opportunities have you neglected? If you don't intend to be junk bond specialist, then don't let yourself get sucked into situations like FTR. For sure, you might win this one and even the next one. But unless you intend a campaign across at least two full market cycles, you're better off getting your exposure to the asset class through through things like Invesco's bullet shares, one of which does included FTR's debt in its holdings. I don't remember which one, but I noticed the allocation was close to just 1%.

Arindam
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