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Hi Arindam -

I wasn’t ‘bragging’ about owning a BB rated bond as much as I was responding to your post about how risky my portfolio must be because of it.

Every bond I bought was investment grade at the time I bought it. I am 100% aware that there are no guarantees in the bond market, but I am also aware that bonds are higher priority on the corporate pecking ladder than stocks.

I find it amazing that so many people are willing to invest in a company’s stock but are unwilling to touch its bond because it’s too risky. As a general rule, “if the bond doesn’t pay, the stock goes away” is a good guideline to keep in mind.

As far as I know, that particular bond is the only one currently in my portfolio that has slipped below investment grade and stayed that way. As I mentioned in that previous post, I’m not too worried about that specific bond, given the company’s cash flow, its debt to equity ratio, its debt maturity schedule, and the fact that its bank line of credit extends beyond the maturity date of my bond.

That said, I wouldn’t be a buyer of that bond —- or any other bond of that company -- today, given its current debt rating. It simply wouldn’t pass my initial screen, and I have not yet seen a need to revise that screening process to allow for more speculative offerings.

If I wanted to sell before maturity, I probably could. I bought it at a discount when it was investment grade, and it looks like it traded in the market yesterday at a premium as speculative grade. I just don’t see the need to sell it early since the company’s financial structure provides good enough reasons for me to believe that the specific bond I own will continue paying on time through its remaining life.

If you see something about that particular bond that I’m missing that would suggest a need to sell it before maturity, I’d appreciate hearing your perspective. That’s why I went so far as to provide the CUSIP, so that we could talk specifics instead of generalities. You are clearly a much more sophisticated and advanced bond investor than I am, and I fully admit I could be missing something.

Regards,
-Chuck
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