Skip to main content
No. of Recommendations: 0
Latest downgrade and commentary from Fitch, dated August 31...

Fitch Downgrades Talen's IDR to 'CCC+'; Outlook Negative
https://www.fitchratings.com/research/corporate-finance/fitc...
Print the post Back To Top
No. of Recommendations: 0
Forget these guys - I'm out. Talked to IR but never got any financials. The only thing I was able to find was a Moody's report from July 2020. Some privately-held bond issuers are easier to deal with than others. Talen Energy I'll pass on...
Print the post Back To Top
No. of Recommendations: 0
Stas,

Let me get some lunch, and then I'll review the junk I've bought in the past couple years and how it has fared.

Meanwhile, here's an idea to explore. Go long the bond and short the common. If the CY is fat enough, it can cover the costs of the short leg and provide a gain. Meanwhile, you're market-neutral.

A
Print the post Back To Top
No. of Recommendations: 0
I'm guessing you're talking PBF. That I'm still considering. As to privately-end entities of Talen Energy and their debt... I'm closing my (very small) position.
Print the post Back To Top
No. of Recommendations: 1
Mdy S&P Cpn Due Call Price CY YTM Price
B3 CCC+ 6.50 06/01/25 06/05/21 102.167 7.48 10.54 86.911
B3 CCC+ 7.00 10/15/27 10/15/22 103.500 8.38 10.58 83.568
B3 CCC+ 6.00 12/15/36 - 0.000 9.40 10.86 63.810

Stas,

I hate using TMF's table format. But I wanted the data available. (It's from ET and accurate as of a couple hours ago.)

I never discuss my open positions. But you've been hammering hard on Talen, and I own three of their 6's of '36. So let's dig in for the sake of broader points that might be made about investing in spec-grade debt.

For starters, their yield-curve is flat. That's not a neutral fact. But it's far less worrisome than an inverted one. Second, the debt is split-rated. So, which agency do you trust? It's been too many years since I did a study on how to deal with split ratings, and I don't remember which agency I decided was the more conservative. So, that's one broader problem needs to be dealt with, as does how their market-implied rating synchs with their agency-assigned ratings.

Thirdly, what's the bid-ask spread and lot sizes? That matters. If the debt is actively traded with tight spreads, then traders aren't worried, which is A Good Thing. Fourthly, what do price charts of their debt look like? (FINRA is a good source for this.) What do price charts of the common look like? Again, how worried are the equity traders? There are lots more "technicals" that could be considered, plus the whole options game, but that's enough to give a sense of what needs to be done besides and beyond just grinding through their financials.

Next comes picking an issue and sizing a position, whose specifics could be argued about from here to Sunday. But it's really a matter of genetics, not numbers. So let me step back and explain that remark. Economics --and sub-branches like 'behavioral finance'-- assume humans are monolithic, rational animals, not the 32 to 64 different types of lizard-brained creatures we really are who are horrible at estimating risks. There is almost no one in the investing world that realizes that fact. It's over-populated by overly optimistic idiots who think stock prices always go the the moon, or at least, that Buying and Holding is a low-risk recipe for success.

But traders --stock, bond, commodity, currency, whatever-- as group do realize that personality doesn't just matter, but that it's the key in determining whether they will blow up their account or go on to being able to pull more money out of markets than they bring to them and that they must they match methods to personalities, as Schwager --and dozens of others-- document.

Now consider the commonly-offered advice about where to buy on an issuer's yield-curve. Some prefer to keep maturities short. Others argue the "sweet spot" is to be found in the middle. Etc. But risk-adverse me looks at a yield-curve like Talen's and asks, What's my downside if I get in at 86 rather than 63?" How likely is the issuer to file BK? What's the workout likely to be? So I conclude that if there's going to be trouble, I want the trouble to be small. So I'm generally buying the longest-dated --hence, cheapest-- bonds available, be they invest-grade or spec-grade. In the case of Talen --currently bid at 62 for their 6's of '36, if I'm remembering right-- I'm ITM on them, because I got in a 56. That's a classic instance of obtaining Ben Grahams's "Margin of Safety". If you're going to screw around with junk, you gotta "Buy widely; buy cheaply; and buy small", or else you're not going to survive in the game. (IMHO. 'natch.)

But the instant I lay out a manifesto like that, I know full well other very successful bond investors can be found who do nearly the opposite. So what matters --to repeat an earlier point-- is matching methods to their would-be users, and the best that can be said is merely, "This is how I do it, and it seems to work for me." If you see no opportunity in Talen --as just one position in a portfolio of as much as 250 to 300 bonds, which is what I normally carry--, then dump it, and move on.

Arindam
Print the post Back To Top
No. of Recommendations: 1
Appreciate the thoughts and details. Very helpful. I am disappointed in Talen Energy IR's response so I don't really care about the rating, financials, etc very much at this point and probably won't look their way again any time soon. Lesson learned. There are other issuers out there, incl. private companies that are more forthcoming! :)

I haven't held for long but had a good return. I'm actually quite glad. My cash position was getting awful slim. I closed several positions this week actually and opened one new one. The ones closed worked out quite well. Onward and upward!
Print the post Back To Top
No. of Recommendations: 1
The curve is inverting hard on Talen Energy's bonds. The issue maturing in December of this year is selling with a 22% YTM! But the 6's of 2036 are trading at 12% YTM. I wonder if anyone knows what is going on. Perhaps some sort of restructuring is rumored?
Print the post Back To Top
No. of Recommendations: 0
Yields jumped to ridiculous levels again last week. Some creditors are gearing up for restructuring talks. BK imminent?

Per Bloomberg:

"Certain creditors of Talen Energy Corp. have begun working with legal counsel from Paul, Weiss, Rifkind, Wharton & Garrison to help prepare for upcoming debt talks, according to people with knowledge of the situation.

The ad hoc group is made up primarily of holders of Talen’s unsecured notes, but also includes those in the company’s secured debt, said the people, who asked not to be identified because the discussions are private.

A representative for Paul Weiss didn’t respond to request for comment.

Talen’s bonds have slumped after the Riverstone Holdings-backed company released a downbeat earnings outlook."

Source:
https://news.bloomberglaw.com/bankruptcy-law/talen-energy-cr...
Print the post Back To Top
No. of Recommendations: 1
"Talen’s bonds have slumped after the Riverstone Holdings-backed company released a downbeat earnings outlook."

Stas,

Did you really mean to write what you did? Bond yields move inversely price. A 'downbeat' earnings outlook should have lowered prices and raised yields even higher.
Print the post Back To Top
No. of Recommendations: 0
Arindam,

That was a quote from Bloomberg Law so no, I didn't write that.

I did not see the most recent quarterly package but prices have been mostly moving south on their bonds since the release and the curve has become very much inverted. Nasty stuff. We'll see how this plays out.
Print the post Back To Top
No. of Recommendations: 1
Stas,

Avoid inverted yield-curves. I've never seen one that didn't result in BK.
Print the post Back To Top
No. of Recommendations: 0
Latest downgrade and commentary from Fitch, dated August 31...

Fitch Downgrades Talen's IDR to 'CCC+'; Outlook Negative
https://www.fitchratings.com/research/corporate-finance/fitc...
Print the post Back To Top