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No. of Recommendations: 2
Hi all,

I'm fairly new to fixed income investments. Most of my investment/analysis experience has dealt with stocks. However, with the credit crisis raising havoc with yields and such in the corporate bond market, I've been attempting to sift through the various offerings in the exchange traded debt arena in hopes of finding attractive returns and at the same time reduced risk as compared to individual stock holdings. So, any and all comments and suggestions are welcome and appreciated.

My search has uncovered several opportunties which I hope to share in time. At present, my best idea is Markel (MKV), which I think offers an attractive yield and also safety of principal.

From QuantumOnLine:

Ticker Symbol: MKV CUSIP: 570535203 Exchange: NYSE
Security Type: Exchange-Traded Debt Security

SECURITY DESCRIPTION: Markel Corp. 7.50% Senior Debentures due 8/22/2046, issued in $25 denominations, redeemable at the issuer's option on or after 8/22/2011 at $25 per share plus accrued and unpaid interest, and maturing 8/22/2046. Distributions of 7.50% ($1.875) per annum are paid quarterly on 2/15, 5/15, 8/15 & 11/15 to holders of record on the business day prior to the payment date as long as the debentures remain in book-entry form. Units 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. The Notes are unsecured and unsubordinated obligations of the company and will rank equally with all existing and future unsecured and unsubordinated indebtedness of the company. See the IPO prospectus for further information on the debt securities by clicking on the ‘Link to IPO Prospectus’ provided below.

Basic Data:

                    Annual  Current                             Call     Mature  Moodys/S&P
Ticker Quote Amount Yield Call Price Discount Date Date Rating
MKV $ 19.75 $1.88 9.5% $ 25.00 21.0% 8/22/2011 8/22/2046 Baa2 / BBB

Markel is a multi-newsletter pick here at TMF and is often referred to as a young Berkshire Hathaway in Fool advertisements. Many regard the management at Markel as top notch and their skill at underwriting insurance and their investment prowess is second only to Buffett.

Markel Corporation markets and underwrites specialty insurance products and programs to a variety of markets. The Company has three segments of the specialty insurance marketplace: the Excess and Surplus Lines (E and S), the Specialty Admitted and the London markets. The E and S market focuses on hard-to-place risks and loss exposures that admitted insurers specifically refuse to write. E and S eligibility allows its insurance subsidiaries to underwrite loss exposures with policy forms and unregulated premium rates. The Company also writes business in the Specialty Admitted market. In addition, the Company writes business on both a direct and subscription basis in the London market. The Company’s eight underwriting units are focused on three specialty market segments, including four underwriting units in the E and S market, three in the Specialty Admitted market and one in the London market.

According to the latest quarterly filing Markel's financial highlights include these facts:

They had $588.4 million of cash compared to $588.4 million in long term debt. Shareholder’s equity stood at $2,313 million.

Interest expense for all of 2007 was $56.2 million. EBIT was $628 million giving an interest coverage ratio of 11x.

Insurance is cyclical and 2007 was a very good year. Looking at 2003 as a “low” point for the business, they still produced operating income in excess of $230 million. Cash from operations over the last 5 years has never been less than $500 million.

So, this debt security offers a 9.5% yield plus the chance of pocketing 21% in capital appreciation when the credit markets thaw out. All of this while assuming little in the way of risk to principal.

I think MKV is a buy under $20. What do you think?

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