What's the difference in these two tickers? Both come up as Primus Guarantee when I look at it in Ameritrade, but there is very little information in PRD. I can find out a lot more about Primus with the PRS ticker.
I believe that PRD represents the exchange traded 7% senior notes of PRS.The notes have a face value of $25 each and the interest paid is $1.75 per year.Greg
PRD: 50% plus below par and yields 9%+. Has anyone looked into this? Homework this weekend,THz
I stumbled upon prd when looking at Bill Mann's holdings.I'd appreciate thoughts of anyone who is willing to share. In the meantime I'll do some of my own research as I don't fully understand what these are.-Topspin
Good find. I had no idea either so I spent some time searching around Google. This is what I found....the link is below.As you might expect these are Debt Obligations of Corporations that trade on the various exchanges (NYSE etc.). These securities were specifically designed for sale to the investing public as $25 issues traded on the major stock exchanges trade much more easily than traditional $1000.00 corporate bonds These debt securities are issued directly by the companyMost of these investment vehicles were issued at $25 per bond (per share if that helps you visualize the debt). The bonds usually pay interest Quarterly, but some such as PMK below pay monthly.This debt trades just like a stock and almost always trades near its issue price of $25 as the interest accumulates on the price until the ex-dvidend date then it falls back and begins the accumulation once again Take a look at a multi-year chart and you will clearly see the pattern. The commission is just the same as if you were buying stock---so this makes it quite easy to buy these vehicles.Interest rates on these vehicles range from around 4% up to as high as 10% or more. As you might expect the higher the risk the higher the reward. BUT you can earn goods returns with minimized risk if you do your homework.Almost all of this debt is senior to common and preferred stock if a bankruptcy should occur--and usually equal to other UNSECURED debt--but this is not always the case SO do your homework.The debt is listed on the equity exchanges, but a good deal of it trades in small volumes, as such you should use a limit order on these as a market order could result in a high price paidTo research these vehicles you must look at the news etc for the parent of the issuer. For instance in our portfolio we hold Great Atlantic and Pacific 9 3/8% exchange traded debt which is Ticker GAJ. We must research using Ticker GAP which is the common stock ticker. PLEASE note that some of these issues do not have a parent to research that is meaningful as they have gone private or are a tiny cog in a much larger corporation.Lastly, all of these issues have CALL PROVISIONS. We have listed the date on which the issues become callable. This date represents the earliest date (usually 5 years after issue) which the company can buy the debt back (even if it is past the call date it does not mean that they will be called as this depends upon many factors). If they call the issue it is at face value plus ahttp://www.dividendyieldhunter.com/ExchangeTradedDebtSecurities2.htmlccrued interest.
For some reason the link didn't work.http://www.dividendyieldhunter.com/ExchangeTradedDebtSecurities2.html
This seems like a great arbitrage play. Get paid a 9.5% divi while waiting for the number to go back to par.
Wanna see some volatility....7-Aug-07 Price hit new 52-week low ($12.00) 6-Aug-07 Price hit new 52-week low ($12.55) 1-Aug-07 Price hit new 52-week low ($15.26) 6-Jul-07 Price hit new 52-week high ($25.50) Now that's volatility for a bond issue!At Par, which is 25.00, the bond pays 7% interest. Fortunately, for us the bond is trading at 18.50 but the interest remains at 1.75 per unit. Take 1.75 and divide it by 18.50 and you get a yield of 9.459%. Remember, this is a bond. You can get this Bond for 18.50....thats a 25% discount from Par. The company can buy the bond back sometime after December 2011. Par is $25.00. Thats approximately a 35% gain in 4 years. That translates to and 8% yield assuming it takes 4 years to get there.So, if you add 9.459 + 8 you get 17.45%....Guaranteed by the company. Where are you going to find this kind of return?...guaranteed.Now my guess is that this screwed up price will take care of itself sooner than 4 years and if it happens in the next year we'll have a return of 35% + 9.549, which roughly translates to 44.5%..... Good enough?When you add in the greater likelyhood of the Fed lowering Treasury rates the chances of this trading at or above par improve.Please add your thoughts, I think there's so much room for a margin of safety that you could drive a truck through it.Just trying to do my part.ChrisDiscl: As of today I am long prd.
Moody's assigns bond credit ratings of Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C, . Standard & Poor's and Fitch assign bond credit ratings of AAA, AA, A, BBB, BB, B, CCC, CC, C, D.Moody's has Primus rated Baa1 (not that we can totally trust their ratings.)http://en.wikipedia.org/wiki/Bond_credit_rating
I think your analysis is largely correct. The risks to the scenario you've outlined are:- A drop in PRS ratings which would make the original 7% coupon $25 issue price bond overpriced and permanently drop the price of the bond below $25. You can buy a 6% yield bond from BAC (IKR) so the question is how much riskier is PRS. If it's not that much riskier then the 7% yield is appropriate and the price will trickle back up toward $25. If it is and the 9% yield is more appropriate (I doubt that) then the price won't move too much and PRS has no need to call the issue before maturity.- If interest rates rise the price will likely not come near $25 and PRS, again, has little reason to call the bond.- If interest rates are lower four years from now when PRS can first call the bond then the company will call the bond at $25. But, anticipating this call, the bond price will rise to close to $25. (For those who find this confusing, the reason PRS would call the bond at that time is b/c it has little reason to continue borrowing from the public at 7% when it can do so at 6%. That is, the company can call this bond that pays $1.75 annually for $25 and instead issue a bond that pays, say, $1.50 per $25 -- the exact numbers depend on the interest rate).It strikes me that investing in PRD is a less volatile way of investing into PRS. The key pressures on the debt seem to have been:- concern that the underlying company that issued the debt is riskier than previously thought;- a quick exit by a large institutional holder (given that this was a top investment of some of the hedge funds that got into trouble with subprime it is possible that they had to raise capital quickly from positions that they liked very much)It appears that both of these are temporary. If that is the case, PRD represents just the kind of scenario that you described: a chance at 30% or so price appreciation along with about a 9% interest payment (keep in mind that these are interest payments and are taxed at a rate higher than dividends).
One thing I forgot to add, if someone wants to invest into PRS, depending on your risk profile, I would structure the investment as such:75% into PRD25% into PRSThat way, most of your investment is strongly protected on the downside (but not completely) but you're still getting some of the upside with your PRS position.
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