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The largest Fund purchase during the quarter was
Reddy Ice First Lien Senior Secured Bonds (11.25% due March2015)
, which we bought to yield approximately 9.8 percent to maturity. Reddy Ice is the largest domestic distrib-utor of ice, with a strong market presence in the Southeast. The company experienced a downturn in its ice busi-ness as the economy declined in 2008. Particularly damaging for ice demand was a dramatic drop-off of home-building and outdoor construction in core Reddy Ice markets. Investor sentiment was further depressed as thegovernment initiated an anti-trust investigation into the ice distribution industry, which was recently concludedwithout further action against Reddy Ice. Currently the highly levered company is finally beginning to see stabili-zation in end-use ice demand, but is still challenged by its high cost of capital and increased market competition.Given our debt’s senior position, the stabilization of company EBITDA and additional corporate cost-cutting ef-forts, we believe the value of our bonds is well protected. Currently, the first lien debt has a manageable netdebt to projected 2011 EBITDA multiple of 4.25 times. It is possible that private equity players with access tolower cost capital may have an interest in large, ice industry players, which could ultimately lead to a companyrecap.

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Thanks for posting this thread. Reddy Ice is actually in my top 5 junk watch list. When I did my first intial due diligence run the risk reward seemed a bit intriguing. Obviously I was not alone.
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VJ,

Before you jump into these bonds (because Aegis bought some), take a look at their schedule of holdings and their implied, investment strategy. https://www.umbfs.com/groups/public/documents/web_content/02... They focus on the short end of the yield-curve, which isn't necessarily a good or bad thing. But it is a restrictive choice, which requires some explaining. Bonds become spec-grade debt for one of two reasons: deteriorating financials (aka, fallen angels), or because they were never very strong financially to begin with (aka, new-issue junk).
Fallen angels tend to have a normal range of coupons and a normal range of maturities. New-issue junk trends to have anomalously high coupons and no more than mid-range maturities. (Both of which have obvious reasons.)

One could assess the risks/rewards of these two similarly. But, to me, it makes more sense not to, because managing their risks aren't the same. With fallen angels, your financial-statement analysis can be pretty sloppy provided your entry-price is advantageous. With new-issue and/or near-by junk (which isn't likely to be discounted much from par), your forecast of the non-likelihood of a Chapter 11 filing had better be superior, or else you're going to take a beating, as Aegis did with their 100-bond position in Finlay. (Why they bought that piece of trash is beyond me. I've owned them and made good money. But that was years ago, long before the 2008 crash that put Finlay under, as retail sales dropped.)

As of the end of last year, their portfolio looked like this.
Common Stock, 1.8%
Corporate Bonds, 77.7%
Preferreds, 5.7%
Cash, 20.1%
Liabilities, -5.3% or, roughly, 85% bonds and 15% cash, and their bogie is Barclays Capital High Yield index for which the ETF, JNK, is a marketable proxy with an average maturity of 7.14 years, compared to the fund's much shorter avg. mat. of 3.7 year. Also, their avg credit-quality is lower than JNK's, but their overall volatility and and returns are comparable.

In other words, they are using an internal "barbell" strategy (of riskier than average debt, offset by a high allocation to cash) to misrepresent the external characteristics of the portfolio to naive investors who would be far better served by buying the index if a judicious allocation to junk is what they really want in their portfolio. In particular, what I find to be especially damning is they spent $17,964,987 to buy bonds worth only $17,925,349, or no capital gains at all. In other words, they are "yield hogs", not value investors, and my bet is that, sooner or later, they are going blow themselves up, because they have to stretch too hard to make a case that what they are buying isn't as risky as it really might be. (IMHO, 'natch)

As for Reddy's bonds, I've owned them before and made good money, and I still own one of their Senior, multi-steps of '12 that I got into Fall of '08 for old times sake at a price that gave me a YTM of 11.9%, not Aegis 9.8% for their 98-bond position in their Senior 1st lien 11.25's of '15. But if you really want to scare yourself a bit, pull their quarterly balance sheets from someplace like Yahoo Finance and look at the final line. They have an accelerating negative net-worth. So how much will that lien really worth when Reddy files for Chapter 11 protection?

Buying one bond? Not a problem. I'll buy one of nearly anyone's debt. But a major position such as they argue for and did? Not in my portfolio, not ever. I'm in this game for the long haul, and I cannot take those kinds of chances.

Charlie
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Just watch their quarterly/annuals.

If they start gaining market share in northern Alaska and the Yukon Territory, you wanna latch to to this company, regardless of what they do.
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I don't find any article on Reddy Ice at Distressed Debt Investing?
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