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No. of Recommendations: 1
The bond chart isn’t worrisome. But the stock chart isn’t encouraging. (XLE --used for comparison --is the sector ETF for Energy.)

The Moody’s report is grim, but not hopeless. (I can’t quote relevant snippets due to User Agreements.) But what I really dislike is their balance sheet. The company can’t cover ‘accounts payable’ from ‘net receivables’, a problem that Moodys acknowledges and that is only going to get worse if the economy --hence, energy prices -- rolls over again, as it look like it’s going to.

Yeah, I’m long the bond, and I was wondering if I should add. But I think I’m going to sit tight on the tiny position I have and look elsewhere this morning.

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No. of Recommendations: 4
not terrible for a 6 year or so redemption but there is better out there right now surprisingly.

did you see Kemet earnings this AM? surprised allot of folks. some are conservatively calling bottom in their cycle. they completed a most impressive merger recently and the sky is the limit in their niche, the electronics space. been business for nearly a century now.

of course its not all roses, just look at their coupon. but classification wise, you could do allot worse on the debt side for sure.

cusip = 488360AF5
coupon = 10.5%
redemption = 5/1/2018
bond price in the $102 handle range, still gives a near 10% yield to worst.

also recently, the CFO of avaya gave a very transparent presentation regarding the future of the company. i might have the link somehwere still. avaya's ipo is still in the works for the future. its just a matter of when. i bought these hand over fist last year when they sank and traded down to the mid/lower $84's< and less.

but given how things are slim pickings now, if you really had to put some money to work, still worth a look here for risk adverse folks like myself. especially like the short term redemption on these. in reality, you are mainly putting on a credit risk trade here, as opposed to going with some bond 7-10 years out; you would have interest rate risk then as well.

cusip = 053499AE9
coupon = 9.75%
redemption = 11/1/2015
bond price in the $96 handle range, still trading at a discount to par.

avaya latest prelim earnings

one other little tidbit is that avaya just successfully put out some new debt that redeems in 2017.

like i said, if that ipo gets the green light i am buying all i can under face value. but at the same point, i am carefully monitoring my current position, if the bonds slip back down to 10% discount premium, i will close out my entire lot and look to re-enter again at another point in time.

its amazing how allot of price action on specific bonds are cyclical. there are definitive times to buy and sell them over and over again over an 18> month period or cycle.
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RE: avaya.

Their financials scared me away, and I've gotta trust my instincts, which doesn't mean that I don't make mistakes in both directions, by buying what I shouldn't have and by not buying what I should have.

But, also, that kind of retrospective scoring is nonsense. The only thing that matters is whether, at the time I was putting on the trade --or backing away from it- I saw everything I should have seen. By and large, I do, and my failure rate (either direction) is sub-5%. So I never second-guess myself. I do the trade, or I don't, and without regrets. And then I get up the next morning and do it again.
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No. of Recommendations: 5

I also hold those Avaya 9.75% 11/01/15 bonds, but I have to agree with Charlie about this issue. I bought it after half a bottle of wine, and when the wine wore off, I had second thoughts about whether the risk was worth the reward. I bought at the end of Oct @ 90.40, so if the company survives and my principal is returned, I will make 43% on my money. But if they go BK, I probably get nothing, because of the large debt ahead of me. Normally I would NOT buy junk unless I can earn a minimum of 50%. And this company has not seen a profit for many years and has an atrocious balance sheet.

I also bought because I read they were “finally” going to do their long awaited IPO, but a few days after my purchase, I read the IPO may get delayed AGAIN, and the bonds were down to the low 80’s. I have heard this IPO story many times over the last couple of years and meanwhile Avaya continues to burn cash. According to the links you provided, on Sep30, 2012 they had $337 million in cash and on Dec31, 2012 cash was down to $285 million. They are only talking about $1B of equity against $6B of debt... Still leaves a heavy debt level.

And from article linked below:

“The company’s interest expense in its fiscal year that ended in September 2011 was more than four times operating income of $100 million as debt-service costs make Avaya unprofitable.”

December article about Avaya debt problems.

If the Fed’s zero interest rate environment continues until maturity, I probably will come out ok, but this is really a speculation, with only a 43% payoff at that... Pretty risky investment (only recommended for winos:)... IMHO

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the stumble into your avaya position was rather entertaining to say the least.

i should amplify the fact that i do not advocate nor implement a buy and hold strategy unless special circumstances exist like with texas industries.

i have made several round trips into avaya notes in the last couple years; actually three if you count my current position. you are correct; their financials are a mess and the ipo getting put off is a potential disaster to the say the least.

my entry points into avaya each time was based on a scalping methodology algo that i have programmed. the neat thing about bond price action is that buys and sells are extremely transparent so you can really get a clear gauge of liquidity along with supply and demand both on the buy and sell side if you have the proper analytical tools.

so each time i put a position on with avaya was when i was alerted by my algo to do so, but basically for a scalp. i am pretty much looking to exit my current holding in avaya, once this latest leg loses some steam. currently as you know, there is a good sized bid here for avaya notes in the $95 handle. a 5% discount to par is the highest these bonds have traded for quite along time now.
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Yeah, Avaya’s price movement over the last 6 months was great for trading. Back and forth between 80 and 95 a few times. Congats on catching the cycles. But with the wide spreads and the narrow channel, I guess, like you said, it’s more like scalping than trading.

Actually, I’ve sometimes thought that I should take a small side trading position in some of my bond holdings. I’ve noticed that bond prices (unlike stocks) are not very efficient and react slowly to news. Many times after favorable earnings reports were announced, I was able to buy the bonds at prices that did not yet reflect the good news. Sometimes it took days for prices to adjust upwards. But of course we are in a bull market now and prices are near their highs, so I don’t know for how much longer this will continue to work.

You said you use some-sort of “alert algo” program. A few years ago, I considered writing a program script to scrape web screen data and try to analyze the results, but I never got around to doing it. Did you write your own code or are you using some tool and buying data? I assume you are happy with your results.

I mentioned that I thought a 43% payoff for Avaya made it a poor risk/reward proposition. This is because I compared it to my DEXO 12’s of 17 (cusip 25212WAA8). These are actually PIKs that are now paying 7% cash and 7% PIK and trade below 40. I bought my first lot in the 60’s and again in the high 30’s after their merger agreement with SPMD. Both companies have real trashy balance sheets (like Avaya), but they do have positive cash flow. If the merged entity can survive past 2017, I stand to make 3.5 times my money. I doubt I will get my principal back, but I’m hoping for some sort of exchange at maturity. Sort of what I expect with Avaya, but with much better payoff odds for DEXO. I will monitor future earnings to see if they can continue paying off their debt. If things look good, I will add more. For now I’ll just hold my position and clip my 7% coupons.


Disclaimer: I’m not advocating anyone buy DEXO. I’m just comparing payoff ratios.
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have definitely seen worse spreads than with avaya corps. on a good day, somewhere in the neighborhood of 2.5% or so. but my objective is to capture double digit moves when order flow has been exhausted in one direction.

your observation on latency with respect to some corps and relevant news is accurate and something that i also have been doing for quite a bit now; especially when it comes to earnings; Kemet was a very recent example of this actually.

on my algo, i am old school, so it was constructed from scratch by me. ( i have a masters degree in computer science) took along time to tweak and test it, but have been content with results so far. keep in mind its not like i am getting signals on a daily or weekly basis, but when it comes in, its something to legitimately jump on.

i have been following the whole DEXO situation. i have a small position in one of my retirement accounts. but nothing that i would trade in size with my regular trading account.
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