Showing posts with label high yield bonds. Show all posts
Showing posts with label high yield bonds. Show all posts

Monday, June 3, 2013

BONDS Cliffs Natural Resources CLF Bond for your retirement

Strategic Risk - Euro Bonds

It has been a while since I profiled a bond.   Today, I added this bond to my portfolio.  I like to shop for bonds on Mondays and I like a bond that is selling at a discount, is less than 10 years in maturity and is backed by a company with decent fundamentals.  Let’s look at how Cliffs Natural Resources’, symbol CLF, 2020 bond meets my needs for investment income.

Bonds priced on Monday:

Unlike stocks, bonds are a smaller universe for the ordinary investor.  Prices tend to be set on Monday.   This is when bond buyers go shopping.  So often in the past, I would find a bond I liked and by the time my client made a decision to buy, the inventory was no longer available or if it was the price increased and the yield decreased.

FINRA (Financial Industry Regulatory Authority) has a bond search feature.  It used to be quite good but they have revised it and I find it useful but not as rich as it used to be.  MarketAxess has a corporate bond edition (MarketAxess website) that individual investors can use to see a list of investment grade and high yield bonds.   Monday’s are a good time to look at their corporate bond edition.

In order to buy a bond, you have to know the “CUSIP.”  You can search your brokerage account but they tend to have a limited supply of bonds available to individual investors and they rarely have high yield bonds available online.   If you know the CUSIP, you can enter it to see if the bond is in their inventory; some brokers like Schwab will let you buy online.   Your alternative is to call the broker’s bond desk and ask them to shop for the particular bond.  They will get a price on the open market and you can decide if you want to buy the bond.

Buy at a discount:

Bonds are priced at what is known as par value or $100 per bond.  It is a little confusing because 10 bonds actually cost $10,000 which would be $1,000 per bond.  For the purpose of buying and selling, par is $100 per bond.    At par, the coupon yield is the effective yield.  A five percent coupon will pay you five percent every year until the bond matures; when the bond matures you get back your invested principle.

I like to buy at a discount which means the yield is higher than the coupon.   If the bond costs me $90 instead of $100, the five percent coupon is a yield of 5.55% over 10 years.  When the bond matues I also get a capital gain because I will get back $100 not just the $90 I paid for the bond.

If you buy at a premium, let's say you pay $110.00 for the bond, your yield will go down to 4.54% over 10 years and you will get back only $100 when the bond matures.   I do not like that kind of return.

Cliffs Natural Resources (CLF) 2020 bond:

The CUSIP for this bond is 18683KAB7.   The bond pays a coupon of 4.8%, it matures October 1, 2020 and today I paid $96.523 for each bond which translates into a yield of 5.38%.

I like a bond that matures in 5-10 years.   This bond matures in seven years and about four months.    Interest rates will be volatile during this time frame.  Some days the price of this bond will be up and other days it will be down.  As long as the company is solvent, it should both pay the coupon to me (bondholders are paid every single day they own the bond … unlike dividends) and the company should return $100 to me when the bond matures.

I cannot predict what interest rates will do.   It could be that in seven years, when this bond matures, I can replace it with a bond that pays 10%.   Do not laugh at that prospect because this happened in the past during the hyperinflation period in the 1980’s.   Equally possible, I may not find a bond to replace this one with a yield that is as good as 5.38%.   You have to weigh how much you need 5.38%.   Right now, I need that yield and I like the potential capital gain.

CLF, had one terrible quarter where they took loses.  They are in the metals, mining, and coal business and the coal part has not been pretty.   Yet, fundamentally, I find this company a pretty safe bet.   Their book value is $37 per share yet it trades at $17.92 per share.   Their D/E ratio is .60 which is very healthy.   Finally, their interest coverage ratio is 3.4. 

Do you own homework, and then decide if a bond of this type will fit into the income producing portion of your portfolio.


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Thursday, March 28, 2013


This bond is not for the risk averse income investor; they call them junk bonds for a reason.   AK Steel, AKS, is in the steel business and they also work in the iron ore and coal area.   This post profiles a high yield bond that you may want to consider.

AK Steel (AKS) Bond Cusip # 001546AL4

Technically, this bond is not a junk bond.  Junk bonds are rated in the C categories.  Bonds rated AAA are the safest, AA and A slightly less safe, then come those rated B.   This bond is rated B- by S&P and B3 by Moody’s.

In my portfolio, I consider this bond a junk bond because the company has experienced trouble from lower steel demand and high costs.   The interest coverage ratio is -1.5 but that has improved from -4.  AK Steel’s 4th quarter update, according to Zacks, predicts a loss but less of a loss than in the past.

Bond Specifics

AKS bond Cusip is 001546AL4.  The bond will mature May 15, 2020.  The bond coupon is 7.63%. It is trading around $88.50 with a yield to maturity of 9.3%.  The bond is callable May 15, of this year and they can pay you back with some stock so you may want to wait until after that call date to make your decision.  As of May 15, 2015, the bond is callable at a price of $103.81.  

My Take

I will add this bond to my portfolio but I will watch it carefully.  Bonds of this type are for investors with some appetite for risk.

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Friday, March 1, 2013

AEE Ameren Energy Generating Bond Cusip 02360XAM9 update

This is an update on the AEE bond I have been watching. Ameren Energy owns a subsidiary known as Ameren Energy Generating Company, this subsidiary raised money through several bond issues.  This bond price is volatile.

The Bond

AmerenEnergy Resources Generating Company issued this bond.  The coupon is 6.3% and the maturity is April 1, 2020.  The cusip for this bond is 02360XAM9.

The Payback

This bond's current yield is over 18% because there is great concern about the parent company providing the money needed to pay back the loans.   Ameren Energy Generating Company, the subsidiary, does not make money.  Through a complex transaction called a put option, the parent company has an opportunity to reduce their risk of having to pay back this subsidiary's debt.  AEE has  signaled that they would like to be done with this albatross.

The Parent Company

The parent is Ameren Energy symbol AEE.  In their February financial report, the situation with this subsidiary was discussed.   They are looking for sale or restructuring opportunities.  Nothing in the report makes me want to sell or buy.

You cannot invest hoping that the parent company meets the obligation.  It may be better for AEE to pull support for these bonds in the interest of the larger picture.   In view of their dividend history (which is important for income investors to consider), I think they will manage the assets and obligations of this subsidiary in the best interest of AEE.

The Trade

For bond traders there is opportunity.  Just today, March 1, 2013,  according to FINRA, this bond traded between $52.737 and $55.00.    In other words, you could have made over 4% in a day by buying low and selling high.  Do not forget that you also get the interest for every day you own that bond.

I am an investor and not a trader, yet I can play in this market.  The bond is not in default.  I still get my interest every day I own it.

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Saturday, February 16, 2013

AEE pulls support for junk bond.

Ameren Energy will no longer support Ameren Energy Generating Company debt.

Investing of any sort is a risky business but unless you work for a living or have a generous benefactor, you have few choices when investing for income.  Junk bond or high yield investing is very risky.  Ameren generating company may default on a junk bond that I profiled September 5, 2012.

The Bond

Ameren Energy Generating Company issued this bond November 12, 2009 with a coupon of 6.3% at a price of $99.746.  This bond matures April 1, 2020.  According to FINRA (Financial Industry Regulatory Authority), the bond last traded at $51.168 yielding 19.143%.   For additional information about the bond, use the FINRA link at the end of this post.

Ameren Energy Generating Company & Ameren Energy Company.

Ameren Energy  Generating Company is a wholly owned subsidiary of Ameren Energy Company. The parent company Ameren Energy (AEE) is solid.   However, the energy generating subsidiary has been a bust.  It loses money while it sells the available capacity of energy generation.  This subsidiary does not actually make energy.   The parent AEE has decided to exit the energy generation business and has given notice that it will not financially support the energy generating subsidiary.  According to an article in "Seeking Alpha" several decisions will be made in the near future that will affect how debt from the bonds is handled.  A link to the "Seeking Alpha" article is provided at the end of this post.

Buy, sell, or hold?

If you own this bond as I do, you have to decide how to handle this unfortunate news.  I will closely follow the events of the next few weeks to decide if I should add to my position.   I do like the big yield.

A market for this bond does exist and I might be able to get $50 if I sell it.   Based on my basis of $87 this is a loss of about 42.5%.   That magnitude of loss is hard to swallow.  It's like buying Apple at $600 riding it up to $700 then back down to $450.  However difficult it is to take the loss it is better than losing it all if the bond goes into default.    Even with an orderly bankruptcy you may only receive ten cents on the dollar.    However, I am not willing to give up on it yet.

Therefore, I will hold for awhile.  Stayed tuned for updates.



See Article from "Seeking Alpha" on AEE high yield bond
See Finra data on AEE Bond
See Original MoneyMadam Post  on AEE high yield bond


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Sunday, December 9, 2012

MEMC Electronics WFR HIGH RISK JUNK BOND Yielding 11%

High Risk Junk Bond yielding 11%

MEMC Electronics is an interesting company.   I have to admit that I owned this company and lost almost everything when solar energy tanked. However, MEMC Electronics,  symbol WFR, came public in 1995 and has clawed its way back to a roaring price of greater than $3.00.  The management team has this company on the mend.  Moreover, it is using its technology to provide lightness to many “off grid” communities in INDIA.  SunEdison part of MEMC lights up India

I started looking at WFR this week because of insider buying.   Insiders sell for many reasons some as simple as paying tuition for their children or buying Christmas presents.  However, insider buying is rarely done capriciously.

I noticed a bond issued by MEMC that I like.   The bond coupon is 7.75%; maturity date is April 1, 2019.  I do not like to go out much further than 5-7 years unless I am darn sure I will get my interest payments and have my principal returned.   In the case of junk bonds, I also expect a significant capital gain.  This bond was trading last week at about $84 - $86 per share which makes the yield to maturity around 11%.

Listening to MEMC Electronics' most recent earnings call encourages me to take this risk.  Please, do not invest in this bond unless you have a very big appetite for risk.  The CUSIP is 552715AC8.  Good luck!

Very Truly Yours,

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Wednesday, September 5, 2012

Ameren AEE - Junk Bond - over 8% yield

English: Logo of the band "The Junk Bonds...English: Logo of the band "The Junk Bonds" Português: logotipo da banda "The Junk Bonds" (Photo credit: Wikipedia)
Any bond will do.

Alfred Ferol and I were talking about bonds over coffee the other day.   He drifted off subject to point out that; investors seem to have a penchant for buying yesterday’s best investment.
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Monday, July 16, 2012

Royal Bank of Scotland RBS Ladder Internotes for more yield.

Royal Bank of ScotlandRoyal Bank of Scotland (Photo credit: Wikipedia)
Where to put cash?

            Most income investors have a lot of cash around.  We tend to be conservative and follow the rules about having between 6 months and a year’s expenses in cash.   In the past, when we could get four percent or more in money market funds it made sense to keep cash in CD's or money markets.  However, today you feel like an idiot.
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Thursday, April 19, 2012

Genworth GNW bond. Can you make 8% on investment grade bonds?

Official Genworth Financial logo
Official Genworth Financial logo (Photo credit: Wikipedia)
Dear Income investors,

Today we have a very nice investment grade bond available.  You'll see it in the WSJ and you can look at today's trades on the  SIFMA site or if you are a Schwab customer you can research and buy the bond through their online bond desk.

Eight percent is a yield I can live with over time provided the underlying company is in good shape and provided I buy at par or discount to par.  Prices on this bond today range from $97 to $99.
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Tuesday, March 13, 2012

Arch Coal ACI Can you image 7.75% income?

Dear Income Investor:

Today I am profiling a bond that I have been considering. Bonds pay interest and have been a key component of the portfolios of income investors forever. Lately bonds have been so expensive that they do not provide much value but as with every market, things change. As I researched this bond, it reminded me that the ordinary investors used to buy and hold bonds all the time. Investors who control their own investments, I believe, enjoy lower costs and have a better handle on their holdings than investors who use pooled investments like bond mutual funds.
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Friday, February 3, 2012

Chrysler FIA Diversification and Eight Percent Bond Yield?

Chyrsler 300CChyrsler 300C (Photo credit: nino63004)          Yes folks, I bought a high yield bond.  I like the new Chyrsler (FIA) products and what I read about their improved sales and productivity.   Chrysler has a note that matures June 15, 2019 in just over seven years.  The coupon is 8%.  It is selling at a discount to par in the range of $98.75 providing a yield of 8.227%.

          This bond is callable at par plus consideration for the interest you would receive if you held it to maturity.  I am willing to take the risk on this bond to get more than eight percent income.  The CUSIP, which is the identification that you must know to ask your broker to shop for this bond is 17121EAB3.

Very Truly Yours,
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