Friday Fixed Income - July 26, 2019

An update on what I’ve been doing in the distressed bond space.

music selection:  “Games People Play” — The Alan Parsons Project

First up is an update on the Monintronics bond (CUSIP: 609453AG0).  The company is in bankruptcy.  A tender offer for the bonds is out at 2.5 cents on the dollar.  An option to receive equity is on the election and I am electing to receive shares in the new company.  I’ll keep you posted as the shares begin to trade.

Next is Forum Energy Technology (FET).  This is an oilfield equipment and services firm.  The market is down on the prospects for the equity but the cash flow is solid, backed up by long term contracts and an order backlog, and interest expense is well covered.  I purchased 7 bonds of CUSIP 34984VAB6 on 18JUN2019 for 90.5 cents on the dollar.  The bond matures 1OCT2021 and has a 6.250 coupon.  The yield on cost is 6.91% and yield to maturity 11.49%.  I expect to do better as the market wakes up to the fact this bond is money good and trades closer to par before maturity.  The bond is a buy up to 92 cents on the dollar.

Similarly, I like the prospects for the JC Penny (JCP) 1JUN2020 5.650 coupon bond.  I see this situation as being like Bon Ton stores.  The company fell out of favor with investors and its bonds plummeted despite more than sufficient interest coverage.  Bond investors made good money as it took Bon Ton 7 years to go bankrupt.  JCP is doomed the same a Sears.  But with positive free cash flow that covers interest expense, it will languish for years and its bonds represent a great opportunity. I bought CUSIP 708130AD1 for 89.912 cents on the dollar on 19JUL2019.  My yield on cost is 6.28% and my yield to maturity is 19.16%.  The bond is a buy up to 91 cents on the dollar.

Finally, I like the Beazer Homes (BZH) 15OCT2027 5.875 coupon bond.  The company really stepped in it during the 2008 housing crisis.  They have since been reducing debt and reducing their capital costs by securing land via option instead of purchase.  Interest cost is more than covered by EBITDA and the company is still selling non core assets and raising cash to further reduce debt.  This bond is money good.  I have a Good Til Canceled order open at 89.5 cents on the dollar and am awaiting a fill.

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