Update On Discounted Bonds

Not seeing much that is attractive in fixed income right now so reviewing holdings.

music selection:“Union of the Snake” — Duran Duran

I believe in having a strong fixed income allocation in early retirement. I’m mostly in closed end funds invested in debt and debt like instruments. But I am increasingly wanting to shift my focus to high yield corporate bonds bought a discount to par. The underlying yields are similar but there is upside in the way of capital gains when the bonds pay out at par. The risk can be very low if you buy intelligently.

My AmTrust Financial bond (CUSIP: 032359AE1) was purchased 18OCT2018 for 95.0000 cents on the dollar. The bond is currently priced at 86.4695. I am confident the family that took the company private will make good on this bond. They stand to lose literally billions in personal wealth if they don’t find a way to refinance. The bond had been range bound between 95 and 100 when I bought it and my hope was to flip the bond repeatedly. It declined on the news the company was going private. I am content to hold to maturity (15AUG2023) for an annualized yield of 7.54%. An earlier recovery will boost my returns above that level.

My CBL Associates bond (CUSIP: 12505JAA1) was purchased 19OCT2018 for 83.7000 cents on the dollar. The bond’s current pricing is 81.6000, leaving me up about 43 dollars after coupons received or accrued. Holding to maturity (1DEC2023) would result in an annualized yield of 10.08%.

My Community Choice Financial (CUSIP: 20367QAB3) is in the dumps. It was purchased at 75.0000 cents on the dollar on 3JUL2018. The company was in discussions with institutional investors for a tender offer that would have made the remaining retail bonds money good and allowed for a quick score. Negotiations soured and now it is uncertain the company will be able to finance on attractive terms. The bond has not been trading and last traded at 35. I am down 3,600.

My play in Monintronics (CUSIP: 609453AG0) is similarly suffering. A deal had been negotiated with institutional investors to exchange the existing bonds for new bonds with later maturity and a mix of cash pay and payment in kind coupons. The company later forced all bond holders and not just the institutional investors to accept this treatment. The bond is money good but the complicated structure has scared away buyers. Current price is 26.6350. I am down 3,800 but expect to recover fully at maturity as the company is now on solid financing.

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