muscleman

I went back through my records, and Holloway was a better investment than I thought it was. I bought the debentures at $0.60 per dollar, at the end of 2010. I thought it was probable Royal Host/Geosam would rescue them and the debentures would eventually pay out par. However, approximately 1 year later the company swapped their debt for equity at the recently weighted average trading price, as was their right according to the prospectus. This was the downside case in my analysis, so I was disappointed. However, that worked out to one share for every 6.5 cents of par value. After the exchange closed I sold my units immediately at 5.5 cents, for a recovery of $0.85 per dollar, which is a significant percentage gain on my $0.60 purchase price. I also received a few interest payments. Interestingly, the units are currently trading at a split adjusted 11.25 cents, so I should have kept them. Here is my thesis for a distressed bond. Can you please take a look? http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/prhta-bonds/

Note: this thesis is in an application that I submitted to VIC. Note: 1. I normally invest in stocks, but this one is a municipal bond idea. I have never invested in municipal bonds before. 2. The liquidity of these bonds are very low, so anyone interested will have to look at the bond ladder from 2015 expiration to 2030 expiration. CUSIP: 745190TR9 is the 2030 expiration and relatively liquid. Now here we begin: Summary: The recent passage of Puerto Rico Public Corporation Debt Enforcement and Recovery Act (http://www.gdb-pur.com/documents/FactsAboutDebtEnforcementAndRecoveryAct.pdf) truly shed blood onto the PR municipal market. Although this act only enables debt restructuring for PRHTA, PREPA and PRASA, all PR bonds are on fire sale, but PRHTA and PREPA's bonds experienced the biggest drop. Has Mr. Market rationally priced in the risks for these bonds, or is he totally maniac right now? My research below will show you why I believe PRHTA's bonds should be worth 60 to 100 cents on the dollar, reflecting an upside of 100-300% over the next 2 years. Details: 1. Background Puerto Rico debt has been a hot topic amoung the media since last year. The total debt is 70bn and they have a deficit since decades ago. Due to the triple tax exempt status, PR government and its agencies can keep selling more bonds and include selling of these bonds as part of their annual "balanced" budget proposal. Eventually, the debt load has become so high that it is much harder to find lenders. The new governor Alejandro García Padilla has enacted an impressive number of Acts in order to turn around this situation. While there are signs of improvement, the market did not seem to believe the story. As the market remained temporarily closed, Puerto Rico Development Bank (GDB) had to provide liquidity to various government agencies and carry the entire PR onto its back since last November. The market relieved this April as a successful $3.5 bn General Obligation bonds were issued and GDB got $1.9 bn to restore its liquidity position. The GO bonds jumped from over 60 cents on the dollar to 73 and everything seem to be peaceful again. However, in late June, the announcement of Puerto Rico Public Corporation Debt Enforcement and Recovery Act totally shocked the market and caused panic selling. These three agencies' bonds were consider safe and had investment grade just 12 months ago, as they use their revenue as the collateral to pay the bonds first, and any remaining money will pay the operating expenses and worker's payroll, and also PR does not allow debt restructuring. But the passage of this effectively bankruptcy law reminds people that PR's willingness to pay its debt has limits, and perhaps these three agencies will just be the tip of the iceberg and pave the way for additional restructuring of other PR bonds in the future. 2. Brief analysis of the three involved agencies. Right now PREPA has the worst shape of the three. Its 672 Million line of credit from two commercial banks are due now, but it is unable to get them renew the lines of credit. It also has ran out of cash to purchase fuel. In addition, its charges customers 3 times the price of electricity per kilowatt compared to mainland US utilities, as it is using oil instead of natural gas to generate electricity. It needs to spend 8-9 bn in order to upgrade its facilities to use natural gas, but it neither has the money nor can find more lenders to get this money for upgrades. PRASA and PRHTA are in a better shape. Their interest coverage ratio on the debt is about 1.13x and 1.45x separately. PRASA needs to upgrade its facilities to meet new environmental regulations, but it does not seem to have the urgent need to do so now. Also PRASA's president just talked to journalists and said it has no need to restructure right now. (http://www.reuters.com/article/2014/06/27/puertorico-debt-prasa-idUSL2N0P81ME20140627) PRHTA is on the suspicion of the restructuring candidate according to some jounarlists "because it is facing large operating losses every year". However, I believe this concern is overblown, given the following aspects: A. PR GDB has a 2 bn loan lent to PRHTA, which amounts to 14% of its total assets and 85% of its equity. Given the role GDB plays so far in the crisis, if PRHTA gets restructured, there is a good chance to cause a domino chain effects on the entire PR financial system. B. The willingness to pay remains strong, as implied from the following (Open the pdf, the first two paragraphs of page 19. ) "http://emma.msrb.org/EP810215-EP627537-EP1029317.pdf". Note that these actions will likely bring $250 mn additional revenue to PRHTA. C. PRHTA's interest coverage ratio remains strong at 1.45x. D. PRHTA will not have cash flow problems even without government grants support every year, as I will show you in the next section. 3. Detailed analysis of PRHTA's financial reports. This is the financial report for the year end 6/30/2013. http://emma.msrb.org/EP810215-EP627537-EP1029317.pdf I would like to point out some important accounting rules in this report (page 27). A. Maintanence capex is expensed, and these items are included in its operating expenses section. B. Roads and highways depreciate over 40 years and bridges and transporation systems depreciate over 50 years. These two items tell us that the D&A figure running at $500 mn per year can all be added back to the cash flow, because it will be unrealistic to say that after a road is built and Maintanence capex is spent every year, the road will still be useless after 40 years. One limitation is that I do not know if the Maintanence capex is sufficient at current levels, without a visit to all the PR roads and highways. Let's look at page 22, which is the financial report for 2013 and 2012. Assuming the additional actions mentioned in 2.B can successfully bring in 250 mn extra revenue, and assuming that the government will no longer be willing to give grants to PRHTA, then its adjusted annual loss will be 318 mn. This is sustainable if we add back the $438 mn D&A figure. This gives us a positive cash flow of 120 mn per year, which provides a nice buffer if the current maintenance capex is insufficient as I pointed out in the above paragraph. Therefore, I believe PRHTA's current debt level is sustainable. 4. Worst case analysis. Assuming that Assuming the additional actions mentioned in 2.B cannot bring in 250 mn extra revenue, due to various factors. Maybe the austerity measure in PR caused too much economic contraction and causing the overall revenue to drop, I assume a 20% haircut on the total revenues for PRHTA. Then its total revenue will be (250+476) * 80% = 580 mn. I also assume that the current maintenance capex is too low and it actually needs 200 mn more per year. This brings the cash flow from a positive 120mn to a negative 225 mn. In this case, a haircut of 20% of the bonds with a interest cut from 5% coupon to 3% coupon will make the debt sustainable again. In this case, I expect the bonds to trade at the 60 cents level prior to the debt restructure, which implies a good MoS if purchased at 36 cents now. 5. Additional notes. A .Moody's downgrade comments: https://www.moodys.com/research/Moodys-downgrades-Puerto-Rico-Aqueduct-Sewer-Highway-Transportation-authorities-to--PR_302949 "Moody's acknowledges that PRHTA and PRASA have taken steps toward self-sufficiency by raising revenues, and that while their internal liquidity is weak, they do not face immediate liquidity needs that would force them to seek near-term debt restructuring." B. Right now the senior transportation bonds of PRHTA (745190TR9 and others) trade at the same price level as the subordinated bonds, a sign that Mr. Market is totally maniac depressive right now. C. http://www.bloomberg.com/news/2014-06-27/bulk-of-puerto-rico-electric-debt-without-lifeline-for-investors.html "With its liquidity problems and electricity costs that are double that on the U.S. mainland, Prepa may offer repayment below 10 cents on the dollar, Fabian said. At least 75 percent of investors would need to approve any restructuring, which would be difficult, he said." (I view this as a cheap way to become famous for an analyst, just like Meredith Whiteney's Trillion dollar muni market default comment.) D. 40% of PRHTA bonds are insured by AGO, MBI, AMBC etc, so there is substantial interest for these companies to fight for you for free. E. Given the worst case scenario outlined here, I think MBI shareholders may consider to switch to PRHTA bonds, because the outcome of these PRHTA, PREPA and PRASA bonds will directly affect MBI's future.

I assume the liquidity is pretty good for this 2097 bond? What would you do if the liquidity is very low? For a short dated bond, at least I can wait until it expires and pay me the par. For a long dated bond, maybe I have no choice but to hold it for the next 20 years?

So how does IB do the job? Do they send my bid to every bond desk and see if anyone wants to take it? I noticed that sometimes when there is a reasonable ask price, I put in a limit order with the bid of that asking price, it could take 1 minute to get filled.

It looks like almost all of the discussions are stock ideas. I wonder if there are any debt investors? If you are a distressed debt investor, and if two securities have the same ranking and same price, would you buy a longer dated one or a shorter dated one or it may not matter as once the distress is removed, both may trade around par?

I see. If I submit a bid from IB, is that bid going to be seen by Schwab and Etrade's bond desks and respond to me? What does the bond desk actually do? Do they call every of their customer and see if anyone wants to sell? I am a bit lazy and I don't want to move my account away from IB just because of this.

I tried to buy some but could not even find the asking price. The broker(IB) said they only manually look for buyers if I want to sell, not the other way around. What would you do in this case?

That comes to another question: How do we figure out if the broker has traded your security? I assume if you receive the proxy documents, that would mean the broker has bought the stock you wanted them to buy?

Where can I get more info about this bond, such as if it is secured or unsecured?

From Fidelity, the price has been dropping like a stone in the past few days. It is only 35 cents on the dollar now. Though the following table may be delayed. http://bond-yields.com/rates/puerto-rico-municipal-bonds/

The bonds are now trading at 40 cents per dollar. Does anyone have thoughts about it? The current liquidity is still good, but they have no money for conversion to gas powered plants. According to Mark Palmer: "Albert explained that largely as a consequence of the fact that PREPA’s power generating units burn oil, the Commonwealth’s electricity costs average between $0.26 and $0.27 per kilowatt hour (kWh) in contrast to average electricity costs of approximately $0.11 per kWh on the U.S. mainland. These high costs have been a headwind for Puerto Rico’s struggling economy by burdening both the island’s citizens and its industrial base. Of that $0.26 to $0.27, approximately $0.21 is due to the cost of oil, while just $0.03 is attributable to debt service. Read more: http://www.btigresearch.com/2014/06/27/assured-guaranty-ago-puerto-ricos-prepa-in-focus-during-btig-hosted-investor-meetings-with-management/#ixzz36MhzWWo9" So the debt doesn't really seem to be the primary issue here, compared to other operating costs.

muscleman, got it. Is there a thread for listing shorts? Thanks, Lance There's not. You are welcome to list shorts here, but since these shorts are not discussed in the investment ideas section, it will be best if you could give a brief outline of why you took the short at this point..

I sold my SSE shares. I received them from CHK spin off and didn't like the valuation and leverage. Note that this thread is mainly for closing long position. Either cutting losses and explaining what is the lesson or taking a profit.

Why would you still be a customer with BoA then? I closed my accounts with Citi and Chase last year, and I am a happy customer with Ally Bank now. With your situation, I could just take a picture of the check using Ally's mobile app and I get the deposit. Then I can withdraw from any ATM in the US without fees.

Does anyone know if the data from bloomberg is accurate about the weiss korea fund? http://www.bloomberg.com/quote/WKOF:LN It says the current NAV (on 2014-06-10) is 135.5800. But it also says the % Premium is -0.89, which doesn't make sense. Today's closing price is 136.125, so the premium should be 1%.

He has 3 funds. Is it possible that you only found the 13F for one fund? Or is it aggregated?

http://www.bankregdata.com/articles.asp Interesting article. The view is that if we combine the treasury purchases from the mega banks and Fed, the tapering is actually zero since January. Why did these mega banks ramp up purchasing so much? Were they pushed by the Fed to do this? Are these banks able to continue doing this? I think based on their earnings, if they were pushed by Fed to do this, they actually can. Fed has some levers to push the banks, such as "stress tests".

Why not call your broker? I am not long PR bonds because after the expected downgrade to junk, the bond did not sell off as I expected, which means it is bullish. I am long BPOP. :)

First tip, don't trust someone just because he is a hero member. :) I am new too and I asked a lot of questions, and therefore I became a hero member due to the number of posts I made.

It looks like a Russia company. PE is about 5. What is your opinion on its operate governess?

It looks like retailers are gradually dying one by one. I searched for bonds but didn't find any. Has anyone looked into this?

http://www.reuters.com/article/2014/04/09/usa-detroit-settlement-idUSL2N0N10W220140409 Under the agreement with National Public Finance Guarantee Corp., a unit of MBIA Inc., Assured Guaranty Municipal Corp. ; and Ambac Assurance Corp. approximately 74 percent of the bonds would be reinstated at their current terms, equal to $287.5 million. The remaining 26 percent would be assigned to establishing an income stabilization fund for the city's "most vulnerable retirees," according to the statement from the U.S. District Court for the Eastern District of Michigan. This is confusing to me. They got back at least 74%. What does the terms say for the remaining 26%? The ULTGO insurers agreed to a 26% haircut. With the money "saved" through the haircut, the city claims retirees are "better off". Although it's really just sleight of hand since the haircut is less than the bankruptcy plan, so this deal is somewhat negative for other creditors. Yeah. So the deal implies that UTGO bonds are more secure than limited GO, but still not as secure as the other types of secured bonds. I still wonder how Detroit would treat pensions in the deal. Anyway, it is better than I expected. :)

http://www.reuters.com/article/2014/04/09/usa-detroit-settlement-idUSL2N0N10W220140409 Under the agreement with National Public Finance Guarantee Corp., a unit of MBIA Inc., Assured Guaranty Municipal Corp. ; and Ambac Assurance Corp. approximately 74 percent of the bonds would be reinstated at their current terms, equal to $287.5 million. The remaining 26 percent would be assigned to establishing an income stabilization fund for the city's "most vulnerable retirees," according to the statement from the U.S. District Court for the Eastern District of Michigan. This is confusing to me. They got back at least 74%. What does the terms say for the remaining 26%?

http://www.freep.com/article/20140408/NEWS01/304080142/Detroit-bankruptcy-breakthrough-City-hammers-out-deal-unsecured-bondholders There will be something fun to watch tomorrow. I bet this is why MBI and AGO have dropped quite a bit recently. "A source familiar with the settlement — which was negotiated by bankruptcy mediators overseen by U.S. District Chief Judge Gerald Rosen — said the unlimited-tax bondholders will be treated better than limited-tax bondholders." So this implied that even unlimited GO bond probably didn't get treated as secured bond and didn't get 100% on the dollar. I would be very curious to see how much these bond insurers would drop tomorrow. :)

This is interesting. I remember seeing someone asking about buying Turkey banks here. Maybe it was you? What do you think about Turkey's regulatory environment?