***BEST IDEA $KTBA: AT&T TRUST PREFERRED

[cm2]

Why worry about T dividends when you can buy $KTBA (AT&T/ BellSouth, BBB) 7% '95 Trust Preferred: 8.80% Current Yield, 8.70% Yield to Maturity, 18% discount to $25 par value, sole underlying bond *BBB* BellSouth 7s '95 Cusip: 079867AP2 is trading ~$109 (PREMIUM).  AT&T has previously tried to buy back entire issue, now 3rd parties are trying to steal them from retail https://tinyurl.com/3nt74ru4 https://tinyurl.com/ycxdac2x

$KTBA pays .875 on 6/1, 12/1

 

Expert market (full service brokers only) or they would be trading *much* higher

[gfp]

Why is the "yield to maturity" lower than the "current yield" if it trades at a discount to par value?

Maybe we should just pick one of the several threads you have started on this bond and reply there instead of making a new thread and copying and pasting the text from your old thread?

 

 

 

 

Edited July 11 by gfp

[cm2]

Did you do the math?  Or do you think that asking math questions is a "contribution?"

 

Happy to post fewer ideas in response to snarky responses of limited / no usefulness

 

 

[gfp]

29 minutes ago, cm2 said:

Did you do the math?  Or do you think that asking math questions is a "contribution?"

 

Happy to post fewer ideas in response to snarky responses of limited / no usefulness

 

 

 

Cheers!  And thanks for posting your best idea.  

[Malmqky]

I think it would be better to just post updates in this thread, that way discussion is consolidated.

 

I have nothing really to add to this, but I like this idea, might move some of the parents funds into it. Thanks for sharing.

[cm2]

Underlying bonds trading on a 6.40% ytm, that would place these trust prefs at $28

sure, deserves some discount for complexity but cmon

 

 

Edited July 12 by cm2

[gfp]

Seems like this trades at a large discount to the underlying bond because it is highly illiquid (is it correct that there is only $41m total outstanding?) and doesn't mature for over 70 years.

Edited July 12 by gfp

[COBFInfinity]

8 hours ago, gfp said:

Seems like this trades at a large discount to the underlying bond because it is highly illiquid (is it correct that there is only $41m total outstanding?) and doesn't mature for over 70 years.

 

Not only is it illiquid in that a large portion of investors can't buy it at all, you also have no visibility of the bid/ask - but you can assume the spread is wide. So if you plan to buy this - again, assuming you even have an account that will allow you to - you had better plan to hold onto it for a while.

 

P.S. Your "math question" was valid.

[bizaro86]

4 hours ago, COBFInfinity said:

 

Not only is it illiquid in that a large portion of investors can't buy it at all, you also have no visibility of the bid/ask - but you can assume the spread is wide. So if you plan to buy this - again, assuming you even have an account that will allow you to - you had better plan to hold onto it for a while.

 

P.S. Your "math question" was valid.

 

I can definitely buy this, and have considered it in the past, probably as a result of a previous thread. I'd also be interested in seeing the work on that current yield/YTM - of course, on something that doesn't mature for 71 years the current yield/YTM are probably very close, but I would expect the YTM to be slightly higher given the discount... 

 

Does anyone know how this would work if the underlying bonds get redeemed? I assume the money just gets returned to holders but that seems like that sort of thing that would be good to confirm.

 

The other question I have is whether the underlying bond has redemption features in it. Normally that wouldn't be a benefit to this type of investment, but with the discount/low liquidity AT&T buying back the underlying at par at some point and getting cash out sooner would be a benefit, imo. Given the underlying bond trades at a premium it would obviously be to their advantage to do so, and it seems possible that long rates decline again making it even more advantageous in the future. If they can call the debt at $102 or something on a fixed date that makes it potentially a big win, which would make it more interesting for me. 

[gfp]

The underlying bell south bonds are not callable by AT&T.

[ValueMaven]

This is actually a really stupid and illquid piece of paper.  I'd much rather - and do own - the GS fix-to-floating 7.5% Capital Trust's issued a few months ago.  $1,000 par, so you dont get idiot ETF holdings owning it, it's now trading at $103 - but you could have easily bought these at par a few months ago.  $2.25B issue size and is very liquid.  

[cm2]

Block of 10,000 KTBA traded 21 today! Cheap! thats an 8.35% vs underlying bonds on 6.50%

 

High Grade telecom vs Lehman Bros, er Goldman Sachs lol 

 

Duration can be a good friend in falling rate environment...or if you have long dated liabilities...non cumulative, junk holdco financial floaters...not so much

Edited July 18 by cm2

[debtvulture]

On 7/13/2024 at 8:35 AM, gfp said:

The underlying bell south bonds are not callable by AT&T.

If this was callable by the company that issued it, then I imagine that AT&T can call it also.  The issuing subsidiary may still be around but if not I can't imagine that a callable bond all the sudden isn't callable because the issuer got bought.  

[gfp]

Just now, debtvulture said:

If this was callable by the company that issued it, then I imagine that AT&T can call it also.  The issuing subsidiary may still be around but if not I can't imagine that a callable bond all the sudden isn't callable because the issuer got bought.  

 

That's not what I was saying.  I was saying the bonds were never callable.

[debtvulture]

4 minutes ago, gfp said:

 

That's not what I was saying.  I was saying the bonds were never callable.

 

Thank you for clearing that up quickly.  

[cm2]

AI Frenzy

The AI frenzy is driving a sharp turnaround in the debt of telecommunications companies, helping to cut the amount of distressed debt by $18 billion since the end of August. “Several companies that were deemed to be overleveraged are seeing their capital structures trade materially tighter because of their participation in the artificial intelligence value chain,” said Randy Raisman, head of US opportunistic credit at Marathon Asset Management. Many telcos have been suffering from a combination of soaring borrowing costs, high leverage and a need for huge capital expenditure to roll out new technologies. However, AI has made fiber assets for high-speed internet and connectivity critical, especially within and between data centers. With networks so costly to build, companies with existing infrastructure have an advantage, making them worthy acquisition targets and boosting their debt prices. It’s a marked reversal from May, when the telecommunications sector was home to some of the biggest and most distressed situations in the credit market. The size of that troubled pile has now shrunk below $49 billion on the back of increased M&A activity. Lumen Technologies is the biggest gainer this year in US high yield bonds while CommScope Holding’s debt has also rallied. Deals include Verizon Communications agreeing to buy rival telecommunications operator Frontier Communications Parent for about $9.6 billion to expand its high-speed internet business. Lumen announced $5 billion of new deals, while T-Mobile partnered up with others to acquire fiber businesses.    A security barrier inside a data center in Italy It’s not just telco investors that are benefiting. Struggling chipmaker Intel’s bonds have also jumped on the back of mooted external investment and a deal to make a custom AI chip for Amazon.com. For distressed investors, the telco turnaround is proving to be one of the most significant valuation shifts in recent years and a source of outsize returns. For example, investors were surprised when a struggling CommScope announced a roughly $2 billion asset sale in the summer. It's also seeing increased demand from the construction of data centers. It means telecoms is now sharply outperforming the overall high-yield bond index, according to data from JPMorgan Chase & Co., despite having a default rate, including distressed exchanges, of about 13% in the 12 months through Sept. 3 across junk bonds and loans.  To be sure, the sector still has vast pockets of distress, such as Altice Group, but capital-intensive investments in fiber that saddled companies with large debt loads have been vindicated to some degree. Rising market caps are also opening the possibility of raising financing in the equity markets as well as the use of hybrid instruments like convertible bonds. “Telecom companies already are using AI to make themselves more efficient at routing, network maintenance and customer support,” said Mark McCabe, senior research analyst at Obra Capital. Still, “greater efficiencies and further technological developments may dampen any demand windfall for telecom companies in the medium to long term.”

[KPO]

5 hours ago, cm2 said:

AI Frenzy

The AI frenzy is driving a sharp turnaround in the debt of telecommunications companies, helping to cut the amount of distressed debt by $18 billion since the end of August. “Several companies that were deemed to be overleveraged are seeing their capital structures trade materially tighter because of their participation in the artificial intelligence value chain,” said Randy Raisman, head of US opportunistic credit at Marathon Asset Management. Many telcos have been suffering from a combination of soaring borrowing costs, high leverage and a need for huge capital expenditure to roll out new technologies. However, AI has made fiber assets for high-speed internet and connectivity critical, especially within and between data centers. With networks so costly to build, companies with existing infrastructure have an advantage, making them worthy acquisition targets and boosting their debt prices. It’s a marked reversal from May, when the telecommunications sector was home to some of the biggest and most distressed situations in the credit market. The size of that troubled pile has now shrunk below $49 billion on the back of increased M&A activity. Lumen Technologies is the biggest gainer this year in US high yield bonds while CommScope Holding’s debt has also rallied. Deals include Verizon Communications agreeing to buy rival telecommunications operator Frontier Communications Parent for about $9.6 billion to expand its high-speed internet business. Lumen announced $5 billion of new deals, while T-Mobile partnered up with others to acquire fiber businesses.    A security barrier inside a data center in Italy It’s not just telco investors that are benefiting. Struggling chipmaker Intel’s bonds have also jumped on the back of mooted external investment and a deal to make a custom AI chip for Amazon.com. For distressed investors, the telco turnaround is proving to be one of the most significant valuation shifts in recent years and a source of outsize returns. For example, investors were surprised when a struggling CommScope announced a roughly $2 billion asset sale in the summer. It's also seeing increased demand from the construction of data centers. It means telecoms is now sharply outperforming the overall high-yield bond index, according to data from JPMorgan Chase & Co., despite having a default rate, including distressed exchanges, of about 13% in the 12 months through Sept. 3 across junk bonds and loans.  To be sure, the sector still has vast pockets of distress, such as Altice Group, but capital-intensive investments in fiber that saddled companies with large debt loads have been vindicated to some degree. Rising market caps are also opening the possibility of raising financing in the equity markets as well as the use of hybrid instruments like convertible bonds. “Telecom companies already are using AI to make themselves more efficient at routing, network maintenance and customer support,” said Mark McCabe, senior research analyst at Obra Capital. Still, “greater efficiencies and further technological developments may dampen any demand windfall for telecom companies in the medium to long term.”

Not to be rude, but why do these posts feel like advertising?
 

There are dozens of available securitized debt listings, so what’s special about these Bell South/ AT&T debentures? For example, there are Qwest debentures that yielded over 2X this instrument at the time of your initial post if you’re a telecom fan. Maybe I’m missing something. 

 

 

 

[DooDiligence]

*** BEST TITLE IS KINDA SUS