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Assured Guaranty Ltd. Message Board

  • prophet43m prophet43m Oct 9, 2009 12:16 AM Flag

    Rusty: Q Regarding PYA

    Rusty:

    In your response to Persistentone, you mentioned that you own PYA. QuantumOnline describes PYA as a thrid party trust preferred where the underlying assets are 8.25% Senior Debentures due 2/1/2030 ISSUED BY Liberty Media Corp.

    Do you know for sure who is responsible for the underlying bonds. S&P shows Liberty Media Corp as responsible, but I noticed that the FINRA website "Investing in Bonds.com" notes that the bonds were acquired by TeleCommunications Inc (TCI) which was subsequently acquired by AT&T in 1999 which was subsequently spun off by AT&T to Comcast.

    So....do you know for sure who is responsible for the bonds? I am having a hard time figuring it out with any certainty.

    Thanks in Advance.

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    • Thanks for the clarification. By the way the PYA which we have discussed is very close to doubling from my purchase price as it has been moving up strongly. I have $18,000 and change in it and a $17,000 cap gain plus two distributions. So as I was saying to Tony playing the BBs usually involves more than a two or three percent difference in gain from the "A"s- of course you got to find one the market has unfairly knocked down. I am trapped because I have used all my tax loss carryforwards and I share Malone's aversion to a lot of taxes. I will try to hold for three more months and take a long term gain if it continues up as my own view is PYA gets saleable as it approaches 20- those with a longer term view may just hang on and enjoy the double digit income.
      Will put proceeds in more short term high grade stuff and wait for better opps. Nice talking to you and your thoughts are appreciated. RRW

    • There are some weird things going on with the Yahoo board. My latest post shows up as just tony, older posts as tony27719.

    • Hey prophet, I just finished answering a post from you on FAF pertaining to a question on PJS..... wound up with an an old air force nickname instead of regular on-screen name, took me 30 MINUTES to change it back... and my "gas mask in a barnyard" avatar is gone....ahhhhh!!!

    • Rusty:

      The post above was me..."prophet43m". Depending on the view, somehow my identity changed to "me_jade" or "Super Bad". "me_jade" was my original Yahoo Login ID clear back in 1997 and "Super Bad" was my handle several years back in a Yahoo! Fantasy Football league.

      By the way, just for the record, my screen name "prophet43m" does NOT mean I think I know anything. The name was chosen a long time ago, when I decided that if/when I profitted in my investment portfolio (independent of cash savings and home ownership up) by $3 million I could retire. Needless to say, I still have some work to do.

    • Rusty:

      Great post! I have a few responses.

      "We are seeing the results of the Feds stimulative monetary policy and I think the debt and equity markets are overextended."

      I agree. The PKK Liberty Media 3rd Party Trust Preferreds are officially my last purchase until we see a sell off. A sell off is way overdue IMHO. Maybe the catalyst will be year end tax selling. By the way, the PKK volume has been stubbonly light. My limit orders were only able to capture 200 shares and even then I paid too much. Another sure sign that I need to sit on the sidelines for a correction. I still have some cash so I'll be ready. Even though I expect a correction, I'm not going to sell anything. As we all know, markets can stay irrational for a long time. I'm not retired and therefore my dividends and interest payments pile up rather quickly in my account so I'll have plenty of dry powder when the bargains re-emerge. I'm very confident that bargains will re-emerge....I just don't know when. The bargains will likely not be as good as the Sep2009 - June2009 period but the bargains will still be plenty good.

      Rusty said..."I see a lot of inflation in the pipeline a year or so down the road and I see the Fed beginning to tighten but not for several months"

      I too see inflation in our future, but I think we are all going to be suprised how long it takes for inflation to start showing up. While our current monetary policy tends to favor inflation, there are tons of data that still say deflation is currently still the bigger risk. The gov't, corp, and muni bond markets all seem to be saying that as well.

      Rusty said..."I would like to put this liquidity to work after a selloff and I think reits will be a good place to be; however they have all run up and I don't consider the sector especially attractive now."

      Agreed. REIT preferred prices are currently too high. Back in Feb/Mar/Apr when you, Tony, and Jim were scouping up FSA and other bonds at screaming discounts, I was loading up on the REIT preferreds with the strongest balance sheets at nominally 20% yields (some slightly higher, some slightly lower). I went insanely over-weight REIT preferreds. Most have doubled and some have tripled and I've been trimming around the edges but I'm still over-weight and will stay overweight as I have quit selling...b/c again the market can stay irrational for a long time.

      Rusty said..."It's been one hell of a ride from Oct to Oct and a time out from some of the most furious investing activity of my life which the financial system forced on all of us is welcome."

      Amen Brother! The past year has easily been the craziest, scariest, and yet most profitable time in my investing career. Between December 2008 and July 2009, I literally put in 100's of hours scouring 10K's and pouring through financials b/c I truly feared that a large percentage of Corp America was headed for bankruptcy. So far my fears have proven to be way overblown. Just the same, the research gave me the confidence to buy even though my "knees where knocking". My portfolio is in far better shape than it has ever been (with respect to safety) and my average monthly income from dividends and interest payments is far higher than it has ever been. Even though last March my portfolio was down slightly more than 40% from its all time high, I am not only way up for the year but my portfolio is significantly up from its all time high (Feb 2007). Honestly, during recent moments of insanity, I have considered raising cash to 50% of my portfolio but have so far resisted the temptation.

      Best of Luck!

    • I did manage to buy one reit preferred before they all recovered, it deals exclusively in NY city properties, has a strong balance sheet, and has been able to do a secondary. I am getting about a 12% yield and have no plans to sell as this one appears in posistion to buy some good distressed properties for future growth, LG Green is the name.
      I am familar with Weingarten and know they have taken some lumps because of overexpansion. However, they appear financially strong. Right now I am not acquiring new preferreds. I have added a few income producing common stocks especially in the energy area but am no longer doing that. We are seeing the results of the Feds stimulative monetary policy and I think the debt and equity markets are overextended. I see a lot of inflation in the pipeline a year or so down the road and I see the Fed beginning to tighten but not for several months. So I have been raising cash and putting most of it in short term bonds. Income is not a problem so I can stay fairly liquid for awhile.
      I would like to put this liquidity to work after a selloff and I think reits will be a good place to be; however they have all run up and I don't cosider the sector especially attractive now. So I am in neutral watching and waiting either for a stock market selloff or signs that the Fed will soon begin tightening. You can make money when either happens but I am not sure you can make any substantial money anywhere right now except in special situations of which I am fresh out. The stock market will probably roll along for a while but I am content with my fairly small present holdings and will be a spectator. It's been one hell of a ride from Oct to Oct and a time out from some of the most furious investing activity of my life which the financial system forced on all of us is welcome.
      As usual any bright investment ideas are appreciated and I will post any I may come up with in fixed income. Good Luck to all RRW

    • Hey Prophet, you beat me! I've had WRI common since the late '80s, and before I learned about more REITs, I was sure WRI was going to be a significant portion of my retirement income. But out it went along with lots of other preferreds 12 months ago, hated to do it. I spent days going over 10Ks and 10Qs looking for who didn't have any debt coming due for the next 2 - 3 years. Much to my fortuitous luck in finding The Motley Fool just a few months earlier, redirected those $$ into Ralph Block's strongest picks. By then it was cross those fingers... and I owe him big time!

      So it was Ralph's bringing WRD to our attention when it went public recently. Don't own any yet, but will probably tiptoe if there is another "temporary selloff". But I would love to find out if there is any significance to a $20 call price, instead of the usual $25, or $10, or $50, or $100... go figure.

    • Hi Prophet,

      Thanks for posting Ralp Block's comments regarding the WRD ipo. It was most informative. I appreciate the reasons you gave for considering REITS to be safe and a good investment. The last time I had an investment in REITS was through the etf, VNQ. REITS are becoming more attractive, but I don't plan to invest in them until next year when I think the CRE market will bottom out. However, the REIT bond WDR does intrigue me mainly because of Weingarten's history which first began in Houston back in the 1960s. If I do buy WDR it will be primarily for diversification in an industry that isn't represented in my portfolio.

    • Regarding the WRD bond, Tony said...

      "It's also in the commercial real estate [CRE] business which I have no investment in at this time."

      If you don't have any bond investments in CRE, you definitely need to allocate a significant percentage of your portfolio in the sector. Although there is trouble looming in CRE between now and 2013, the better (and even some of the mid-tier) publicly traded REIT's offer some excellent bond investment opportunities from a safety perspective (although most are not exchange traded). Although the screaming deals on REIT bonds, like most other sectors, have disappeared.

      I won't go into huge detail in this message but if you are interested I would be happy to start a new thread to discuss why bonds of publicly traded REITs are safe bond investments.

      Briefly, here are some of the reasons REIT's are safe (despite the current and continuing dislocations in the world of CRE inclusive of office, industrial, retail, and multi-family).

      (1) REIT balance sheets and earnings statements are very easy to understand. For the most part, you can trust the value of shareholder equity shown on the balance sheet because the assets are composed of hard assets (i.e. buildings).
      (2) REIT's own hard assets (i.e. office building, industrial/light manufacturing space, retail shopping centers, malls, etc) which can be sold if the REIT gets in trouble. Even if REIT were to enter Chapter 11, my belief is that a bondholder would be made mostly whole unless you invest in the absolute worst of public REITs.
      (3) Publicly traded REIT's still seem to have significant access to capital via issuing more common stock (which is obviously bad for common stock holders but good for bond investors)
      (4) Many REIT's over-extended their balance sheets during the 2003-2007 period but are now agressively reducing leverage, their balance sheets are on the mend, and the management teams are playing defense.
      (5) Due to IRS REIT regulations, most REIT's payout large amounts of capital to common shareholders in the form of dividends (technically distributions). Further most REIT's also have preferreds shares outstanding which also receive large payouts in the form of distributions. The bottom line is that if/when the REIT gets in trouble, there is a large source of cash flow that will be cut off to equity holders that will prop up the company before the bondholder needs to get worried. Next, the REIT can sell buildings to raise cash (however the market is a little tough for sales right now due to the lack of financing). And finally, as mentoned if the REIT is still in trouble, I believe the bondholder will be made mostly whole when the assets are liquidated in bankruptcy.

      That's enough for now...and trust me...I have not done the asset class justice. I (and I'm pretty sure Jim as well) can tell you a lot of things to look for and watch out for.

      The WRD bonds are not a top choice for me but given the limited availability of exchanged REIT bonds, the WRD bonds are a solid choice with a medium term maturity.

    • Tony:

      For your information, I'm going to re-post a message by Ralph Block shortly after WRD IPO'd.

      SUBJECT: WRI New Exchange Traded Bond Issue WRD

      Perhaps I have missed it, but I haven't seen any posts on the new Weingarten bonds that were priced on August 12. So, I will provide a few thoughts...

      On August 12, Weingarten (WRI) priced $100MM of senior unsecured notes due Sept 2019. The initial yield was 8.1%. Unlike most debt offerings, the WRI notes were structured to trade like a stock, i.e., on the NYSE in small increments. Thus the denomination is $20 per note and the annual interest payment is 8.1% of $20, or $1.62 per note. These notes trade like pfds, i.e., they pay interest quarterly. There is five years of call protection, and these bonds are rated Baa2 by Moody's and BBB by S&P. See http://www.quantumonline.com/search.cfm?tickersymbol=WRD&...

      Trading under the symbol "WRD," these notes began to trade on August 21, and trading has ranged tightly between $20 and $20.25. They closed Friday at $20.19, where they yield 8.02%. Trading volume is all over the place, but on most trading days the volume has exceeded 20,000 shs (er, notes).

      Weingarten is a widely-diversified (by geography) strip center REIT (70% of NOI comes from grocery-anchored centers), and has frequented the halls of REITdom for quite some time. CEO Drew Alexander is capable and very experienced. WRI has generally been well-regarded by investors, except for fairly recently when it went on a development binge, perhaps under pressure from growth-oriented investors, that, with hindsight, was late in the cycle. The stock has performed in the bottom half of the sector for the past 1-, 3- and 5-year periods.

      Management has now found religion, however, and has been fixing its balance sheet. A big issue was $800MM of unsecured debt coming due in 2011, but through a $420MM bond tender it reduced that debt to $350MM. And, the $100MM August bond offering has reduced that further. It is also selling assets ($100MM year to date, with two additional $300MM portfolios on the market - but which have seemingly drawn little interest thus far).

      So now WRI's debt to asset value ratio is down to 65%, a figure that is higher than it should be, but not as high as a few others in and outside of its sector. WRI's debt to ebitda ratio is slightly lower (better) than the peer group, and it faces only a modest funding shortfall by year-end 2012. Clearly, while there is more work to do, the crisis has passed - as evidenced by the fact that WRI was able to float those unsecured bonds at a rate that would have no interest to a shylock.

      Should we buy these "weird" bonds, trading under the symbol WRD? I bought some on Friday. Given all the facts and circumstances, I don't think they are a "back up the truck" bargain. They are, I think, reasonably priced.

      A REIT bond is obviously a safer investment than a REIT pfd and, while the yield on the WRD bonds is something less than we can get on quality REIT pfds today, the relative safety of the bond animal, the improving WRI balance sheet and my continual desire for more diversification has convinced me to buy some of these notes. They comprise, however, a rather modest position for me at the present time. Depending upon price (e.g., yield), I expect to buy more of them if WRI makes further progress fixing up (and making more conservative) its balance sheet and its property performance stabilizes at current levels.

      Ralph

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