Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Re: Heh, ISM/OSM again
Old 04-17-2007, 10:52 AM   #101
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 4,005
Re: Heh, ISM/OSM again

Brewer, you mentioned 18 being a juicy number to get into ISM/OSM. Is that based in part on the worst case of default/BK, then getting ~18/25th's of your value back via BK when you trade the debt for equity in the reorganized post-BK company?

I'm tempted to put in a limit order around 20.00 and see what happens. These two have been very volatile the last few days, and I might get my order filled before the price gaps back up. Or I might get filled on its way to 18!
__________________

__________________
justin is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Heh, ISM/OSM again
Old 04-17-2007, 10:59 AM   #102
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Heh, ISM/OSM again

I think 18 is attractive because if it got to that level, the spread over treasuries would be on a par with a single B-rated junk bond. I think it is unlikely that SLM would get downgraded that far, and if it did, the price risk on the bonds would be pretty low from 18.

Actually, if a copany goes bust, the full par amount of the bond is your claim. So even if you paid 18 for it, the nominal amount of your claim (to determine your pro rata share of whather bondholders get) would be based on 25.
__________________

__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 12:38 PM   #103
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Heh, ISM/OSM again

Pretty heavy trading on JSM today. 660,000 shares so far, and went sub-$20 for a bit. Already in the mild-junk yield territory.
__________________
wabmester is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 12:48 PM   #104
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Heh, ISM/OSM again

Quote:
Originally Posted by wab
Pretty heavy trading on JSM today. 660,000 shares so far, and went sub-$20 for a bit. Already in the mild-junk yield territory.
All the hallmarks of indiscriminate dumping, IMO. C'mon guys beat it down to 18...
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 02:33 PM   #105
Recycles dryer sheets
 
Join Date: Aug 2003
Posts: 474
Re: Heh, ISM/OSM again

Why would Flowers et all buy Sallie Mae if they thought it was going bust? Doesn't the very fact that someone is paying billions for the company mean that it is unlikely to default? I understand the equityholders and the bond holders are not aligned and that these new guys may be inclined to do some risky stuff, but this just doesn't seem that dire.
__________________
bongo2 is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 02:38 PM   #106
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,271
Re: Heh, ISM/OSM again

Quote:
Originally Posted by youbet
No hysteria here. Just curious.

Do they stop payments on all issued bonds simultaneously? Or do they get to pick and choose?

If unsecured bond holders wind up owning the company, could that result in their bonds having some value, even if it is much less than PAR?
Usually there is a trigger bond... the payment is high and all the fancy moves have been done... once it is in default, the other bonds usually have a clause to default them...

The moves they do are like try and renegotiate the terms. This happened to me a few times (when I was the trustee)... if the company is not going well, then the bondholders might accept 85 cents on the dollar and extend terms instead of BK and who knows what then...
__________________
Texas Proud is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 02:38 PM   #107
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Heh, ISM/OSM again

Quote:
Originally Posted by bongo2
Why would Flowers et all buy Sallie Mae if they thought it was going bust? Doesn't the very fact that someone is paying billions for the company mean that it is unlikely to default? I understand the equityholders and the bond holders are not aligned and that these new guys may be inclined to do some risky stuff, but this just doesn't seem that dire.
Exactly. So what is going on is a messy repricing of the bonds to reflect a higher risk issuer. I think that at some point the bonds will overshoot in the corretion, and therein lies the buying opportunity.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 02:41 PM   #108
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,271
Re: Heh, ISM/OSM again

Quote:
Originally Posted by bongo2
Why would Flowers et all buy Sallie Mae if they thought it was going bust? Doesn't the very fact that someone is paying billions for the company mean that it is unlikely to default? I understand the equityholders and the bond holders are not aligned and that these new guys may be inclined to do some risky stuff, but this just doesn't seem that dire.
I agree... they are not buying this to cause it to go bust... so the talk is very premature IMO..

However, when you are a lender, you want to price your loan on the percent probability that they will go bust... I am sure someone has the table, but I think AAA is like .1% and junk is over 10%. So if you remove the name of the company and only looked at its bond rating... would you invest in a B or a AAA? And what premium would you want for that B??
__________________
Texas Proud is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 02:41 PM   #109
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Heh, ISM/OSM again

Quote:
Originally Posted by bongo2
Why would Flowers et all buy Sallie Mae if they thought it was going bust? Doesn't the very fact that someone is paying billions for the company mean that it is unlikely to default? I understand the equityholders and the bond holders are not aligned and that these new guys may be inclined to do some risky stuff, but this just doesn't seem that dire.
Pre-LBO, the company was very unlikely to default. The LBO will saddle the new private company with a lot of debt. The buyers don't have that much skin in the game, so as long as they can extract their gains somehow (e.g., selling off assets), they don't really care what happens to the remaining company or the bond holders. Not to say that will happen here, but that has certainly happened in past LBO's.
__________________
wabmester is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 02:47 PM   #110
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Re: Heh, ISM/OSM again

I defer to all experts here. But in my opinion, it is rarely smart to speculate on an income investment that is not backed by an obviously well financed operation. Maybe buy a junk mutual fund when the spread gets huge. But normally, IMO, a reasonable bond speculation would be one where you can see at least the lower limit of your recovery in the event of bankruptcy. One should see a comfortable margin of error in case things don't work out. At $20.50 ISM would be quite satisfactory in the most probable case of it sailing along fine, meeting its challenges and paying the bond in 2018.

SLM has great value as a going concern because of its awesome spreads between what they can harvest in terms of fees, spread, etc. from their loans held and originated. But in the very low but non-zero probability event of a bankruptcy, there aren't going to be many standalone or readily saleable assets relative to the amount of senior debt with claims on those assets.

ISM has rarely traded over $22.50 since we have been following it on this board. Whatever it is worth now, it canít be more than when SLM Corp. had positive shareholders' equity!

So at todayís price of $20.50 or so, we are sending $20.50 looking for $2.

I convinced myself as I wrote this. As of now, Iím out!

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 02:55 PM   #111
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Heh, ISM/OSM again

Quote:
Originally Posted by HaHa
SLM has great value as a going concern because of its awesome spreads between what they can harvest in terms of fees, spread, etc. from their loans held and originated. But in the very low but non-zero probability event of a bankruptcy, there aren't going to be many standalone or readily saleable assets relative to the amount of senior debt with claims on those assets.

ISM has rarely traded over $22.50 since we have been following it on this board. Whatever it is worth now, it canít be worth more than it was worth when it had a positive net worth! So at todayís price of $20.50 or so, we are sending $20.50 looking for $2.

I convinced myself as I wrote this. As of now, Iím out! Yahoo!
Aw, c'mon, you're not going to speculate on the deal not getting done? What happened to your sense of adventure?
__________________
wabmester is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 04:11 PM   #112
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,271
Re: Heh, ISM/OSM again

Hey guys... can someone give me a site that you can see the info on the securities.... ISM, OSM and JSM

I look at Yahoo and they have very little.. look in Ameritrade... and not much there either...

Also, is JSM fixed?? Looks like 6% to me with a long maturity...

Thanks...
__________________
Texas Proud is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 04:17 PM   #113
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Heh, ISM/OSM again

http://www.quantumonline.com/incometables.cfm

You have to register, but its free. I am registered as "Heywood Jahblowme."
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 09:50 PM   #114
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Heh, ISM/OSM again

Cool, i'm registered as haywood jablowme...no kidding.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 10:00 PM   #115
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
Re: Heh, ISM/OSM again

Your comments folks.....

I purchased ISM as a inflation hedge in my portfolio. Planned to hold it until maturity and with an "A" rating figured they would actually be able to perform as promised and pay me if inflation sky rocketed. But as junk status, am I dreaming that if years from now, inflation goes up to the moon, that they could actually pay out the big bux without defaulting?

I could get out now with a minor bruise and a lesson learned. Or I can stay and count on them being able to deliver if inflation hits the big numbers in the next twelve years........
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 11:28 PM   #116
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Re: Heh, ISM/OSM again

Quote:
Originally Posted by youbet
Your comments folks.....

I purchased ISM as a inflation hedge in my portfolio. Planned to hold it until maturity and with an "A" rating figured they would actually be able to perform as promised and pay me if inflation sky rocketed. But as junk status, am I dreaming that if years from now, inflation goes up to the moon, that they could actually pay out the big bux without defaulting?

I could get out now with a minor bruise and a lesson learned. Or I can stay and count on them being able to deliver if inflation hits the big numbers in the next twelve years........
I am in pretty much the same boat as you and sold one of my TIPs positions to acquire ISM/OSM. At the time I was getting a premium of almost 2% for holding ISM vs 4 year TIPs, now the premium is slightly larger, but the default risk has increased significantly but I still think it is low. In order for Sallie Mae to default a lot of bad things would have to happen between now and 2017/18.

o The deal has to go through. The stock is still trading at 8% discount to the $60 assuming a deal close in 6 to 8 months this is roughly 3x the risk free rate. There is decent chance somebody in the government will nix the sale.
o The new owners have to take out lots of expensive debt, while I have little doubt that we will see increased debt on Sallie Mae's bookss, there will probably be some government oversight to prevent excess debt.
o The new management will have to screw up.
o Some combination of higher inflation, lower net interest rates, reduced government support for student loans, will have to make the company unprofitable for many years.
o No bail out by the government or the JPM and BAC will occur


Then and only then will we bondholders not get our money out. When I first bought the bonds my back of the envelope calculation was 98% of getting my money back... I concluded additional 20% worth of income was worth the risk. Unfortunately at this point the only thing I know for sure is that the probability of defaut has increased.
__________________
clifp is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-17-2007, 11:37 PM   #117
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,271
Re: Heh, ISM/OSM again

Not to discount everybody's concern that it will be a good default candidate...

BOA and JPM aren't the kind of companies that drop $2.2 billion into an investment to let it slip away... I would think that both would use this company for their portfolios going forward.... I think that it will become a stronger company in the future...

I'm just looking to see how low it will go and pick some up for me and my mother....
__________________
Texas Proud is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-18-2007, 12:01 AM   #118
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
Re: Heh, ISM/OSM again

clifp and Texas Proud.....

Thanks for your thoughtful comments. But, more specifically, what are your feelings about the new SLM's ability to pay if inflation goes through the roof some years from now? For my purposes, there's no point to owning ISM if it can't stand the test of paying in a very high inflation period.

I'm not all that worried about a default if the economy maintains reasonable metrics over the next 11 or 12 twelve years. But is counting on a junk rated cpi indexed bond to pay in a period of hyper-inflation not realistic?
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-18-2007, 12:28 AM   #119
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Re: Heh, ISM/OSM again

I think that Sallie Mae is in better shape than most companies to withstand periods of high inflation.

Many of Sallie Mae loans have adjustable rates tied to the prime, if inflation kicks in the interest rate (baring a period where the inflation rate exceeds the Prime rate) on the loan will go up in tandem with inflation. In general Sallie Mae securitizes its loans (in debt instruments like OSM/ISM ) and attempts to match the characteristic of the loans fixed or variable with the debt instrument.

It makes money off of the spread + fees. I think as long as the real interest remains relatively constant Sallie Mae will be ok. The obvious problem is the new owners are going borrow a lot of money driving down Sallie Mae credit, thus increasing the cost of funds, and lowering the spread.

One huge advantage that Sallie Mae is the 84% (from the last annual report) of student loans are back by the federal government, if the student default Uncle Sam pays back between 98-100% of the loan.

There is a good section in the annual report about the interest rates risks.
__________________
clifp is offline   Reply With Quote
Re: Heh, ISM/OSM again
Old 04-18-2007, 07:27 AM   #120
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Heh, ISM/OSM again

I think the inflation thing is a non-issue. Most of SLM's assets are floating rate or swapped to floating rate, so if inflation rises, so will short term rates. No biggie.

I am in the same boat in these bonds. I think that default risk will be higher if the deal goes through, but it won't be excessive, IMO. So I am willing to maintain a 5 or 6% portfolio exposure at current prices. I would suggest you re-examine your comfort level with the amount of bonds you hold. If you feel you have too much, hit the bid when it creeps up/over 21 until you have reduced your position to match your comfort level.

I think reasonable estimate of downside is maybe, barring some short term irrational dumping. But like all bonds, barring default, even if the bonds dump down that far they will recover closer to par as we get closer to maturity.
__________________

__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
How Happy are You? LKH Other topics 88 03-22-2011 10:28 AM
Heh, another humorous wine review brewer12345 Other topics 4 05-17-2007 02:15 PM
Heh, a Falwell eulogy brewer12345 Other topics 1 05-16-2007 01:11 PM
Heh, unfortunately worded headline brewer12345 Other topics 10 05-04-2007 08:35 AM
Heh, another unintentionally brewer12345 Other topics 0 09-17-2006 02:37 PM

 

 
All times are GMT -6. The time now is 12:46 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.