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Re: Heh, ISM/OSM again
Old 04-18-2007, 09:38 AM   #121
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Re: Heh, ISM/OSM again

I have no idea of the scale of SLM's total portfolio of inflation-indexed bond issuances. But ISM and OSM are very small compared to their entire bond debt outstanding (somewhere in the $100 billion range). ISM is $75 million at par, and OSM is $100 million at par, IIRC. Even if inflation gets really high, the overall impact won't be that great to SLM (unless they owe on a lot of other inflation linked bonds).
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Re: Heh, ISM/OSM again
Old 04-18-2007, 09:55 AM   #122
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Re: Heh, ISM/OSM again

Quote:
Originally Posted by justin
(unless they owe on a lot of other inflation linked bonds).

They don't. I can't recall if they ever disclosed the exact amount, but I would be surprised if the total amounted to over $1 billion.
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Re: Heh, ISM/OSM again
Old 04-18-2007, 12:54 PM   #123
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Re: Heh, ISM/OSM again

Thanks for the comments and insights! Great discussion!

ISM is about 3.9%, at acquisition price, of my total portfolio. That would be 9.7% of my fixed portion. I was targeting to have 5% of my total portfolio, 12.5% of the fixed portion, in inflation protected securities and was muddling through the question of whether to buy TIPs directly, an ETF or an MF when the ISM idea came up.

More than the default fear, my concern through this has been the same as if I suddenly learned that the firm that insures my house and cars had been downgraded. Will SLM/ISM be there for me if we experience hyper-inflation?

I believe I'm going to fill out th balance of my inflation protected security goal percentage with gov issued dept, still need to decide on the vehicle, and hold the already owned ISM and watch.

Again, thanks for your comments.
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Re: Heh, ISM/OSM again
Old 04-18-2007, 02:27 PM   #124
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Re: Heh, ISM/OSM again

If hyperinflation occurs, I think there will be a lot of other problems than a few defaulted bonds...


From Wiki...

In economics, hyperinflation is inflation that is "out of control", a condition in which prices increase rapidly as a currency loses its value. No precise definition of hyperinflation is universally accepted. One simple definition requires a monthly inflation rate of 50% or more. In informal usage the term is often applied to much lower rates. The definition used by most economists is "an inflationary cycle without any tendency toward equilibrium." A vicious circle is created in which more and more inflation is created with each iteration of the cycle. Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply or drastic debasement of coinage, and is often associated with wars (or their aftermath), economic depressions, and political or social upheavals.
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Re: Heh, ISM/OSM again
Old 04-18-2007, 02:29 PM   #125
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Re: Heh, ISM/OSM again

Guys... I want to thank you for the info on this board.... I bought my mom some of the JSM this morning, but only got a few shares as the price jumped up... might buy some more soon as the yield is pretty good.. just have to get her to move some money to her brokerage account...
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Re: Heh, ISM/OSM again
Old 04-18-2007, 02:31 PM   #126
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Re: Heh, ISM/OSM again

IIRC, there are specia (PITA) accounting rules you have to use if you are operating in an inflationary currency/country. If memory serves, I think the trigger was something liek a 100% increase in prices over a 3 (?) year period. There was a period where the US was pretty close to having to use those rules.
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Re: Heh, ISM/OSM again
Old 04-18-2007, 02:43 PM   #127
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Re: Heh, ISM/OSM again

Quote:
Originally Posted by Texas Proud
Guys... I want to thank you for the info on this board.... I bought my mom some of the JSM this morning, but only got a few shares as the price jumped up... might buy some more soon as the yield is pretty good.. just have to get her to move some money to her brokerage account...
Why would you want to buy a speculative bond? You can get around the same yield without the single-issuer risk by buying a junk bond fund. I'm sure JSM will do fine, but I just can't see buying any long-term bond with an unknown rating.

When I buy bonds, I'm buying a stable sure source of income. If I wanted risk and potentially higher return, I'd buy stocks.
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Re: Heh, ISM/OSM again
Old 04-18-2007, 03:07 PM   #128
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Re: Heh, ISM/OSM again

I no longer have a position, but I am still interested because I have never followed closely an LBO before.

I don’t know enough about how these deals are structured to say for sure, but I think some of the statements above in this thread are not necessarily so. While Bof A and JP Morgan are in with cash, expect this debt taken on to finance the buyout to be refinanced toute suite!

Likewise I don't think that we should take too much comfort from the idea that Christopher Flowers is a smart guy and wouldn’t spend all this money and expect to lose it. That he isn’t looking to lose money is a truism, but let's not forget that he is probably playing with house money once the deal is signed. Up front fees can be huge. Flowers once aborted a deal to acquire the futures business of bankrupt Refco. The bankruptcy judge was appalled at the money being taken off the top, and insisted that Flowers' fees be lowered. So J. Christopher nixed the deal and walked. Also, his equity is likely largely supplied by investors from whom he of course gets fees.

I have not seen the exact deal, and it may not have to be made public, I don't know. But it appears that Bank of America and J.P. Morgan may be getting a big hunk in return for supplying the debt financing and pledging the back-up credit lines without which the deal could not have been done. Lots of up front fees here too!

If we on this board could pull crap like this we could stop obsessing about SWR.

I hope Brewer or anyone who has access to more detail will post it as it become available.

Ha
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Re: Heh, ISM/OSM again
Old 04-18-2007, 03:13 PM   #129
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Re: Heh, ISM/OSM again

Quote:
Originally Posted by HaHa
I hope Brewer or anyone who has access to more detail will post it as it become available.
For sure. They haven't made the filing yet, so we don't have the details. But I see SLM equity selling off today, so the market clearly includes a fair number of skeptics on the deal's chances of getting the necessary approvals.
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Re: Heh, ISM/OSM again
Old 04-18-2007, 03:36 PM   #130
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Re: Heh, ISM/OSM again

Quote:
Originally Posted by wab
Why would you want to buy a speculative bond? You can get around the same yield without the single-issuer risk by buying a junk bond fund. I'm sure JSM will do fine, but I just can't see buying any long-term bond with an unknown rating.

When I buy bonds, I'm buying a stable sure source of income. If I wanted risk and potentially higher return, I'd buy stocks.
I will respectfully disagree. There is big money to be made in individual junk names, presuming you can sucessfully do the necessary credit analysis.
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Re: Heh, ISM/OSM again
Old 04-18-2007, 03:38 PM   #131
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Re: Heh, ISM/OSM again

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Originally Posted by brewer12345
I will respectfully disagree. There is big money to be made in individual junk names, presuming you can sucessfully do the necessary credit analysis.
OK, I'll give you that one. As long as you can successfully predict the future do the necessary credit analysis.
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Re: Heh, ISM/OSM again
Old 04-18-2007, 05:44 PM   #132
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Re: Heh, ISM/OSM again

Quote:
Originally Posted by Texas Proud
If hyperinflation occurs, I think there will be a lot of other problems than a few defaulted bonds...

Good point. I should have simply said a high inflation period rather than hyperinflation.
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Re: Heh, ISM/OSM again
Old 04-20-2007, 11:07 AM   #133
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Re: Heh, ISM/OSM again

ISM fell below 20 for the first time today...come on, 18! We need a buying opportunity.
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Re: Heh, ISM/OSM again
Old 04-20-2007, 11:10 AM   #134
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Re: Heh, ISM/OSM again

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ISM fell below 20 for the first time today...come on, 18! We need a buying opportunity.
Maybe. Check out SLM's stock price. Sliding further and further away from the deal price. Suggests that the deal might be in jeopardy. A collapse of the deal would be very good for existing bondholders.
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Re: Heh, ISM/OSM again
Old 04-20-2007, 11:19 AM   #135
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Re: Heh, ISM/OSM again

Quote:
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Maybe. Check out SLM's stock price. Sliding further and further away from the deal price. Suggests that the deal might be in jeopardy. A collapse of the deal would be very good for existing bondholders.
Yup, and apparently the buyers of SLM have a no-cost out if Congress passes legislation that would make the deal less attractive.

The proposed deal gives the buyers -- J.C. Flowers & Co., Freidman Fleischer & Lower, JPMorgan Chase & Co., and Bank of America Corp. -- a chance to walk away if Congress passes legislation that is more harmful to the lender's business than President Bush's proposal earlier this year.

Bush proposes cutting subsidies to lenders and forcing them to shoulder a greater share of the risk of students defaulting on loans. A proposal by Sen. Edward Kennedy, which was leaked to markets, would cut subsidies a little more steeply and foist much more of the default risk on lenders


http://biz.yahoo.com/ap/070420/slm_a...bell.html?.v=1
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Re: Heh, ISM/OSM again
Old 04-20-2007, 11:24 AM   #136
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Re: Heh, ISM/OSM again

But this is what I don't get: on this news both ISM and SLM fall. Can it be bad for both the bonds and the stocks?
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Re: Heh, ISM/OSM again
Old 04-20-2007, 11:26 AM   #137
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Re: Heh, ISM/OSM again

Yup. If the deal does fall apart, I will be heavily tempted to sell the bonds and buy the stock (especially if it goes under 40).
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Re: Heh, ISM/OSM again
Old 04-20-2007, 11:29 AM   #138
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Re: Heh, ISM/OSM again

From Analyst James Fotheringham of Goldman Sachs:

"The proposed deal gives the buyers -- J.C. Flowers & Co., Freidman Fleischer & Lower, JPMorgan Chase & Co., and Bank of America Corp. -- a chance to walk away if Congress passes legislation that is more harmful to the lender's business than President Bush's proposal earlier this year.

Bush proposes cutting subsidies to lenders and forcing them to shoulder a greater share of the risk of students defaulting on loans. A proposal by Sen. Edward Kennedy, which was leaked to markets, would cut subsidies a little more steeply and foist much more of the default risk on lenders.

If the legislation or something like it passes, which Fotheringham said is about 60 percent likely, it would give the buyers the option to ditch the deal.

With the stock trading at $54.97, there's not enough reward for the $60-per-share deal closing to justify buying the stock with the risk the deal could fall through, he said."

http://biz.yahoo.com/ap/070420/slm_a...bell.html?.v=1

This is the first I have heard about this "get out safely clause", and it could describe an eventuality that if were to happen would be at the same time negative for the bonds and the stock, by damaging the business. True the deal wouldn’t go through, but SLM sales and cash flow might suffer. Remember that both ISM/OSM and SLM common were all trading down since the Dems took over congress.

It is a complex situation for sure.

Ha

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Re: Heh, ISM/OSM again
Old 04-20-2007, 11:31 AM   #139
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Re: Heh, ISM/OSM again

Quote:
Originally Posted by brewer12345
Yup. If the deal does fall apart, I will be heavily tempted to sell the bonds and buy the stock (especially if it goes under 40).
Can you explain the logic behind this swap? Curious.
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Re: Heh, ISM/OSM again
Old 04-20-2007, 11:36 AM   #140
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Re: Heh, ISM/OSM again

Well, if the deal goes through then ISM falls on a downgrade. If the deal falls apart ISM falls on poor future prospects for SLM. That would seem to suggest selling now, right?
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