Originally Posted by Fermion
Sure enough, the interest is killing the poor company and they are just making enough profit to handle the bonds and pay the executives nice yearly bonuses. The stock price has fallen 50% and the puts I bought I sold for 100% profit.
This leaves me holding these 2019 12.5% paying bonds. They are trading at 97% of par right now and are callable with prepayment penalty in Dec 2016 (callable at 106.5).
This was mostly an experiment, and I guess it was a success as I made more money on the puts than my initial bond investment. I am not sure if I should cash in the bonds or just hold them. 12.5% is a pretty decent yield and I like the money flowing in.
it depends on the company's cash flow, as well as what their past and future hedging looks like. Have they been selling most production at spot, or did they have a lot of production hedged so far? If the later, then they may not have much production hedged for the next few years, and might have a drop in cash flow due to the lack of hedging.
Look at their most recent quarterly/past2 quarters and their hedging profile. If they had decent cash flow that could handle interest payments and some debt repayment in a few years, I'd take a chance. Also depends on their primary commodity mix. If mostly iron, iron should be rebounding at least somewhat over the next 2-3 years. Possibly the same with coal, but just depends on specific minerals/resources they mainly deal with.