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Old 11-21-2008, 11:04 AM   #261
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Amazing how the yield to maturity is up around 26-27% (per year) for these issues (assuming 3% inflation). If I felt like I could get even close to $7.x a share in a BK, I'd be all over more of this. A $7 payout would only be 28% of par value. Hmmm...
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Old 11-21-2008, 12:30 PM   #262
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Originally Posted by ERD50 View Post
Just remember that The Vanguard and Fidelity Junk Bond funds (ahem... "High Yield") are paying >10% right now. 10% is not 18%, but that's a lot of diversification, plus some potential NAV upside as they are both down ~ 30% over the past year.
Let's say you are contemplating a "junk bond" investment. You could use VWEHX as the core and ISM/OSM (or even PFK which has gotten killed with the insurance stocks) as a satellite, that is to say, create the "ERD50 High Yield Portfolio" with 90%-95% in VWEHX (or VWEAX) and 5%-10% in ISM/OSM/PFK as a yield-enhancer/inflation-hedge.
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Old 11-21-2008, 01:59 PM   #263
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Let's say you are contemplating a "junk bond" investment ...
Shouldn't you have put quotes around "investment" too ?
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Old 12-16-2008, 03:33 PM   #264
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With the minor deflation we've had the past few months, ISM/OSM rates are drifting downward. The 2/15/09 through 3/14/09 period will pay 3.12% at PAR (ISM).
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Old 12-31-2008, 03:53 PM   #265
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I found this article about what to do if your bond turns to junk on the Schwab site.

What to Do if Your Bonds Turn to "Junk"

This chart is interesting:

Average corporate debt recovery, 1987–2007
Recovery rate (% of par)
Bank loans 82%
Senior secured bonds 66%
Senior unsecured bonds 39%
Senior subordinated 29%
Subordinated 27%
Junior subordinated 16%



I believe ISM would be in the senior unsecured category which Schwab says pays 39% of PAR on average at settlement after default. At ISM's current selling price of about $9, folks are willing to pay about 36% of PAR.
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Old 12-31-2008, 04:37 PM   #266
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Good article. Thanks for posting, Youbet.

Ha
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Old 01-06-2009, 04:53 PM   #267
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SLM, ISM and OSM all up significantly the past couple of days. I haven't seen any news to justify this. Anyone notice anything?
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Old 01-07-2009, 07:05 AM   #268
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SLM, ISM and OSM all up significantly the past couple of days. I haven't seen any news to justify this. Anyone notice anything?
Maybe a lot of investors read your above post about recovery in the case of default.
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Old 01-07-2009, 08:39 AM   #269
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SLM, ISM and OSM all up significantly the past couple of days. I haven't seen any news to justify this. Anyone notice anything?
It's just a macro trend. All exchange traded debt issues have had significant price increases over the last week or two. All of the BBB-rated ETD I was buying from Oct-Dec that had current yields of 15-25% are now trading at 9-11% current yields. I looked at JSM but passed in light of SLM's leverage compared to the others (150B debt w/ 5B shareholder equity).
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SLM/ISM/OSM Trouble?
Old 02-04-2009, 10:17 PM   #270
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SLM/ISM/OSM Trouble?

I've been pleased with my ISM monthly interest payments. But the dark clouds we've all discussed may be building on the horizon......

Quote:
"SLM Corp (SLM) (9.00 -2.24)
NEW YORK (Dow Jones)--Shares of student lender SLM Corp. (SLM) fell sharply Wednesday as worries ramped up about the company's expected charge-offs for 2009 as well as how it could be affected by any subsidy cuts from President Obama's upcoming budget. The stock closed down 20% to $9 after earlier hitting an intraday low of $8.88. At a conference hosted by Credit Suisse on Wednesday, the company said it expects its private-education loan charge-offs for 2009 will reach $1.3 billion, with $225 million of that related to changes in forbearance policy. "In my view, the net charge-offs in their private loan portfolio may be higher than I originally forecasted," William Blair analyst David Long told Dow Jones Newswires. "And if I raised my net charge-off figure, my EPS estimates would come down." However, Friedman Billings Ramsey analyst Matthew Snowling felt shares were under more pressure from fears that the budget may include subsidy cuts than from the charge-off guidance (Dow Jones Newswires 04:18 PM "
Is the end in sight?
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Old 02-04-2009, 10:37 PM   #271
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I've been pleased with my ISM monthly interest payments. But the dark clouds we've all discussed may be building on the horizon......



Is the end in sight?
I wanted to listen to their Credit Suisse Conference Presentation today but I had to go out. I went back tonight and it didn't seem to be archived, but the pdf slides and such are there on the salliemae.com website.

It seems that Washington is kissing every bottom in every corner of the US- surely they wouldn't throw a big wrench into the plans of a lot of the very type of people who vote- parents of college students.

Let's hope not anyway. I have accustomed myself to selloffs in my portfolio, but I really would not be pleased by a wipeout of these securities.

Ha
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Old 02-05-2009, 12:04 AM   #272
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Anyone else notice that salliemae and salmonella share an awful lot of the same letters?
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Old 02-05-2009, 10:47 AM   #273
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Anyone else notice that salliemae and salmonella share an awful lot of the same letters?
And the symptoms of having both of those are also similar. Except the suffering from salliemae can last much longer. At least those interest payments keep trickling in!
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Old 02-06-2009, 03:26 PM   #274
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I wanted to listen to their Credit Suisse Conference Presentation today but I had to go out. I went back tonight and it didn't seem to be archived, but the pdf slides and such are there on the salliemae.com website.
The Credit Suisse Conference Presentation is now available on the SallieMae site and I listened to it this afternoon. Jack Remondi, Vice Chairman and CFO, did the talking.......

I also found the .pdf of the presentation slides and was able to follow along fairly well. (Almost reminded me of being on a net-meeting back in my w*rking days! )

The subject of potential subsidy cuts from the Obama administration was not addressed.

2009 writeoffs were addressed including changes to the forbearance policy which is causing charges which otherwise would occur in later years to be pulled into 2009.

They are expecting positive earnings of $1.45 to $1.65 for the year.

On 1/22/09 S&P affirmed SLM senior unsecured dept (like ISM and OSM) to be BBB-.

Remondi sounded relatively upbeat which, of course, would be his job at this kind of presentation. He pointed out that the quality of their loan portfolio is increasing. He mentioned that although students defaulting on loans gets lots of press, the vast majority of their loans, 94% IIRC, are current. He also pointed out that although the ROI of a college education is being questioned, overall unemployment has now surpassed 7% but holders of four year college degrees (or better) are experiencing unemployment of less than 4%.

As to whether Obama's budget would include subsidy cuts to SallieMae, I dunno...... I guess you have to ask yourself whether Obama's outlook would be to change a policy with the likely result being a financial kick in the groin to equity holders and lenders to SallieMae, a provider of student loans.

I have no clue.
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Old 02-06-2009, 03:56 PM   #275
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On 1/22/09 S&P affirmed SLM senior unsecured dept (like ISM and OSM) to be BBB-.
I think we all know what S&P ratings are worth, but WOW! Investment grade debt (BBB- marks the bottom of that category) selling at a 56% discount to par. What interesting times we live in.
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Old 02-06-2009, 05:10 PM   #276
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Thanks for the summary report, youbet. I haven't had a chance to listen yet. I am encouraged that they are expecting positive earnings for 2009. So long as they have earnings, we can breathe more easily.

The interest payments will drop off pretty sharply after this month's, due to the low inflation in November and December. I suppose this could put some downward pressure on the price near-term, but probably nothing serious.
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Old 02-11-2009, 12:42 PM   #277
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From yesterday's Seeking Alpha:

SLM Exchange Traded Debt: Attractively Valued -- Seeking Alpha

The author of the article gives ISM/OSM good reviews and seems to think they are mispriced. Not sure if they fly under the institutional investor's radar as the author suggests, since there used to be institutional ownership of some of these.

The author points out what I pointed out 2 posts above. That is, you are getting investment grade BBB- debt with a crazy high yield.

Maybe the deflation scare is holding these CPI-linked securities down? Heck, with zero additional coupons they are still yielding ~10-11% YTM.
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Old 02-11-2009, 12:54 PM   #278
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Heck, with zero additional coupons they are still yielding ~10-11% YTM.
You mean the real yield is 10-11 %, wow ! (The moneychimp YTM
calculator chokes with "error" when I put in 2%, 11 -> 25, and 8 years
til maturity).

What happens to the interest payments when CPI declines, does it have
a floor at 2 or 2.05 %, respectively ?
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Old 02-11-2009, 01:14 PM   #279
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You mean the real yield is 10-11 %, wow ! (The moneychimp YTM
calculator chokes with "error" when I put in 2%, 11 -> 25, and 8 years
til maturity).

What happens to the interest payments when CPI declines, does it have
a floor at 2 or 2.05 %, respectively ?

IIRC no floor other than zero. You'll have to check the prospectus for additional info. Worst case, assuming they pay back par and make required interest payments, is 10-11 real return assuming negative inflation for 8 more years.
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Old 02-11-2009, 02:30 PM   #280
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IIRC no floor other than zero.
This seems to be correct. From the offering prospectus:


The Interest Rate for the Interest Period beginning on the Closing Date will be 6.398%. Beginning February 15, 2006, the Interest Rate on the Notes will be adjusted monthly and will be linked to changes in the Consumer Price Index. The Interest Rate for the Notes for each month thereafter will be a rate determined as of the applicable Interest Determination Date pursuant to the following formula:

[(CPIt – CPIt-12) / CPIt-12] + Spread

Where:

CPIt = Current Index Level of CPI (as defined below), as reported on Bloomberg CPURNSA;

CPIt-12 = Index Level of CPI 12 months prior to CPIt;; and

Spread = 2.05%.

In no case, however, will the Interest Rate for the Notes be less than the Minimum Interest Rate, which will be 0.00%.

Quote:
Worst case, assuming they pay back par and make required interest payments, is 10-11 real return assuming negative inflation for 8 more years.
Yes, in the case of OSM, if there were no interst payments, but the bond redemmed at par on 3/15/2017 we would have earned about 10 1/2%. Clearly the question on the market's mind is will this happen.


I believe that the chances of 8 years of deflation are smaller than the chances of being hit by lightning at least once in those eight years.

ha
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