ISM/OSM yet again

[youbet]

Thanks folks. Looks like those of us still holding these things
have some extry-big dividends coming up !

Yeah..... it does look that way. For better or worse, I've decided to not sell at a loss now, while the yields are so attractive, and see what things look like in 3 - 4 months. Of course, that probably means the rest of you should sell immediately at any price since my track record of chosing the wrong fork in the road is well known......... Not a significant portion of my portfilio, however.

 

[JohnEyles]

Good arbitrage (is that the right word) now ! ISM and OSM
are about a dollar apart. Even with bid/ask spreads, a person
ought to be a able to make 50- cents a share or so by
swapping 'em.

 

[twaddle]

Another exciting day in the market. Among other events, SLM debt got downgraded one notch by Moody's:

Moody's cuts rating on Sallie Mae by one notch | Markets | Markets News | Reuters

ISM now has a real yield of around 6.6%. Hmm, tempting. But pretty comparable to other near-junk nominal bonds.

 

[youbet]

How does that fit with S and P taking SLM off credit watch? This happened literally minutes after Moody downgraded them.......

S&P takes Sallie Mae rating off credit watch; outlook stable
4:49 PM EST March 4, 2008
SAN FRANCISCO (MarketWatch) -- Standard & Poor's Ratings Services said late Tuesday it took its BBB-/A-3 counterparty credit rating on SLM Corp. off a negative credit watch, and assigned the rating a stable outlook. The company, better known as Sallie Mae, was placed on CreditWatch Negative by S&P on Feb. 8. S&P said they would remove Sallie Mae from the negative watch when the company completed $31.3 billion in asset-backed commercial paper financing.

 

[youbet]

Another exciting day in the market. Among other events, SLM debt got downgraded one notch by Moody's:

Moody's cuts rating on Sallie Mae by one notch | Markets | Markets News | Reuters

ISM now has a real yield of around 6.6%. Hmm, tempting. But pretty comparable to other near-junk nominal bonds.

How'd ya calculate that 6.6% twaddle?

 

[twaddle]

Isn't S&P's BBB- pretty much the same as Moody's Baa3? So, I guess Moody's is just catching up. Fitch also gives SLM a stable outlook at BBB, which is equivalent to Baa2, I think.

I calculated 6.6% based on a price of $16.80:

Bond Yield Calculator

 

[FIRE'd@51]

Ratings are compared here:

Bond Ratings

 

[FUEGO]

Looking nice at under $16 for ISM/OSM. nominal yield to maturity around 12% at this price level... Looks like tons of volume on the OSM so far today.

 

[youbet]

Looking nice at under $16 for ISM/OSM. nominal yield to maturity around 12% at this price level... Looks like tons of volume on the OSM so far today.

The volume level of OSM seems out of line with over 70k traded. ISM less than 3k. Can anyone think of an explanation?

 

[FUEGO]

I'm showing 188,700 shares traded of OSM as of 3:40 today (last traded at 3:22 pm). Probably big institutional holder selling out their position. I guess folks are paying attention and arbitraging ISM down, too. I don't see any news yet as to why they would both be down so much. Swiss Re is the only listed (as of 12/31/07) major holder of OSM with 400,000 shares. So it must be them getting out or someone else who recently acquired a large position.

 

[cute fuzzy bunny]

Maybe Albert Lord was seen swinging from a rope attached to the SLM building, bandanna on his head and a patch on one eye screaming "Arrrr....step into me metal detectors!"

I saw some class action lawsuits get filed a week or two ago on behalf of the stockholders, alleging fraud. Perhaps one of those got the initial go-ahead in the last day or so and the news just hasnt hit the wire yet.

 

[haha]

Intersting Action in All Sallie Securities Today

ISM, OSM, JSM, etc. up today on pretty good volume and wide spreads; common (SLM) off by 7% or so.

Bernanke engineered buy-out in the works?

I bought ISM and OSM this AM. But not as much as prior to the earlier fiasco!

Ha

 

[twaddle]

Wasn't that something? It looked like a single buyer (or maybe two). They put in a limit order for 100,000 shares each of ISM, OSM, and JSM. Over $5 million.

Somebody either knows something or they *really* like the yield on those bonds. The CDS market seems to view SLM's default risk to be pretty high:

Bloomberg.com: Worldwide

SLM's borrowing costs are high due to their rating. So, the equity is in trouble due to lousy forward earnings, but the bonds may do OK since SLM will have to be focused on improving their credit rating.

 

[twaddle]

Mr. Deep Pockets was buying ISM and OSM again today. He pushed the price up to the highest it's been in 6 months. What does this guy know that nobody else seems to know?

Today I sold him some of the shares I got for $15-16 recently, but he seems to have a big appetite and keeps increasing the bid, so these issues could easily go higher.

Kinda interesting that he's doing large limit orders instead of block trades. Probably no other institutional holders to trade with. I guess we'll find out who the buyer is after the funds publish their next quarterly reports.

 

[FUEGO]

Twaddle,

I don't think there are any other large institutional owners left, except for the newly minted Mr. deep pockets. The last big instl owner got out all at once a few weeks back. Unless there is a big holder that has structured their ownership such that it isn't publicly disclosed.

The recent rise is making me want to reset my limit sell orders higher on my ISM/OSM.

I kind of wonder if a deep pockets private equity buyer (maybe mr. buffet?) is buying up the debt at 30-40% off par prices and planning on taking over the company... nothing to substantiate this - just interesting if someone were clever enough to buy highly rated junk bonds at a discount and then purchase the issuer...

 

[haha]

I didn't know that ownership of bonds had to be declared. Where does one get this information?

Also Twaddle- how do you see the buyers order? Or are you just inferring it from the price/volume behavior?

Basically, these issues had gone off my radar until they jumped last week at the same time that SLM common dropped markedly.

Unless they get a very good bid, given the interest rate environment I am content to hold my very modest committment for the time being.

Ha

 

[twaddle]

Yahoo gets the institutional holder info from Vickers:

OSM: Major Holders for SLM CPI LKD NT - Yahoo! Finance

I watch the bid/ask with Ameritrade's Apex, which gives me a level-II view of the exchanges. This particular bidder places large bids using two different exchanges, and he has more sophisticated software than I do (I tried to bid against him back when these guys were at $14-$15).

 

[haha]

Yahoo gets the institutional holder info from Vickers:

OSM: Major Holders for SLM CPI LKD NT - Yahoo! Finance

I watch the bid/ask with Ameritrade's Apex, which gives me a level-II view of the exchanges. This particular bidder places large bids using two different exchanges, and he has more sophisticated software than I do (I tried to bid against him back when these guys were at $14-$15).

Ah, thanks. My software from Fidelity only gives me Level 2 info on the NASDAQ. I think I'll call and complain.

Ha

 

[clifp]

It is strange last week there was a $.80 gap between ISM and OSM so I bought some at ISM 14.80 and sold the OSM at $15.60 now the gap is much smaller and the bonds have jumped up to 18.50.

At $15 I think it must be a buy, even if the management suceeds in bankrupting the company I got believe bond holders are going to get at least .50-.60 on the dollar.

BTW in case you missed..
"Sallie Mae Commemorates April as National Financial Literacy Month"

RESTON, Va.--(BUSINESS WIRE)--Through a special U.S. Senate resolution, April has again been declared national Financial Literacy Month, and Sallie Mae, the nation’s leading saving- and paying-for-college company, reminds consumers that it is never too early – or too late – to learn the skills they need for effective money management.

I think there is a former CEO now Chairmen, who may needs refresher course. $60 to $15 in a less than a year is quite a trick in money management.

 

[FUEGO]

Mr. Deep Pockets is back at it again. 100,000 share buy limit orders for each of ISM, OSM, and JSM.

 

[youbet]

Congressional Action on Student Loans. ISM/OSM?

Congressional Action on Student Loans. Any thoughts on how this will impact ISM/OSM share price and/or survivability?

UPDATE 1-U.S. House backs student loan intervention bill | Markets | Markets News | Reuters

 

[haha]

Congressional Action on Student Loans. Any thoughts on how this will impact ISM/OSM share price and/or survivability?

UPDATE 1-U.S. House backs student loan intervention bill | Markets | Markets News | Reuters

I think it was widely expected; but overall and over time I would think it has to make these securities safer. Not much reaction by the SLM, ISM, or OSM price quotes today, which is a little odd to me.

Ha

 

[youbet]

The June 15 - July 14 rate for ISM will be 6.03% at par. At recent ISM prices of about 17.6, you'll get about 8.56%.

I think folks who grabbed ISM at recent $15 prices made a smart move. If it doesn't default, they're making 10% in July. And if it defaults, they'll only need a 60% recovery to get their money back, a likely outcome.

Probably not a good place to put next weeks grocery money though......

 

[cute fuzzy bunny]

So whats the big attraction for this vs something like the High Yield Corp fund that yields the same and has a lot more diversity? Well, except for the CPI indexing. Anyone think that if inflation shoots to 10 or 12% that they'll pay out those big checks for very long?

 

[FUEGO]

Anyone think that if inflation shoots to 10 or 12% that they'll pay out those big checks for very long?

My money says they will continue to pay out. The ISM/OSM CPI-linked issues amount to only a few hundred million in debt. A peek at their Dec 31, 2007 balance sheet shows $111 billion in total long term debt outstanding. It seems silly to bring all your debt into default and radically change the outlook for the future of your company just because you have to pay a little higher coupon on .1-.2% of your debt.

Maybe they have more CPI-linked debt on their balance sheet? Of course they may also have swap agreements in place to hedge some/all of the CPI risk. Hopefully Bear Stearns isn't the counterparty!