ISM/OSM yet again

[youbet]

Frustrating...... Sallie Mae increases salary of chief executive | News | Market News | Reuters


Interesting..... Sallie Mae Buyout Trial Set for July: Financial News - Yahoo! Finance

I notice that ISM and OSM are up today while SLM is down sharply. My education continues.......

 

[twaddle]

Bernanke came out today and said inflation is a problem. He said to expect the "headline" CPI to go up. So, CPI-linked bonds are doing well today, and ISM/OSM are some of the cheapest available right now.

 

[haha]

Deal dead, SLM sinks, ISM, OSM up somewhat

Hard to imagine a more screwed up management than Mr. Lord et al at SLM. Deal last summer for $60; FLowers lowered offer to $50, but Sallie stood tall and called their "bluff". But it wasn't a bluff, SLM trading today for less than 50% of the original deal price.

FORTUNE: Daily Briefing Buyers reject Sallie Mae again «

Ha

 

[youbet]

Can someone please help me understand ISM/OSM going up 4% while SLM drops 10% today. Does it make sense they're moving in opposite directions?

 

[clifp]

Actually I was expecting OSM/ISM to move up more like 10%.

Remember the deal was that Mr. Flower with help of BofA, and Citi was going to give shareholders $60 primarily (exclusively?) in cash. Of course nobody had the billions in actual cash, so buy out group was going to issue bonds back by Sallie future revenues and profits.

The prospect of mountain of debt being added to SLM's balanced sheet caused Sallie credit rating to drop to the junk range driving up the cost of borrowing for the Flowers group. It also hosing us existing bond holder cause why loan to Sallie at 7% when you wait for a few months and get paid 10% (examples ) when the Flowers group issues new bonds.

Now that the prospect of Sallie Mae take over dimmed, the prospect for us bond holder are much brighter. We just have to deal with horrible credit market, the inept management, and government crack down on student loan profit margins .The prospect look much worse than when the bonds were trading in the $21-$22 but not as bad with all of those factors plus a take over. This a huge relief for SLM bond holders. I think I'll stop worrying about the stupid things.

At least some of Sallie Mae business is so simple borrow money at X% loan to students at X+Y%, package the bonds and sale them to investors with a government guarrantee, that even an idiot CEO can't screw it up. (I am not willing to bet on him doing good just not driving the company into bankruptcy.)

 

[youbet]

Now that the prospect of Sallie Mae take over dimmed, the prospect for us bond holder are much brighter.

OK. I guess I was just thinking that that aspect was already baked into the price. It's been a while since I thought the Flowers deal might still go through.

We just have to deal with horrible credit market, the inept management, and government crack down on student loan profit margins

Yeah, and it just seemed like it's bad enough that not only should (and is) the equity value of SLM heading into the dumpster, but SLM's credit rating could plunge even further, dragging ISM/OSM into the dark valley of junk minus minus minus..... Hope not.

I think it's still BBB+. Right?

 

[haha]

OK. I guess I was just thinking that that aspect was already baked into the price.

A tricky assumption. Get this, from today's WSJ:


Credit Suisse analyst Moshe Orenbuch, in a client note, slashed his target price on the stock to $27 from $60, partly due to rising expectations of student loan defaults. He rates the stock at "Neutral."

Where has this guy been? Did he suddenly discover yesterday that SLM was worth more than 50% less than he thought the day before?

Incidentally, I notice ISM, OSM and the other traded Sallie debt is heading down again today. Maybe this is overdone, but most observers probably feel like I do-- "Who cares? It is a mess in any case!"

Ha

 

[youbet]

ISM/OSM both down big time today. Looks like a one day delayed reaction to the poke SLM took yesterday.

This fits my common sense test a little better......

It just seems that when SLM is being punished, it has to reflect in the price of the bonds they've issued as the credit rating goes somewhere south of gawdawful.

What an education!

 

[clifp]

Ok now it is my turn to be baffled. I guess you are right market already figured that Flower deal was kaput. (Personally, I thought there was 25% chance of it going through in some fashion.) Still roughly speaking the bonds pay $1.10 a year in interest plus .75c a year in capital appreciation for YTM of ~10-11% the Vanguard junk bond fund is only paying 8%. Is Sallie Mae financial situation that bad? I'm not sure if people are more inclined to default on their student loans or their mortgage with negative equity. Both are bad for your credit rating. Too bad they can't repossess diplomas

 

[youbet]

Ok now it is my turn to be baffled.

We're not taking turns being baffled. I'm always baffled! You just join me once in a while!

YTM of ~10-11% the Vanguard junk bond fund is only paying 8%. Is Sallie Mae financial situation that bad?

And that's my question too. I don't own too much. If it defaults, we won't see any change in lifestyle. I planned to hold to maturity. Still, if I thought they were going to default, I'd take my $4/share loss like a good boy and just chalk it up to lessons learned......like all the other losses I've taken over the years.

 

[haha]

Still, if I thought they were going to default, I'd take my $4/share loss like a good boy and just chalk it up to lessons learned......like all the other losses I've taken over the years.

I think at this time and at these prices, it is probably a reasonable risk to take, as part of a diversified portfolio. I don't think the comparison with Vanguard Hi-Yield is necessarily a good one. That is diversified, this is a one shot deal. And, I wouldn't touch VG Hi-Yield at this time.

Ha

 

[youbet]

I think at this time and at these prices, it is probably a reasonable risk to take, as part of a diversified portfolio.

I do too, as long as it's a small position! I frequently own several small positions in various "adventures" (or so they seem to me) so that I'm interested, pay attention and learn something new. And this one has been very interesting, a completely new area for me.

Here's an interesting read giving an opinion as to why having the buyout fall through is theoretically good for the bond holders but in the case of SLM, not enough and it seems to be a lose - lose for the bond and equity holders.

US CREDIT-Scrapped buyout may not help Sallie Mae | News | Markets | Reuters

 

[youbet]

The CPI-U data for November is out. 4.3% increase year to year. That means ISM will pay 6.36% for the Feb 15 - March 14 period on a par basis. Multiply that by $25/your price to get your yield.

If you bought today at $17.5, your yield for the Feb 15th period would be 9.1%. YTM would, of course, be higher.

 

[clifp]

My holding these bonds is more fun than watching the Daily Show. The not so bad news is the dividend is likely to be cut, sucks to be a stockholder in that situation, not horrible to be a bond holder.

The bad news is just when we thought that management of SLM couldn't get any worse we learn differently. An analyst write up of the conference call with the new CEO.

Here’s one analyst conference call that won’t put you to sleep.

At the beginning of Sallie Mae’s telephonic rendezvous with its investors today, CEO Albert Lord (left) mentioned the buyout deal for the company that fell apart last week. “I’m going to attempt to engage in a little self-defense, hopefully not defensively,” he said. He then proceeded to do just that.
A conference call that will live in infamy, along with that famous Enron call where Jeff Skilling called an analyst a naughty name, started out innocently enough. “The purpose of this call really is to reacquaint myself with you and you with me and try to create some transparency by me as CEO,” Lord, who reassumed that role last week, began. (Transcript courtesy of Thomson Financial.) But things went down hill from there.
First, he snapped at an analyst for asking a follow-up question: “This is the last question I answer that’s more than one part.” Then another analyst beseeches Lord for more data the analyst can use to make forecasts and for more details of Lord’s forced sale of his own shares in the company last week. Lord demurred, saying the analyst should call Steve McGarry in investor relations. The analyst pressed: “But, you’re the CEO. You’re the guy who just took over the Company.” Lord’s response: “Yes, that’s exactly right, I’m the CEO. You should give Steve a call. Next question.”
Lord then recommended that analysts be prepared to go through a metal detector when they attend the company’s analyst meeting in New York in January. Then things really spiral downward. When it appears that no one else wants to ask a question (can you blame them?) Lord says: “How (inaudible) is this? Steve, let’s go. There’s no questions, let’s get the (expletive) out of here.”
Don’t look for that climax in the version of the call Sallie Mae posted on its own Web site. That part was dropped.

 

[youbet]

My holding these bonds is more fun than watching the Daily Show. The not so bad news is the dividend is likely to be cut, sucks to be a stockholder in that situation, not horrible to be a bond holder.

The bad news is just when we thought that management of SLM couldn't get any worse we learn differently. An analyst write up of the conference call with the new CEO.

It sure is! I tell ya, this has really been entertaining.

​

 

[twaddle]

SLM is getting decimated. $20/share just a few months after a $65/share offer!

I bought some today. I didn't even look at their financials. They've obviously got some tough times ahead and a lousy CEO, but I just love it when a solid business gets beat-up like this.

 

[haha]

SLM is getting decimated. $20/share just a few months after a $65/share offer!

I bought some today. I didn't even look at their financials. They've obviously got some tough times ahead and a lousy CEO, but I just love it when a solid business gets beat-up like this.

Me too.

I think the analysts who got dissed by Stupid Lord yesterday are showing him who is boss.

Face it- Flowers is no dummy. He figured that with very favorable terms he could make it work at $65. Even recently he was interested in doing the deal at $50.

Maybe congress did make the playing field a bit less tilted in SLM's favor, but $20.xx? Looks like a margin of error to me.

This is no Proctor and Gamble, but I am not in a position to limit myself to stocks of that quality anyway.

One thing I did learn from my narrow escape with ISM, OSM. No matter how tempting it appears, take it easy on size.

Ha

 

[Darryl]

I definitely need to stay off the computer. I just placed a small limit order at $20 assuming it trips, you guys holler when your selling as I put a little less research in than twaddle.

Heck I guess it's better than buying lottery tickets

 

[haha]

I just placed a small limit order at $20 assuming it trips, you guys holler when your selling as I put a little less research in than twaddle.

Fat chance of that! When it was time to get the hell out of dodge with ISM/ OSM, people went on little cat feet.

Hey, I felt virtuous not to advise that folks step up their buying.

Although there shouldn't be the trading liquidity issues here that exist with ISM/OSM.

Ha

 

[Darryl]

Lol

 

[FIRE'd@51]

I've been adding to my OSM position below 17, so as long as you guys keep collecting a dividend on the common, I'll be happy.

 

[cute fuzzy bunny]

You guys must be realllly holding your nose to be hanging onto this stuff, let alone buying more of it.

But I guess thats what makes investing heroes...and zeros....

 

[youbet]

You guys must be realllly holding your nose to be hanging onto this stuff, let alone buying more of it.

But I guess thats what makes investing heroes...and zeros....

We're looking for a taxpayer funded bailout.

 

[cute fuzzy bunny]

Ahhhh! You cant beat 'em, so join 'em?

Thats a good one!

I'm going out to sign up for a 100% 2/28 interest-only arm later on today. In three years all of you will be paying my mortgage payments!!!

 

[haha]

Damn! Down $1300 in one morning's trading.

¡Vamos a ver que será!