Viacom Preferred Notes VNV 6.85%

[shiny]

Ok, so this isn't really a "stock" and I don't buy many individual issues, so please bear with me on this post...

About 2 years ago I bought some of these notes on the original issue at $25. About a year later when DH and I were going over our accounts and this was hovering around $23 DH suggested that we buy more, so we did (in the tax deferred account this time). Well, yesterday it hit $21 and I bought more - during the middle of the night here in Tokyo (that's a whole other topic - market fueled insomnia in Japan) because the yield now is over 8%.

From everything I can find out about Viacom their profits are solid, and I'm hoping that these notes are just going down because everything else it.

Anyway, they are REALLY long term, like 12/15/55, callable in 2011.

Thoughts?

 

[haha]

Anyway, they are REALLY long term, like 12/15/55, callable in 2011.
Thoughts?

As you know Shiny I have had my scrapes with low quality fixed income securities. There always seem to be bats flying out of caves, sooner or later.

My only possibly useful thought here is that if by some chance interest rates go down, they call these notes. On the other hande, if rates should go way up, you will have a capital loss because higher quality bonds will be available also with high yields.

If inflation seems like a real possibility, this doesn't seem like a good trade-off.

Ha

 

[brewer12345]

Shiny, I looked at the prospectus for these things and they are senior unsecured bonds issued by Viacom. So in the event of a bankruptcy, you and the other senior unsecured holders would rank behind bank and other secured debt, but ahead of everyone else. This is significantly better than a preferred.

A (very) brief look at Viacom shows a healthy operating company with very nice properties and not too much debt. I don't see anything obvious wrong with the company's credit profile. I think you are seeing the bonds trade down because credit spreads on everything under the sun (gummint backed mortgage bonds, Berkshire Hathaway bonds, down to corporates and junk) have blown way out. And when credit spreads widen the longer the maturity the farther out they go. If the credit markets ever calm down, you will see your bond price drift up, although not much above par even in the best case given that they are callable. In the meantime, you get to clip 8% yield, so I don't see a problem with that. But the price could certainly slide further.

 

[shiny]

Thanks guys for looking into this for me.

Ha, you know I don't have as big a stake in this as you deal with - so don't worry!

Brewer, thanks for the confirmation that there is nothing glaringly obvious that I missed. We're not expecting big gains, but didn't really expect a big fall either - oh well, I'll just appreciate the yield for now.

I did come across the fact that John Hancock owns about 25% of this for a couple of their mutual funds. interesting

 

[shiny]

Viacom reported better than expected earnings. That's a bit of a relief!

Viacom says strong film slate boosts 2Q revenue - Jul. 29, 2008

 

[innova]

Who knows. You may regret not purchasing VTI instead.

HY notes are a crapshoot. If rates rise, NAV dies. Risk of default. If rates lower, they call them in.

All the risk, none of the upside. If I was retired I may be lured by the high payout but certainly not at this point in my life.

In a way this isn't much different than those 12% iceland CDs you read about

 

[brewer12345]

All the risk, none of the upside.

I have seen this sentiment expressedseveral times ion the forum. I am curious: if you buy a bond with an 8%coupon (at par) and pay 60 cents on the dollar, are you still convinced there is no upside if it iis called or matures?