ISM/OSM yet again

[youbet]

I suppose there may be fear of political change and an expansion of federal direct loan programs, but that is a possibility not at all a reality yet. This kind of thing can get very expensive to an already overburdened treasury.

That's my guess...... Fear of a Dem win and them having the gov't grow it's involvement with student loans in direct competition with SLM.

But gee..... these prices are attractive to us greedy folks! If SLM caved in and the bond holders got only 60% ($15) of PAR, they still make a capital gain.... and collect 12% - 13% interest in the meantime.

It's kind of falling into the "too good to be true category" for me.

 

[youbet]

There is an unusually large offer of 3000 shares at $13.98.

Where are you looking to see that info?

 

[FIRE'd@51]

Where are you looking to see that info?

Just go to your broker's internet page and a bid size and offer size should be shown as part of the quote. I just looked at Vanguard and the market for ISM was:

13.82 - 13.97 the size was 1 x 6 which means 100 shs bid and 600 shs offered at those prices

For OSM it was:

14.60 - 14.78 the size was 10 x 3

 

[youbet]

Just go to your broker's internet page and a bid size and offer size should be shown as part of the quote. I just looked at Vanguard and the market for ISM was:

13.82 - 13.97 the size was 1 x 6 which means 100 shs bid and 600 shs offered at those prices

For OSM it was:

14.60 - 14.78 the size was 10 x 3

Thanks! I went and checked and sure'nuff, there it was.

 

[cute fuzzy bunny]

It might mean that the bond holders know more than the equity holders.

 

[haha]

It might mean that the bond holders know more than the equity holders.

Have you seen the trading volume on these things? Hard to put much confidence in that.

Ha

 

[cute fuzzy bunny]

Maybe the bondholders are just more terrified than the equity holders.

I figure people who bought the bonds in the last two years since just before the CEO went batshit bought them planning to keep them until maturity. Hence the volume.

 

[clifp]

The interesting thing will be to see what happens to Fannie Mae and Freddie Mac bond holders. Has anybody looked the prices of their bonds or other SLM bonds?

 

[FUEGO]

I've been following this one for a while. Just arbed 500 sh of ISM out at 13.63 and got into OSM at 13.70 to replace the 500 sh of ISM, plus I added another 100 sh of OSM on the same trade to bring me to 600 sh OSM. The spread between ISM and OSM when ISM is at 13.63 works out to about $0.60 in OSM's favor (ie OSM at 14.23 ~ ISM at 13.63). So I picked up maybe $0.50 a share in "value" after commissions. And a nice juicy short term capital gains loss (that's been happening a lot this year...).

All play money, BTW. Looks like the spreads are widening back out now. Let's hope this one doesn't go belly up. The common holders must not be worried about that...

Anybody look at JSM? It was selling at half off par last I checked earlier today.

 

[haha]

I am sure you ISM/OSM Diehards have been glued to this one. I've been glued, and also buying some. Today for example all the debt that trades on the NYSE-ISM, OSM, JSM went down pretty strong. But SLM, the common, went up on good volume.

As far as I can tell, though there have been some negative news items, there are more important positive ones. Plus, money for college has to come from somewhere since not too many save adequately for it.

One thing for sure- I am really glad I got out of my oversized position a year ago or whenever the JC Flowers thing first hit. Still, I am happy to build a part of it back. We'll see if I am right or wrong.

Ha

 

[cute fuzzy bunny]

Holy frijoles...ISM under $12...

How low can she go?

 

[copyright1997reloaded]

The interesting thing will be to see what happens to Fannie Mae and Freddie Mac bond holders. Has anybody looked the prices of their bonds or other SLM bonds?

This has to be compared to unsecured debt. From quantum online (http://www.quantumonline.com/search.cfm) on ISM:

The Notes are Medium Term Notes, Series A, which are unsecured and unsubordinated obligations of the company and will rank equally with all existing and future unsecured and unsubordinated indebtedness of the company.

A typical Fannie Mae unsecured is NYSE, New York Stock Exchange > Listings > Listings Directory
which closed today about $2.50 (this was a $50 preferred)

Regarding ISM, I feel folks pain on this one. I have 500 ISM, $10,600 cost basis, $5950 current value...sitting in an IRA so no tax loss

 

[FIRE'd@51]

This has to be compared to unsecured debt. From quantum online (http://www.quantumonline.com/search.cfm) on ISM:
A typical Fannie Mae unsecured is NYSE, New York Stock Exchange > Listings > Listings Directory
which closed today about $2.50 (this was a $50 preferred)

This really isn't comparable, since it is preferred stock, not unsecured debt. As I understand it, the way the conservatorship will work is, no preferred dividends on FNM or FRE will be paid until the gov't receives its 10% on its Senior Preferred. Also, the FNM preferred is non-cumulative, so any missed dividend is gone forever. ISM/OSM rank ahead of any SLM preferred in the pecking order.

 

[brewer12345]

This really isn't comparable, since it is preferred stock, not unsecured debt. As I understand it, the way the conservatorship will work is, no preferred dividends on FNM or FRE will be paid until the gov't receives its 10% on its Senior Preferred. Also, the FNM preferred is non-cumulative, so any missed dividend is gone forever. ISM/OSM rank ahead of any SLM preferred in the pecking order.

Don't confuse us with facts, common sense, and SEC documents...

 

[copyright1997reloaded]

This really isn't comparable, since it is preferred stock, not unsecured debt. As I understand it, the way the conservatorship will work is, no preferred dividends on FNM or FRE will be paid until the gov't receives its 10% on its Senior Preferred. Also, the FNM preferred is non-cumulative, so any missed dividend is gone forever. ISM/OSM rank ahead of any SLM preferred in the pecking order.

You're right. In my haste to answer the question of how it might compare to Fannie/Freddie, I picked a bad example (the FNM preferred stock). So, if SLM goes down the tubes it most likely won't trade @ 2.50/50 = 5 cents on the $. However, it is unsecured.

 

[copyright1997reloaded]

Don't confuse us with facts, common sense, and SEC documents...

Do you have a current opinion on this at this price?

 

[haha]

You're right. In my haste to answer the question of how it might compare to Fannie/Freddie, I picked a bad example (the FNM preferred stock). So, if SLM goes down the tubes it most likely won't trade @ 2.50/50 = 5 cents on the $. However, it is unsecured.

Would you expect to get a 15% yield on adequately secured debt? (JSM)

Ha

 

[ERD50]

Would you expect to get a 15% yield on adequately secured debt? (JSM)

Ha

Brilliant!

that is all/Ye know on earth, and all ye need to know

15% yield pretty much tells the story, don't it?

-ERD50

 

[youbet]

This has to be compared to unsecured debt. From quantum online (http://www.quantumonline.com/search.cfm) on ISM:
A typical Fannie Mae unsecured is NYSE, New York Stock Exchange > Listings > Listings Directory
which closed today about $2.50 (this was a $50 preferred)

Regarding ISM, I feel folks pain on this one. I have 500 ISM, $10,600 cost basis, $5950 current value...sitting in an IRA so no tax loss

I got an info email from Schwab saying that unsecured debt of AIG is currently estimated to pay owners 60% to 80% of par when it all washes out. If SLM craps out and I got 70% of par, I'd be OK.

 

[cute fuzzy bunny]

Anyone else find it hilarious that some folks are wigging out about losing 10-20% on their equities, while others are okay with a 30% loss on a bond?

 

[haha]

I got an info email from Schwab saying that unsecured debt of AIG is currently estimated to pay owners 60% to 80% of par when it all washes out. If SLM craps out and I got 70% of par, I'd be OK.

Does Schwab do that research, or is that some third party feed? Seems like it could be quite helpful.

Ha

 

[youbet]

Brilliant!

that is all/Ye know on earth, and all ye need to know

15% yield pretty much tells the story, don't it?

-ERD50

I certainly agree that a market price generating 15% returns certainly says buyers expect big rewards for their risk on this one. But I am curious why the volume remains low, a few thousand shares a day. Are there just a handful of neverous nellies willing to sell at these prices?

 

[haha]

I certainly agree that a market price generating 15% returns certainly says buyers expect big rewards for their risk on this one. But I am curious why the volume remains low, a few thousand shares a day. Are there just a handful of neverous nellies willing to sell at these prices?

In my opinion, yes. Today I think JSM was down over 15% on low volume, while SLM was up about 5% on over 14 million shares. That is a lot more people voting for the junior security than are voting against the senior one.

I don't think we can learn anything useful from the quoted prices of these backwater low volume small issues, other than that is what we can buy or sell at.

ha

 

[youbet]

Does Schwab do that research, or is that some third party feed? Seems like it could be quite helpful.

Ha

Oooops..... I said AIG. I meant Lehman. Here's what they said:

One firm (CreditSights) estimated on September 14 that senior, unsecured debt of Lehman Brothers may receive 60 cents to 80 cents on the dollar in the event of a bankruptcy filing. Note that this is an estimate of what the bondholders may eventually receive. The bonds may trade at substantially different values and, as of September 16, were trading much lower.

The CreditSights site says they offer no products/services for retail investors.....


http://www.schwab.com/public/schwab...nt_commentary/wall_street_crisis_and_you.html

 

[brewer12345]

Do you have a current opinion on this at this price?

I do not express buy or sell opinions on securities here any more, as a general rule.

If you are considering buying a bond at a significant discount to par, you need to figure out a few things:

- How likely is this bond to default? Tough to figure in many cases. In the case of Sallie, it seems that the government has decided to pump liquidity into the student loan market no matter what and at what appear to be advantageous terms, so an immediate liquidity shock seems unlikely. But we are talking about a 30+ times levered vehicle, which is "interesting" even if the bulk of assets are guaranteed by uncle sam.

- What will I recover if the bond does default? One should try to come up with both a liquidation value based on unencumbered assets as well as a valuation based on the senior unsecured bonds converting into the equity of a post bankruptcy company. In Sallie's case, the key to figuring out what % of par one is likely to recover hinges on comparing the unencumbered assets (that are not hocked to secured creditors) to the par amount of senior unsecured debt outstanding.

- AmI being adequately compensated for the risk I am taking? If the security in question pays a fat current/strip yield and your estimate of recovery upon default is in excess of the current trading price, it is hard not to find such a bond attractive. OTOH, if you get a high current yield but would suffer a large loss vs. the current price upon default, you are playing with fire.