Bond Early Redemption Offer

[jazz4cash]

This issue has an early redemption offer and I need to figure out how to analyze. I haven’t been through this before. The CUSIP is 500255AU8 Kohl’s Corp. My basis is 101 and last price posted is 109. It says early redemption premium could net 109.8 but I think it could be oversubscribed. Thoughts? I think I would be happy to clip the 4.25 coupon for 4 yrs.

 

[pb4uski]

Do you have an alternative source to invest 4 for years with similar credit risk that can yield more than 1.746%?

 

[jazz4cash]

Nope. I need help to analyze the early tender offer. I think I need to compare that to just holding or some other option.

EDIT: I could actually get a MYGA but the coupon and my yield on cost is fogging my brain.

 

[bobandsherry]

This issue has an early redemption offer and I need to figure out how to analyze. I haven’t been through this before. The CUSIP is 500255AU8 Kohl’s Corp. My basis is 101 and last price posted is 109. It says early redemption premium could net 109.8 but I think it could be oversubscribed. Thoughts? I think I would be happy to clip the 4.25 coupon for 4 yrs.

Other alternatives to bring same yield and let you pocket the gain. I'd redeem it and find a secure investment grade preferred stock, maybe a UTE.

 

[jazz4cash]

Here are some details from the offer:
A total cash payment to be determined by reference to the fixed spread of
85 basis points plus the yield based upon the bid side price of the U.S.
Treasury Bonds 0.750% due 03/31/2026, as quoted on page FIT1 on the
Bloomberg reference bond trader series of pages at 10:00 a.m., New York
City time, on April 12, 2021 (the price determination date).


If you tender your notes PRIOR to the early tender date you will
receive the total consideration offered above which includes an early
tender premium equal to $30.00 per $1,000 principal amount. The early
tender premium is included in the fixed spread formula. *
The hypothetical total consideration, assuming a hypothetical price
determination date of 03/26/2021, 10:00 a.m. New York City time, is
$1,098.18 per $1,000 principal amount.

I paid 100.84 for this bond in Sept '20. I think I should take this offer but there is some uncertainty about the actual amount that will be paid to redeem.

 

[njhowie]

Here are all the details for everyone else to work with:

https://www.sec.gov/Archives/edgar/data/885639/000119312521097574/d146110dex991.htm

I agree with bobandsherry - I would tender and take the cash for as many of my bonds as they will redeem. Since the priority is the 9.5% notes first and then your 4.25% notes up to a total of $1B, it's guaranteed you'll have some amount of what you offer taken - likely all of them, assuming some amount of the 9.5% and your 4.25% won't tender.

Keep in mind you have unsecured BBB- rated bonds - not the greatest credits out there, on the border of being considered junk bonds. There are strong preferreds out there, a couple which I pointed out on the CD thread (for example) paying 6% to 7%. You could get stronger issues for somewhat lower yield, however most, even from the strongest, will pay significantly more than 1.746% annually. Sure, there is some risk, but less than an unsecured BBB- corporate bond.

 

[njhowie]

Do you have an alternative source to invest 4 for years with similar credit risk that can yield more than 1.746%?

I believe the reference yield for comparison should be 1.843%...YTM based on the 109.818 jazz would receive with a settlement date of April 13. I used Fidelity's price/yield calculator with the appropriate parameters to come up with the 1.843%.

Of course 0.097% is not huge, but it's basically 0.1%, and these days with current rates, it is a consideration.

Update... Thinking one step further, this all assumes no fees are involved. Obviously holding to maturity there would be no fees. However, I would call my broker and just confirm that if I tender they would not charge me any fees. They shouldn't, but I don't think it's a certainty depending on the broker.

On Fidelity's fee page, they indicate Voluntary Corporate Reorganization Fee of $0, which is what I believe this would fall under (technically "Corporate Action"). I did see a reference from an article (not sure how old) indicating Fidelity charged a $38 fee for voluntary tender. So again, I would call your broker and confirm if there is any fee involved and if so, include in your reference rate calculation.

 

[pb4uski]

I doubt that 9.7 bps would change the decision, but I don't disagree.

 

[jazz4cash]

Thanks for the responses. I see a small qty of trades today. Customer sells for 109.5 so I'm not seeing much premium to tender my shares.

 

[jazz4cash]

Price Quantity Yield Date Buy/Sell Trade Attributes
109.5 5 1.804 4/1/2021 10:55:38 Customer Sell NREM
109.5 5 1.804 4/1/2021 10:55:13 Customer Sell NREM
109.504 10 1.795 4/1/2021 10:55:05 Dealer to Dealer
109.51 5 1.801 4/1/2021 10:51:57 Customer Sell NREM
109.51 5 1.801 4/1/2021 10:51:57 Dealer to Dealer ATS
109.52 5 1.799 4/1/2021 10:51:47 Customer Sell NREM
109.52 5 1.799 4/1/2021 10:51:47 Dealer to Dealer ATS
109.805 5 1.721 4/1/2021 10:13:30 Customer Buy
109.705 5 1.746 4/1/2021 10:13:30 Dealer to Dealer ATS
109.639 10 1.762 4/1/2021 10:06:57 Dealer to Dealer
109.389 10 1.823 4/1/2021 10:06:57 Customer Sell
109.523 20 1.790 4/1/2021 09:31:14 Dealer to Dealer ATS
109.423 20 1.815 4/1/2021 09:31:14 Customer Sell
109.536 12 1.787 4/1/2021 09:01:58 Dealer to Dealer ATS
109.437 12 1.812 4/1/2021 09:01:58 Customer Sell
109.498 2000 1.795 4/1/2021 08:20:55 NMAB