Callable Step‑up Note - Jefferies Group LLC

[BergLust]

I'm not so familiar with callable step-up notes, however TD Ameritrade sent me a targeted offer for a Jefferies Group LLC callable step-up note. The details are below:

CUSIP: 47233JBR8
Ratings: Baa3/BBB-
Order Period: Until 02/13/2019
Coupon: 5.10% to 02/19/2025; 6.00% to 02/19/2030; 7.00% to 02/19/2034
Maturity: 02/19/2034
Payment Frequency: Semi-Annual
Call Status: Callable 02/19/2025 & 02/19/2030 @100
Not FDIC insured.

I have a Domestic/International/Bond, strategy. Quite simple. Would this fit into the bond category well? Any thoughts or suggestions would be appreciated.

 

[COcheesehead]

Do you need/want the income?
This is on the low end of quality and has some risk associated with it so don't think this is a sure thing. If down graded at any point it could be rated junk and that pushes the value down, which doesn't really matter if held to maturity, but if you need to sell it, you could take a hit. It could also go to zero.
The step up means, that if it is not called by those dates, the coupon steps up in value.
Are they selling it at par? $1000 per bond?

 

[OldShooter]

I don't even look at things like this. First, I don't buy things I don't understand. Second and more importantly, things like this are offered to retail investors only if they are too stinky to be successfully sold to the broker's institutional and heavy hitter customers.

After using my general rules, I looked at the filing. One special treat there is this: "The Notes will not be listed on any securities exchange and secondary trading may be limited. " I also found: "The inclusion of commissions and projected profit from hedging in the original issue price is likely to adversely affect secondary market prices." I didn't even bother to figure out what that means.

Run, don't walk. The person offering this to you is not your friend.

https://www.streetinsider.com/SEC+F...fferies+Group+LLC/15032131.html#psrom626323_4

 

[BergLust]

Do you need/want the income?
This is on the low end of quality and has some risk associated with it so don't think this is a sure thing. If down graded at any point it could be rated junk and that pushes the value down, which doesn't really matter if held to maturity, but if you need to sell it, you could take a hit. It could also go to zero.
The step up means, that if it is not called by those dates, the coupon steps up in value.
Are they selling it at par? $1000 per bond?

Thanks for the reply. No, I don't need the income. It was just an offer that came in my email and I'm curious about it and hoping to at least learn something. As far as risk goes, do you know where the risk comes from that you mention? Yes, it is at $1K per note.

 

[BergLust]

I don't even look at things like this. First, I don't buy things I don't understand. Second and more importantly, things like this are offered to retail investors only if they are too stinky to be successfully sold to the broker's institutional and heavy hitter customers.

After using my general rules, I looked at the filing. One special treat there is this: "The Notes will not be listed on any securities exchange and secondary trading may be limited. " I also found: "The inclusion of commissions and projected profit from hedging in the original issue price is likely to adversely affect secondary market prices." I didn't even bother to figure out what that means.

Run, don't walk. The person offering this to you is not your friend.

https://www.streetinsider.com/SEC+F...fferies+Group+LLC/15032131.html#psrom626323_4

Thanks for the tips oldshooter. I'll look into that link.

 

[COcheesehead]

Thanks for the reply. No, I don't need the income. It was just an offer that came in my email and I'm curious about it and hoping to at least learn something. As far as risk goes, do you know where the risk comes from that you mention? Yes, it is at $1K per note.

The rating services will grade it based on the company's ability to cover the debt. BBB- is just one step up from speculative and the default rates go up considerably at that point.

Here is a good chart/article to reference on bond ratings.

https://en.wikipedia.org/wiki/Bond_credit_rating

 

[OldShooter]

... I'll look into that link.

With respect, no. Just run unless you're pursuing this strictly as an educational opportunity.

 

[OldShooter]

The rating services ...

There is a quite telling scene in the movie "The Big Short" where a lady at a rating service patiently explains to an interviewer that if they didn't give favorable ratings, no one would hire them.

Personally, the ratings are the least important thing for me in a deal like this one. YMMV, of course.

 

[Sojourner]

You may find something of interest in this thread I started a few months ago about a similar callable step-up note. The note I was posting about had a higher rating and much earlier maturity, but many of the concepts discussed are just as relevant.

http://www.early-retirement.org/forums/f28/callable-step-up-note-3-50-a-94652.html

 

[braumeister]

things like this are offered to retail investors only if they are too stinky to be successfully sold to the broker's institutional and heavy hitter customers.

Exactly.
And compounded by the almost nonexistent liquidity, this is nothing but a sucker's bait.