Golden sunsets
Thinks s/he gets paid by the post
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- Jun 3, 2013
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Abbreviated story-we bought a Cliff Natural Resources bond just above par, 4.8% due 10/1/2020, a few years ago. Yield is 4.66%. The bond was investment grade when purchased but slipped to junk shortly afterward. Cliff's primary product is domestic iron ore, but they expanded into other areas geographically as well as product wise and got caught by the recession, bad management and Chinese steel dumping. They retrenched, hired new management, did a cram down to debtholders of bonds due in 2018 and limped along until about a year ago. The bond price dipped to as low as 28 at one point. Then everything turned around, the result of of their downsizing and cost cutting and economic reversal.
Q4 2016 showed a decent profit. The bond value had come back to the mid 90's in the last few months. The day after filing their earnings last week, Cliff issued a tender offer for all of their debt due in 20 and 21, based on raising a capital offering of common stock. The tender offer is for 100.10 and the paperwork must must be filed by March 9th. Subsequent to the tender offer on the 9th, the bond quote as of Friday the 10th is 99.10. Commentary on Seeking Alpha reflects confidence that the company is no longer in any danger of failing. The bond is part of our bond ladder and represents the approximate value of an RMD in 2020 in one of our IRA's, so the maturity is matched to a specific cash need. If we redeem early we should replace the bond with another of similar maturity, which would yield around 2%, a significant decrease in income.
What would you folks do if you were in our shoes-keep it until maturity along with the juicier yield or take the bird in the hand and invest in a lower yield bond and take less income for the next 4 years. The bond represents approximately 1.5% of our investment portfolio.
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Q4 2016 showed a decent profit. The bond value had come back to the mid 90's in the last few months. The day after filing their earnings last week, Cliff issued a tender offer for all of their debt due in 20 and 21, based on raising a capital offering of common stock. The tender offer is for 100.10 and the paperwork must must be filed by March 9th. Subsequent to the tender offer on the 9th, the bond quote as of Friday the 10th is 99.10. Commentary on Seeking Alpha reflects confidence that the company is no longer in any danger of failing. The bond is part of our bond ladder and represents the approximate value of an RMD in 2020 in one of our IRA's, so the maturity is matched to a specific cash need. If we redeem early we should replace the bond with another of similar maturity, which would yield around 2%, a significant decrease in income.
What would you folks do if you were in our shoes-keep it until maturity along with the juicier yield or take the bird in the hand and invest in a lower yield bond and take less income for the next 4 years. The bond represents approximately 1.5% of our investment portfolio.
Sent from my iPad using Early Retirement Forum
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