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We have a couple of new recommendations and a few important updates on some of our bonds.
As you’ll see below, we have two really solid bond investments closing out this week, which makes this the perfect time to introduce two new superbonds.
I know both of these companies well. One has a MEAR of 12%, and the other has a MEAR of 14%.
I’m doing things a little differently today. I’m explaining why I like these bonds and giving you the exact recommendations in a video.
Watch the video above to learn about the new superbonds.
In addition, I’ve negotiated a special discount you can take advantage of when you renew your Oxford Bond Advantage subscription today. Renew your subscription HERE.
Take Profits on iStar Bonds
Our time with the iStar Inc. (CUSIP 45031ucg4) August 1, 2025, 4.25% coupon bonds is coming to an end.
IStar is in the process of merging with Safehold (NYSE: SAFE) and is planning to redeem our bonds on March 31, 2023.
The redemption price of our 2025 notes is equal to 100% of the principal amount, plus accrued and unpaid interest. We’ll also take home a small capital gain since we bought the bonds at a discount.
When we purchased these bonds in February 2022, the 4.4% MEAR that we locked in through maturity was an excellent rate of return relative to what the market had to offer. Since then, interest rates have increased significantly and there are now higher MEARs out there.
For that reason, I’m not disappointed that we are getting repaid early on these bonds. We can now take the proceeds and reinvest them into something that earns an even higher rate of return.
This was a very low-risk investment for us.
Immediately before we purchased our bonds, iStar had added a whopping $1.1 billion of cash to its balance sheet from selling a legacy building portfolio. The company was cash-rich and in a great position to make our contractually obligated interest and principal payments.
As a bond investor, I’m always focused on the balance sheet first. IStar’s mountain of cash made these bonds a perfect addition to our portfolio.
Now we can redeploy the money we had invested in iStar elsewhere. You don’t have to take any action. The funds will automatically be deposited in your account.
Speaking of bonds being called, today is the call date for our Service Properties Trust (CUSIP 44106mar3) June 15, 2023, 4.5% coupon bonds. The funds should hit your account today.
Coupa Software Has Been Acquired
Not long after we added the iStar bonds to the portfolio last year, we also purchased the Coupa Software (CUSIP 22266laf3) June 15, 2026, 0.375% coupon convertible bonds.
That was on March 23, 2022.
Now Coupa has been acquired by the private software investment firm Thoma Bravo.
These were convertible bonds where we had the option of converting them to Coupa Software shares at $296 per share. The takeover price is $81 per share, so we didn’t have nearly enough time to see our convertible get in the money. It is not yet clear what will happen to the convertible feature of these bonds. We’ve been speaking with Coupa’s investor relations department to try to get an answer. I’ll let you know as soon as I find out.
The bonds are currently trading at $99.68, which is just a smidgen under par value.
Our purchase price was just $85, so we have an open gain of nearly 18%!
Revlon Update
There is still no new information on the warrants that Revlon bondholders will receive.
You may have received requests to vote on two matters regarding the bankruptcy settlement. I recommend you vote for both, which will move the process forward.
I’ll continue to update you as new details emerge.
Mailbag
When they have a call for bonds, can the call be made for any price, or do they have to pay the $1,000 price? Thank you. – George W.
When a company issues bonds, all potential call prices are listed in the SEC filings. Bonds are typically called at par value ($1,000) or for a slight premium. Sometimes, a bond will have a call schedule.
For example, let’s say we have a bond that matures on June 1, 2027. It may have the following call schedule:
- June 1, 2023: $103
- June 1, 2024: $102
- June 1, 2025: $101
- June 1, 2026: $100.
That means if the bond is called between June 1, 2023, and May 31, 2024, bondholders will receive $103 ($1,030) per bond. If it’s called between June 1, 2024, and May 31, 2025, they will receive $102 ($1,020), etc.
We always know in advance of buying a bond what the possibilities are for the bond being called. If a bond is called, you have no choice and the bonds will automatically be sold.
A tender offer is different. A company can offer to buy back your bonds at any time at any price. It’s your choice whether you want to sell. The company could offer to buy back your bond at a premium or at a discount. It depends on market conditions. But if you do not want to sell, you don’t have to.
Hoping your longs go up and your shorts go down,
Marc