Events/Stowe/Stowe VT 2016 07 18 Steve McDonald
Going Forward • How much would you be worth if 90% of everything you ever owned returned 5% to 50%.
BONDS Despite Everything that has Gone Wrong
The Market So Far • • • • • • • •
Coal, the SOTUS and the President Commodities The Saudis/Oil Market China The Dollar The Fed and the Press The Selloffs, offs not off Brexit
Deliver? • • • •
Recommendations Losses to date Despite 2015, 2016 Still earned our minimum, 6% to 45%
Rules of the Road • • • •
Assume maturity Do nothing Small Positions Spread out the risk – Ratings diversification – Company and industry diversification – Short
• Own as many as you can manage • Risk envelope
Quality Distribution
Sticking to your Guns • • • •
Assumption The odds 1994, 2008, 2015, 2016 Mental Preparation
A head game • Keep you in your bond
Turn Around • • • • • • • •
Ichan 80 to 95 FCX 44 to 72 Chesapeake 14 to 75 US Steel 46 to 90 Continental 65 to 98 Talen 52 to 79 AK Steel 33 to 97 Cliff 11 to69
Sell When they’re Down? • 4% loss ratio v 70%
Ensco • • • • • • •
29358qae9 BBB 5.2% Coupon 78.6 8.7% Low 49.62 8.75 years
Seagate • • • • • • •
81180wal5 BBB4.75% Coupon 87.2 6.7% Low 72.75 8.5 years
DPL • • • • • • •
256882ad3 BB 7.25% Coupon 99 7.28% Low 91 5.5 years
FCX • • • • • • •
35671dbl8 4.55% Coupon BB 89.5 6.1% Low 41.5 8 years
Taseko • • • • • • •
87651ab2 7.75% Coupon CCC 68.4 24% Low 47 3 years
Ta Da! • • • • •
It’s the minimum! Finite Predictable Reduce risk Increase income
The Golden Ticket • Known Finite Value
Some things never change • Coupon/Dollar Amount • MEAR • total int. + discount – AI / price / time x 12
Some things do… • Prices • Rates
Rate Increases • Price correlation to increases
CHK
Chesapeake 165167bu0 • • • • • • • •
6.875% coupon Maturity 11/15/20 Cost 45.8 Annual Yield 29% EPS $-.41 to $+.36 Rev +6.4% Debt/C/CF 10B/.825B/1.2B CC
Freeport
FCX 35671dbh7 • • • • • • • •
4% 11/14/21 71.8 10.86% EPS $.15 to $.79 Rev. 7.2% Debt/c/cf 20B/.22B/3.22B BB
Harsco
Harsco 415864aj6 • • • • • • • •
Coupon 5.75% Maturity 5/15/18 Cost 86 Annual Yield 13.68% EPS .25 to .47 Rev 5.9% Debt/c/cf 911M/79M/121.5M BB-
Kinross
Kinross 496902an7 • • • • • • • •
Coupon 5.95% Maturity 3/15/24 Cost 89 Annual Yield 8.36% EPS -.02 to 0 Rev. -.8% Debt/c/cf 1.98B/1.06B/.831B BB+
Transocean
RIG 893830bb4 • • • • • • • •
Coupon 7.125% Maturity 12/15/21 Cost 67.5 Annual Yield 16.06% EPS .28 to -.64 Rev. -13% Debt/c/cf 8.4B/2.34B/3.44B BB+
Minimum • Can’t drop • Can go up
Expected • Guaranteed by the company • 80 year average • Current market average
Annual • Every six months • Principal returned at maturity
BONDS Despite Everything that has Gone Wrong
The Market So Far • • • • • • • •
Coal, the SOTUS and the President Commodities The Saudis/Oil Market China The Dollar The Fed and the Press The Selloffs, offs not off Brexit
Deliver? • • • •
Recommendations Losses to date Despite 2015, 2016 Still earned our minimum, 6% to 45%
Rules of the Road • • • •
Assume maturity Do nothing Small Positions Spread out the risk – Ratings diversification – Company and industry diversification – Short
• Own as many as you can manage • Risk envelope
Quality Distribution
Sticking to your Guns • • • •
Assumption The odds 1994, 2008, 2015, 2016 Mental Preparation
A head game • Keep you in your bond
Turn Around • • • • • • • •
Ichan 80 to 95 FCX 44 to 72 Chesapeake 14 to 75 US Steel 46 to 90 Continental 65 to 98 Talen 52 to 79 AK Steel 33 to 97 Cliff 11 to69
Sell When they’re Down? • 4% loss ratio v 70%
Ensco • • • • • • •
29358qae9 BBB 5.2% Coupon 78.6 8.7% Low 49.62 8.75 years
Seagate • • • • • • •
81180wal5 BBB4.75% Coupon 87.2 6.7% Low 72.75 8.5 years
DPL • • • • • • •
256882ad3 BB 7.25% Coupon 99 7.28% Low 91 5.5 years
FCX • • • • • • •
35671dbl8 4.55% Coupon BB 89.5 6.1% Low 41.5 8 years
Taseko • • • • • • •
87651ab2 7.75% Coupon CCC 68.4 24% Low 47 3 years
Ta Da! • • • • •
It’s the minimum! Finite Predictable Reduce risk Increase income
The Golden Ticket • Known Finite Value
Some things never change • Coupon/Dollar Amount • MEAR • total int. + discount – AI / price / time x 12
Some things do… • Prices • Rates
Rate Increases • Price correlation to increases
CHK
Chesapeake 165167bu0 • • • • • • • •
6.875% coupon Maturity 11/15/20 Cost 45.8 Annual Yield 29% EPS $-.41 to $+.36 Rev +6.4% Debt/C/CF 10B/.825B/1.2B CC
Freeport
FCX 35671dbh7 • • • • • • • •
4% 11/14/21 71.8 10.86% EPS $.15 to $.79 Rev. 7.2% Debt/c/cf 20B/.22B/3.22B BB
Harsco
Harsco 415864aj6 • • • • • • • •
Coupon 5.75% Maturity 5/15/18 Cost 86 Annual Yield 13.68% EPS .25 to .47 Rev 5.9% Debt/c/cf 911M/79M/121.5M BB-
Kinross
Kinross 496902an7 • • • • • • • •
Coupon 5.95% Maturity 3/15/24 Cost 89 Annual Yield 8.36% EPS -.02 to 0 Rev. -.8% Debt/c/cf 1.98B/1.06B/.831B BB+
Transocean
RIG 893830bb4 • • • • • • • •
Coupon 7.125% Maturity 12/15/21 Cost 67.5 Annual Yield 16.06% EPS .28 to -.64 Rev. -13% Debt/c/cf 8.4B/2.34B/3.44B BB+
Minimum • Can’t drop • Can go up
Expected • Guaranteed by the company • 80 year average • Current market average
Annual • Every six months • Principal returned at maturity
