I preface this post by reminding visitors that I do not give investment advice with this blog. I might muse about investment decisions I’m making for clients, or for myself, but nothing at all I say will be advice. Ever. Never. I’m serious. The bottom line is this. If you own a varied portfolio of stocks, odds are good one or more of them shall become an LBO focus on, and you shall enjoy wonderful earnings.
If you own a diversified portfolio of corporate and business bonds, a number of of them will become an LBO focus on, and you will suffer. I wrote that knowing that at some true point, it could hit the portfolios I take care of. Today, rumors are swirling about Alltel, which is among my largest bond holdings. This brings up two rewarding questions. First, knowing that a stock portfolio of corporate bonds will probably include some LBO targets at some point, why not eliminate your corporate and business bond holdings? Let’s say you have a stock portfolio of investment-grade bonds which produces 100bps more than a similar profile of Treasuries.
Now suppose that 10% of your positions wind up being LBO focuses on, and these bonds all lose 5 points. That’s about 50bps in deficits on a collection that started out yielding 100bps more. And I must say, even though you were seeking to buy bonds which were potential LBO focuses on, if you own 30-50 titles, winding up with 10% actually getting bought out would be difficult. The second reason is, how to proceed if you hold Alltel bonds now?
The 2012 issue, which is well-traded, has shifted about 40bps wider over the last 2 weeks, all on speculation that Alltel is actually a private equity target. So there is a fair-sized LBO probability priced in already. So that implies that if the LBO thing doesn’t happen, but another telecom thinks Alltel’s wireless network is worth buying, there might be 100bps of here tightening up. Since the Alltel thing is all rumor no known fact right now, we can’t say what kind of balance sheet the privatized Alltel might have. 310 to the 10-season. That seems such as a acceptable limit to your downside.
- 5 Global Bank or investment company Kiosks Production, Revenue (Value), Price Trend by Type
- 6 Global Investment Management Software Market Analysis by Application
- Yields on short-term relationship are more volatile than long term bonds produces
- 58 Sec. 705
Another possibility is for private equity to buy Alltel and then dress it up for a sale back to another telecom. If that occurs, there might be less leverage involved than in other transactions. Overall, I’m keeping my Alltel bonds. Its risky, but I think the risk/reward will probably be worth it.
With Uber, it is true that you and I are restricted in what we can do, since the company continues to be private. However, it is also clear that the explosive growth in the estimated value of the business sets it on a path to being public (sooner, rather than later), at which point our valuations will become actionable. The only updated income numbers came from an article in Business Insider, which appears to be one the company’s preferred venues for leaking selective information.