A Potential 6.875% (annualized) on this Baby Bond

Earlier today I had seen a press release from CenturyLink which carried within it an announcement of a ‘call’ on some baby bonds. Gary had also mentioned this in the ‘reader initiated alert‘ section of the website.

The press release is here and the paragraph on the call is at the bottom.

The baby bonds they are calling are the Qwest 6.875% Notes (CTV). The company is calling just $200 million of the $500 million originally issued. The call happens on 6/29/2020 which is the ex-dividend date and should be made at $25.42 (+/-).

I jumped in right away for a part position to minimally capture the interest payment (42.97 cents) that will be made on 7/1/2020. I paid $25.07 and shares closed the day at $25.14.

So after this call $300 million in baby bonds remain outstanding (12 million shares).

Historically–and never a promise made–this should put a floor under the price right in the $25 area. The floor is maintained by the speculation that the balance of the issue will be called soon. Maybe it is called soon and maybe it isn’t, but the point is that the call risk will be minimal–if any.

This issue remains split investment grade–BBB- from S&P and Ba2 from Moodys.

32 thoughts on “A Potential 6.875% (annualized) on this Baby Bond”

  1. I bought some CTV on 6/25 when it was selling off a bit since I believed that they would call the rest of the issue relative soon. Anyway, I was expecting to receive the dividend paid on 7/1 with ex-dividend 6/29 but its not showing up in my account. Anyone else experience this issue?

    1. redfalcon,

      I bought CTV the same day as you did.

      The dividend appeared in my Merrill Edge account this morning.

    2. Hey Red, I hold a small position in CTV at Fidelity and received a) On 6/29 a dividend on the redeemed shares b) On 6/29 the redemption value for redeemed shares c) On 7/1 a dividend on the remaining CTV shares.

      1. Wow, that was quick. But good for the ones who got it below $25 before June 29th, they will make a good profit on CTV

    1. I was hoping to grab some CTV this morning below par, but was a little late. Managed to get a couple hundred shares at $25.00 even.

      Calculating the accrued interest up to the redemption date of August 7, I get about 16 cents.

      So the redemption proceeds on 8/7 should be about $25.16.

      Anyone buying CTV at the current $25.04, can still make $0.12/share in little more than a month ( 1/2 % )

  2. Guys,

    I am still holding CTV but I bought it only last week. How would I know whether they will redeem some of my shares?

    Thank you,
    MB

    1. I have some too. In my case, Schwab separated my holdings into a CUSIP based holding as the ones they plan to redeem leaving the balance as CTV. This was before it went ex-dividend so unclear if I get the dividend on the whole amount.

      I guess I should have waited and bought now in low $24s and holding till the next time they want to redeem some as it trades nearer to $25…

    2. MB–if you just bought last week you will not have any called. You had to own it before the official notice which was a few weeks ago.

  3. Disappointing to see CTV going below par, just 2 days before XD of $0.42.
    Wonder why folks want to sell now? The just concluded call should be evidence that the rest of the issue could be called eventually as well.

  4. Just bought a minimal position in CTV. After the 6/29 XD, my cost will be below par, so even if shares are not called, I’m in a good position for a nice income stream until call.

    BTW, since this is a partial call, will shares be pro-rated accordingly ?

    1. If you recently bought shares, they’ll be past the record date for the call and your shares will not be pro-rated.

  5. Tim- does this apply here? : “Units are expected to trade flat, which means accrued interest will be reflected in the trading price and the purchasers will not pay and the sellers will not receive any accrued and unpaid interest. ”
    So- how do you get the interest ?
    –from QOnline

    1. like any other dividend. flat just means it doesn’t trade like a regular bond where accrued interest is not reflected in the market price.

      1. If it is in the trading price, how can Tim pick-up the interest outside of it.
        I know it happens- I used to have CTBB, and I obviously received the quarterly, but it still sounds wrong.
        thx

      2. mcg aren’t senior notes like PPX also traded like shares where interest is paid to whoever holds it on the record date or am I mistaken?

  6. I’m buying CTV between 24.9 and 24.95 pretty easily today. Below par, and actively being called. I’ll take it. I wonder why people are dumping?

    1. Looks like a typo SDD, should be $25+42 cents. CTV is currently trading below par right now, so the deal just got better.

  7. With a partial call, you should check to see what date you have to own the shares to get the partial call. Many times you have to own the shares the day prior to the press release announcing the partial call. Your broker won’t know until they receive the official call notice. As of yesterday afternoon, E-trade had not received the call notice but I expect they will receive it today. Nonetheless, CTV is a good buy regardless of whether any of your shares get called as its the highest yielding Qwest baby bond. CTL just priced a 2028 unsecured note yesterday at 4.25%, so the Qwest baby bonds are at a nice spread to that plus you move a step up in seniority vs. CTL bonds.

    1. Took a little nibble on the CTV. Qwest balance sheet is something of a pantload, with goodwill being largest asset. However, income and cash flow appear to provide solid coverage to interest. One concern is practice of Qwest to make intercompany loans, which seems like an end run around seniority of Qwest vs. CTL bonds. Still, if CTL can place a note at 4.25% (even with shorter maturity), then 6.875%+ yield on Qwest, looks well justified.

  8. Tim-
    thanks for the heads up but as you know from having looked at century link’s balance sheet while it is improving it is not especially healthy. In fact it is not paper that I would want to own. But that is just me. best SC

    1. SC, Qwest debt sits above Century Links if memory serves me thus why its rated higher. I gave this trade serious thought and had a chance to buy at $24.95 yesterday and decided to let it pass. I think this is (like most of Tim’s trades) a well thought way to capture the 40% off tender. I certainly respect the buy and idea though.
      Probably the biggest reason I didnt buy is I already have a decent amount of US Cellular 2032 maturity debt through GJH bought when cheaper and that is probably enough in this segment for me. If it was Qwest Power and Light, I would have emptied the vault, ha.

        1. Pickle, if a crazy offer comes I wont say know, ha. But typically I try to keep some issues in shorter duration baby bond debt. And 2032 constitutes the back end range for me being Im just mid 50s. I got screwed basically if I dont live until 2032. “Real Companies” tend to offer longer duration exchange debt. Though this is a manufactured issue from brokerage, its on the back half of its 30 yr maturity cycle now. That is why I tend to hold some issues like KTH, GJH, and EP-C as mentally I can handle volatility of issue if it occurred knowing I can keep until maturity as long as company is viable of course.

          1. Thanks

            I’m just looking for fixed income opportunities long term set and forget
            nothing great out there – I’m almost ready to snag some stocks that pay dividends but 4% is about what i can get – unless i roll the dice on WFC

    2. sc–yes I am aware, BUT we have been saying that for many years. I bought just a part position to compensate for just what you point out.

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