Boring is Good–at Least for Me

Wednesday brought a flurry of activity on the Highland Capital Management LP bankruptcy and that activity was not really welcome. Boring is good.

While it is unlikely that the Highland Income Fund (HFRO) will be directly affected lawsuits and bankruptcys within the ‘family’ tend to ‘spill over’ into the other related securities–such as the Highland Income Fund 5.375% preferred (HFRO-A) which gives us income investors some indigestion. To watch a A1 (per Moodys) fall into the mid $24.50’s from yesterdays close of around $25.30 is never fun, especially if you are holding a full position. Fortunately shares are bouncing back some as the news is digested and they are now trading at around $24.95.

I personally stepped in and added more shares of the HFRO-A issue on top of my full position. I will be cutting back to a full position (or maybe even a little less) if we get another 10-15 cents on the share price. The good part is the original position was bought cheaply on the IPO so no harm is done yet to the pocketbook–but maybe I lost an hour of life span in the excitement.

I know that quite a few of us learned lessons here–for some of us they are lessons learned AGAIN. Primarily one has to dig deeper into the past history of the company you are investing in. In the case of Highland Capital many issues started back just after the financial crisis in 2009-2011. You have to do a pretty deep dive to dredge up the old news, but I guess we all need to do that. This in spite of the solid investment grade rating of A1 from Moodys.

Currently for those holding the preferred shares if you are uncomfortable holding the shares you might be better off exiting–the 5.375% is replaceable. While likely this will not affect the safety of the shares one never knows for sure and there is no reason to lie awake nights for 5.375%.

7 thoughts on “Boring is Good–at Least for Me”

  1. I expected a much deeper setback. The preferred went below par already one month ago for no reason, so I thought a knee-jerk reaction would have sent it down a couple of bucks. It seems in this market the bulls are so strong everything is only going up. Quite a loud alarm bell to me.

  2. The scars on my psyche do not permit me to invest in securities with questionable management and potential BK. My reasoning for staying in as the ships sank does not stand the light of day. I won’t live long enough to get the tax deductions for my BK losses, so I simply avoid the issues. Good luck to all of you who are in.

  3. The scars on my psyche do not permit me to invest in securities with questionable management and potential. My reasoning for staying in as the ships sank does not stand the light of day. I won’t live long enough to get the tax deductions for my BK losses, so I simply avoid the issues. Good luck to all of you who are in.

    1. Moodys won’t be downgraded. Ratings are based on hard numbers. They don’t take into account intangibles such as whether management is incompetent. Only if the incompetence spills over into impacting the credit metrics.

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