“BB” Land. Stepping Outside Your Comfort Zone

22 April 2013


 

‘Investment Grade or DIE!’ is the usual refrain from portfolio managers I speak with daily. Ok, maybe not said so drastically but the need for quality credits exists for mutual funds, pension funds, banks and other institutions alike.

Of course, the need for investment grade (IG) paper can be driven by a number of things, but usually boil down to mandate and/or board approval. So this treatise is directed at those of you who are looking to enhance yields with some of that excess cash; not already locked away for some statutory purpose.

This week we’d like to highlight a few “double-B credits” that may get your portfolios over the hump.

 

1. 

Sagicor 7.50% 05/12/2016

Industry: Financial Services

Country/ Region: Caribbean

S&P Rating: BB

Ask Price: 106.625

Ask Yield: 5.12%

 

Likes: hefty coupon, 3 yrs to maturity, 250+ bps pick-up over FCBTT 2016

Dislikes: Net Debt Exchange and Jamaica currency depreciation expected to hamper the profitability of SFC’s Jamaican operations, Barbados exposure. 

 

2.       

 JBS 6.25% 02/05/2023

Industry: Food & Beverage

Country/ Region: Brazil/ South America

S&P Rating: BB

Ask Price: 99.00

Ask Yield: 6.39%

 

Likes: world’s largest producer of animal protein, 470bps spread over 10yr US Treasury

Dislikes: last quarter JBS had a debt ratio of 3.7 times earnings, higher than the average 3 times for same-rated peers (Fitch).

 

3.  

Arcelor Mittal 9.85% 06/01/19

Industry: Metals & Mining

Country/ Region: Luxembourg/ Global

S&P Rating: BB+

Ask Price: 126.25

Ask Yield: 5.26%

Likes: make-whole call provision, 25bps coupon step-up for every downgrade, 455bps+ spread over 5yr US Treasury

Dislikes: 9% drop in steel-sector demand in the EU in 2012 (Reuters)

 

These represent a very small sample of securities that are not necessarily investment grade, but are reputable and would widely be considered ‘safe.’ For more info on these or other names please give us a call. “BB” Land may very well become a sweet-spot for you!

For more information, please contact us at info@nullfirstlinesecurities.com

Gerard Stephens

Account Executive

Sales and Trading

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