Distressed-debt recommendations don’t rely on stories about immunity to recession that may turn out to be fairy tales. No. Instead the Distressed Investing team rolls up their sleeves, gets their hands dirty, and invokes a couple of more clichés that describe rigorous analysis of companies’ financial leverage, maturity schedules, liquidity sources, and cash flows.
EchoStar (Nasdaq: SATS) reported its results for the quarter ended March 31. The news pushed up our Hughes Satellite bonds to a price where we recommended selling. Operating profit for the Hughes Satellite business – the business that issued the 5.25% secured bonds maturing August 1, 2026, in the Distressed Investing portfolio – rose 8.1%
In the heart of America’s Corn Belt, the company whose bond we recommend in this issue has quietly transformed itself from a traditional ethanol producer into a biotech innovator – unlocking more from every kernel of corn than anyone thought possible.
If the supply of distressed bonds increases, the prices of distressed bonds will likely decline. This suggests some bargains will become available for discerning, patient investors. We’ll be carefully looking over the distressed merchandise to generate profitable recommendations.
The bond we are recommending this month was issued by a spinoff technology company that is the leading player in a growing industry. Now under new management it is doing the right things and beginning to turn the company around.
In Distressed Investing’s December 2024 issue “Rising From The Ashes,” Marty Fridson and his team recommended buying QVC’s 4.375% bond maturing September 1, 2028, then at $840, up to a price of $860. The bonds currently trade for $878, up 4.5% from the entry price. We liked QVC’s business –- which had been improving –
Stocks dropped 10% over a four-week period in February and March. As is usually the case, the performance of bonds didn’t capture quite as many headlines. But their behavior as equities sank is worth examining – especially by investors who don’t know about the benefits of distressed bonds.
Since we recommended this company’s bond a year ago, the company has improved its performance, and the bond, still a year out from maturity, is trading near face value, having increased in price by 24%. This month, we are adding the shares to the portfolio.
Tight credit isn’t the only factor driving the Distress Ratio’s rise and fall. But it’s a powerful one that’s likely to keep making it harder for struggling companies to refinance their maturing debt in coming months. It all adds up to a likelihood that distressed-debt investors will have a significantly wider array of bonds to choose from before very long.
This nutrition company was the focus of an epic battle of two investment titans. Since that dispute ended, shares have been up and down – now creating an opportunity to buy the company’s bond at a very large discount.