Tom,
I attempted to buy several of the Global Crossing bonds today. Price is down to 18.6875/100. The coupon ranges from 8.75% to 9.5%. Offered maturities range from 11-15-06 thru 11-15-09. Issues rated after 2007 are all callable, but the yield to maturity is the lowest one. Yields to maturity range from 54% per year to 65% per year. Current Yields are just under 50%. I suspect that at least one of my orders will be executed. I attempted to limit my risk by buying only 1 bond, after all $186.75 plus accrued interest is NOT a lot to risk. The brokerage called me and said that there is a min purchase of 5 bonds, so I entered a second order for 5 bonds. No way to cancel the orders, at least not thru the web site. Note that this brokerage is NOT the one where I purchased my initial bond. At worst, I'll own 6 bonds that will pay me $273.75 in November and every 6 months after that until the bonds mature in 2006 or the company defaults on its debt securities. Note that 4 bond payments will COMPLETELY equal the invested capital plus a bit of interest to boot. If they can survive long enough to make 5 bond coupon payments, we'll be sitting pretty. The bonds are rated BB on the S&P scale, but are under review for a possible (?probable?) downgrade. The prices are similar to bonds that are clearly in default or are VERY close to it - GlobalStar, Covad Comm, Federal Mogul, Polariod, Exodus, Loews Cinema, NextLink, McLeod USA, and Boston Chicken are a few examples. Most of these examples are rated CCC or lower, all the way down to D (default).
The problem with my orders lies in two additional areas.
1. Placed late in the day, the first at 2:30 EDT, the second at 3:30 EDT.
2. It kinda appears that some of the people in the fixed income trading area left early today. This is a Battery Park firm that appears to have been strongly affected by the 9/11 events. For almost 2 weeks, they were using backup servers for Internet order entry. After all, there are LOTS of funerals nearly every day in NYC, especially intense now for those who lived/worked in the financial district.
As for the longer term, I have only modest doubts on the long term viability. They have sufficient cash to continue normal operations for at least another year. Internet traffic and voice traffic do not appear to have been significantly affected by last month's events. Sometime next year, investors will notice that capacity IS being absorbed on fiber optic networks at rates that rival peak absorption last year. Orders for new cables, new optical switches will start to resume their heady sales pace. If anything, the events of 9/11 will drive more intensive use of tele/datacom capacity as more companies opt for more frequent video conferencing vs travel. There is clearly a place for both, but engineering meetings and reviews can be easily handled with video. We have LOTS more fiber to install in the USA and we've just barely begun to wire the world with fiber. Only the extremely easy installations have been completed and activated. Right now, the malaise is compounded by all the uncertainty that we have. No one wants to commit capital, not yet anyway, for infrastructure upgrades and expansion.
We'll see what happens on monday. I suspect that the bond prices are too low, and we MAY see a recover y back to the $30/100 to $40/100 range as the economic picture for the nation becomes clearer and brighter. Until they miss their first bond payment, these are NOT D bonds, and should not be priced as such. Panic is in the streets. Hmm, sounds like the AIM motto is echoing to me.
Robert |
