Last year, I wrote on NII (NASDAQ:NIHD) bonds due 8/15/16 (Cusip: 67021bad1). The bonds are down 32.79% since I bought them. Add back the nice coupon and we are down 17.6%. These bonds paid their coupon today and are selling at a yield to maturity of 28.357%, according to Finra's bond website. Wow! That's quite a yield even for a junk bond.
So what's the catch? There are several. One is that these bonds do not have a claim on assets. They are backed by management's word. The second is that NII has been losing customers. Its third quarter report for 2013 stated that is average revenue per unit went from $40.31 in 2012 to $31.46 in 2013.
In last year's article, I wrote that these bonds could be a good deal because of so many hidden assets. Well, yes they do have assets that were monetized subsequent to that article but no, we are not in a profitable position. NII closed on a $348 million lease-back with American Tower (NYSE:AMT) for NII's 1,940 Brazillian communication sites in December. In November, the two closed on $374.3 million in Mexican sites.
According to a Q3 presentation,
"The indentures governing our 11.375% and 7.875% senior notes require us to repay or refinance our existing 10.0% senior notes due 2016 by May 15, 2016, or offer to repurchase all of the 11.375% and 7.875% senior notes at 100% of the principal amount."
As of the company's latest quarterly reports, they hold $1.57 billion in cash, $318 million in short term assets, and $820 million in accounts receivable. This is against $1.3 billion in accounts payable and $5.7 billion in long term debt. So $1.888 in short term assets versus $7 billion in liabilities. It's not the prettiest balance sheet but might do well for the August 2016 bonds.
We are in good company: Third Avenue Focused Credit (TFCIX and TFCVX) owns the series that mature in 2019 and 2021 according to a filing on the SEC's Edgar web site. Focused Credit is one of the most prominent junk bonds funds.
If you buy these bonds, you'll make a $50 coupon every February 15 and August 15 until August 2016. So that's $250 extra in coupons and $1,000 at maturity. These bonds are selling for $665 per bond. If any details that I just described do not come to fruition, then the company is in default on these CCC rated junk bonds.
Additional disclosure: We are long NIHD bonds