Nuveen Junk Bonds Get A Big Boost

by: Holmes Osborne


Nuveen has been bought out by TIAA-CREF.

Nuveen's junk bonds have risen in value.

Third Avenue Focused Credit is a major holder of Nuveen bonds.

It was announced today that mutual fund giant Nuveen will be bought out by TIAA-CREF. TIAA-CREF is a powerhouse in managing retirement funds for teachers and college professors. Nuveen's junk bonds have risen substantially in today's trading.

Its series of CCC rated (junk/high yield) bonds (CUSIP: 67090fab2) with a 5.5 coupon and maturity of 9/15/15 were trading at 101 just a few months ago and a yield of almost 5%. Today, they are trading at 103.75 and a yield to maturity of 2.77%. In other words, they are no longer junk bonds.

Nuveen's thinly traded 10/15/2020 (CUSIP: JNC3902306) series jumped from less than 100 to 122 today. Quite a nice pop. Its 10/15/17 (CUSIP: JNC3902309) jumped from less than 100 to 110.

The two firms will have $790 billion of assets under management. Nuveen was having financial issues and had to team up with a more solid player. In 2013, the income statement showed $1.076 billion in revenues, $762 million in operating expenses, and $45.2 million in income. For the last three years, its operating cash flows were: $145.6 million, $60.2 million, and $180.1 million. Because of substantial write-downs, operating cash flows is a better number. This isn't the type of income and cash flows that you want when you owe $1.11 billion in bond payments from 2014 to 2018.

So who is going to profit off of this? Third Avenue Focused Credit (MUTF:TFCVX) holds a big chunk of Nuveen bonds. Focused Credit should make a nice profit off of today. My guess is that Third Avenue will unload these onto another fund or endowment that wants to hold investment grade. Focused had a great year in 2013 and ranked as Morningstar's #2 fund in high yield.

So what did Focused Credit see that brought it into this investment? Ability to cover debt payments or the idea that there would be a buyout? Hard to say but it was pocketing a nice coupon while it waited. Some of the other top holdings include: Sprint (NYSE:S), Clear Channel (NYSE:CCO), and NII (NASDAQ:NIHD). I wrote about NII Capital Bonds a few weeks ago on Seeking Alpha.

It's nice to see Nuveen get a boost. They are too good a company to go away. I heard that they used to (or still do) foot the bill for college tuition for the children of employees. This junk bond can kiss junk status good-bye as soon as the rating agencies can make their move.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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