Beat Your Savings Account Annual Interest In 2 Weeks With These Bonds

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Includes: STNG
by: Sam Lin, CFA, CPA

Summary

Scorpio Tanker baby bones are due in the next 11 days

The debt is currently trading below par and has a high likelihood of being repaid

Buyers at current prices can beat their savings account interest with a 11 day holding period

The average U.S. savings account yields about 0.06% APY. Instead of waiting for savings account interest to pay for one latte a year, here is an opportunity to beat that return in 10 days.

Scorpio Tankers, 7.50% Senior Notes due 10/15/2017 (NYSE:SBNB) matures in 8 business days and is currently trading below par. These bonds are exchange-traded and can be easily bought and sold by investors.

Buyers of SBNB will be paid $25.00 on October 15, 2017 when the note matures.

At the time of writing, the bid price is $24.96 and the ask is $24.99. Under the most pessimistic scenario, readers who purchase SBNB stand to pocket a return of 0.04% (1.8% annualized), equivalent to 8 months of interest in an average savings account.

Common stock cushion

The borrower, Scorpio Tankers trades on the NYSE under ticker STNG and has a $1 billion market cap. Shipping is an extremely volatile industry, as evident by the common stock price history below. The common stock has lost over 70% of its value over the last 5 years but has stabilized recently.

Chart
STNG data by YCharts

Ability to comfortably repay

Scorpio Tankers just recently released earnings for 2Q 2017 in September. The company reported $161.2 million of unrestricted cash as of September 15, 2017. The cash balance is enough to comfortably repay the $45.5 million SBNB notes due in two weeks. Furthermore, the company has shown willingness to pay off SBNB earlier this year, having repurchased $6.3 million in a tender offer.

Conclusion

I believe SBNB baby bonds is a great short-term alternative to money market funds. Investors with idle cash in their portfolio can juice up returns with a purchase below par. Please be mindful of your respective brokerage's commission rates as commissions could wipe out the entire profit for small positions.

Disclosure: I am/we are long SBNB.

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.