Debt With Equities Like Returns
By:
Sami Monday, December 29, 2008 12:25 PM
Debt seems to be a theme for me over this year. most of my purchases were in debt related instruments. I have invested in Commercial real estate debt, bank loans and the quasi debt preferred shares.
1. Purchase of bank loan Close-end-fund PHD at $6.75:
The Credit markets recovered over the few weeks particularly in the non government debt. Some of the funds that I was
analyzing for investment in bank loans have moved up, some by 30%. The spread on bank loans have come down significantly from few days ago as displayed
in the chart.
There are a lot of improving signs in the credit environment:
- LIBOR is came down and it should provide significant debt service relief
- Mortgages are down to historic rates
- Corporate yields are down indicating trust in corporate paper or at least some money is moving into that market.
- even high yield rates have gone down.
- all this is accomplished with treasuries at historic lows still, i.e. the spreads are still the same but yields have came down because people are buying and capital is flowing into the credit market rather than treasuries.
2. Commercial Real Estate Debt:
I have bought
NorthStar Realty (NRF), maybe prematurely in hindsight but
I still like it, to capitalize on the cheapness of commercial real estate debt.
From
Bloomberg:
Top-rated commercial-mortgage bonds, which returned 32 percentage points less than Treasuries in October and November, have offered a record 12 percentage points more than government notes through Dec. 24, Barclays Capital index data show.
Debt markets are improving amid hopes that prices fell enough to account for potential defaults and as the U.S. government continues efforts to thaw credit and curb a yearlong recession. One of the AAA classes of a $7.6 billion 2007 Goldman Sachs Group Inc.
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