I am trying to understand the risks associated with investing in bonds in comparison to CD. I plan to keep the bond to it maturity. International Lease Finance Corporation Notes has an issue where they are offering 7.5% APY and have a A1 and A+ ratings from Moody’s and Standard and Poor’s. The financial investment consultant at my bank (Charter one) is indicating there is no risk, no fee etc associated with investing in these bonds.
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posted: Jul. 31, 2008 @ 9:22a
ppatin
Focused.
posted: Jul. 31, 2008 @ 9:39a
saurabhka said: I am trying to understand the risks associated with investing in bonds in comparison to CD. I plan to keep the bond to it maturity. International Lease Finance Corporation Notes has an issue where they are offering 7.5% APY and have a A1 and A+ ratings from Moody’s and Standard and Poor’s. The financial investment consultant at my bank (Charter one) is indicating there is no risk, no fee etc associated with investing in these bonds.
Can anyone suggest what to look for?
A financial adviser told you that there is "no risk?"
saurabhka said: The financial investment consultant at my bank (Charter one) is indicating there is no risk, no fee etc associated with investing in these bonds.
Can anyone suggest what to look for?Yes - A new financial investment consultant
saurabhka said: The financial investment consultant at my bank (Charter one) is indicating there is no risk, no fee etc associated with investing in these bonds.
saurabhka said: The financial investment consultant at my bank (Charter one) is indicating there is no risk Can anyone suggest what to look for? I also suggest you look for a new financial advisor.
There is a risk to every investment that must be disclosed in the documents Never rely on any verbal claims made by anyone, only in the written prospectus. The fact it is rated A+ indicates there is more risk than AA or AAA securities.
moneyfiend
Member
posted: Jul. 31, 2008 @ 7:37p
As mentioned, the advisor you are using is a joker (like most). Ask for the CUSIP. If it is 45974WCR5, Fidelity is offering it as a new issue yielding 7.55% settling on 8/4. No risk... do you know that international lease finance leases jets to airlines. There is no risk in that, right, the airlines are doing great?
Still want to own it. Their notes are currently yielding more in the secondary market. Firstrade lists 459745FQ3, maturing 09-01-2010. Coupon is 4.875 and YTM is 8.32% with an asking price of 93.56. Even funnier, fidelity lists trades going off at 91.25 tonight. That would be a YTM of 9.636%
Until you can do this type of comparison shopping, you are going to get screwed (like I did). You might get your 7.5% and be happy with it (not knowing beter), but other people are getting the same investment 2% higher. If you are going to take the risk, you deserve ALL the reward.
If a bank employee is telling you about bonds, he has to have a broker's license. He is also supposed to make sure you understand the difference between FDIC and non FDIC investments? Did he?
CD's are insured (usually up to $100K but depending on the account ownership it may be higher).
Bonds are not insured. This means there is some difference in your risk exposure.
Unless you have a huge portfolio, and are going to diversify, you should probably not be buying individual bonds, especially if you don't really understand what you are doing.
If you want to have some fun, ask your bond salesman "What is your commission on this?"
He may not be making a commission, but I would bet there is some incentive for him to push these bonds. Your bank is probably participating in the new issue in some way, and they want to move the bonds before August 4th so they don't carry them on their books.
I am not recommending any bonds I mention in this thread.
But International Lease Finance Corporation is subsidiary of AIG and AIG is not directly responsible for there debt nor does AIG guarantee it. As moneyfiend stated these bonds are back by the lease revenue of Airplanes.
With the above said while AIG could let them default in theory with no liability at all it would affect AIG on an ongoing basis afterwards as AIG costs of funds would increase. This is no different that BOA with Countrywide. BOA stated they will not affirm or guarantee Countrywide debt and they are very well aware of ramification BOA would suffer by allowing Countrywide debt to default ie mostly credit downgrade by rating agencies and higher cost of funds on an ongoing basis.
With all of the above said. I see no reason to buy ILFC debt at all when you can get AIG or BOA direct debt paying over 6.5% today and it was paying over 8% 2 weeks ago when everyone thought AIG and BOA were going broke and with there direct debt at least you know for a fact AIG or BOA will pay for sure unless they go BK vs buying subsidiarily debt that is not affirmed by parent company always carry much higher risk of non payment. So not sure how that investment advisor can claim this debt has no risk.
Now I believe this debt is low risk but much riskier than AIG own debt which is why it is paying 100 bps more.
dolmar said: With all of the above said. I see no reason to buy ILFC debt at all when you can get AIG or BOA direct debt paying over 6.5% today and it was paying over 8% 2 weeks ago when everyone thought AIG and BOA were going broke and with there direct debt at least you know for a fact AIG or BOA will pay for sure unless they go BK vs buying subsidiarily debt that is not affirmed by parent company always carry much higher risk of non payment. So not sure how that investment advisor can claim this debt has no risk.This is all true, but you can't just make all these decisions based solely on the identity of the issuer and on the coupon value. I don't have the respective indentures in front of me right now and am too lazy to pull them up, but aren't the BOA notes to which you are referring subordinated and callable whereas ILFC notes are not callable, for instance? I don't remember the exact senior debt provision in the ILFC notes but from what I remember the BOA notes are significantly more subordinated than the ILFC notes in question. People may also want to review the sinking fund provisions in each note and the like.
In the end, it is the credit agencies' job to scrutinize all these provisions and to come up with a credit rating. As we are all aware, they haven't done too good of a job at that lately (illiquid ARS, anyone?), so a lot of people are turning to a manual review of the indentures. It's obviously fine to do that but there is a lot more to it than just the issuer and the coupon rate.
geo123 said: This is all true, but you can't just make all these decisions based solely on the identity of the issuer and on the coupon value. I don't have the respective indentures in front of me right now and am too lazy to pull them up, but aren't the BOA notes to which you are referring subordinated and callable whereas ILFC notes are not callable, for instance? I don't remember the exact senior debt provision in the ILFC notes but from what I remember the BOA notes are significantly more subordinated than the ILFC notes in question. People may also want to review the sinking fund provisions in each note and the like.
Yeah most of the AIG and BOA notes have either have no call protection or short protection ie 6 months. Personally I do not care if they are subordinate notes or senior notes as AGI or BOA would need to declare BK so they could avoid paying interest on either notes vs buying CW or ILFC the parent company can allow the subsidiary to file BK while the parent does not thus screwing bond holders.
I would take a subordinate AIG note any day over ILFC note paying the same rate or slightly higher with call protection as I fell AIG chance of defaulting on it own paper is so low that it is basically zero vs AIG could let IFLC file BK if push came to shove with minimal repercussions.
dolmar said: Personally I do not care if they are subordinate notes or senior notes as AGI or BOA would need to declare BK so they could avoid paying interest on either notes vs buying CW or ILFC the parent company can allow the subsidiary to file BK while the parent does not thus screwing bond holders.
I would take a subordinate AIG note any day over ILFC note paying the same rate or slightly higher with call protection as I fell AIG chance of defaulting on it own paper is so low that it is basically zero vs AIG could let IFLC file BK if push came to shove with minimal repercussions.That's certainly true, but that's where the credit rating agencies come into play, whose credit ratings are supposed to quantify the risks and the protections associated with each bond issue.
Regardless, if you are manually analyzing each indenture, if you are concerned about credit risk the fact the AIG could potentially allow IFLC to seek bankruptcy protection without directly affecting the parent company should not be the end of your inquiry. For instance, if you are looking at senior notes with a sinking fund of such a subsidiary, with everything else being equal you have tremendous comfort versus subordinated notes issued by the presumably more stable parent, no sinking fund and perhaps mammoth senior secured debt. There is a lot more to credit risk analysis than the credit standing of the issuer.
geo123 said: ]That's certainly true, but that's where the credit rating agencies come into play, whose credit ratings are supposed to quantify the risks and the protections associated with each bond issue.
Regardless, if you are manually analyzing each indenture, if you are concerned about credit risk the fact the AIG could potentially allow IFLC to seek bankruptcy protection without directly affecting the parent company should not be the end of your inquiry. For instance, if you are looking at senior notes with a sinking fund of such a subsidiary, with everything else being equal you have tremendous comfort versus subordinated notes issued by the presumably more stable parent, no sinking fund and perhaps mammoth senior secured debt. There is a lot more to credit risk analysis than the credit standing of the issuer.
You are assuming the parent company has "Mammoth Senior Secured Debt" which is not the case of AIG and BOA. Also AIG and BOA have minimal debt compared to there cash flow which is why both of them have above AA with BOA at AA2 and CW and IFLC credit ratings are based on the parent company credit rating.
I know I am over simplifying it by stating in general it is much safer to buy either parents company debt or affirmed debt but for most people that seems to be a good rule to follow considering most of the info provided by credit agencies is worthless in my opinion when they rate debt from subsidiary which has not be affirmed based on the parents company credit ratings. In my opinion that is misleading at best as parent company has no legal responsibility to bail out the subsidiary even tho they ultimately might and only reason they do that is because otherwise the no one would pay to have there bond rated which would cost the rating agencies millions in revenue.
dolmar said: You are assuming the parent company has "Mammoth Senior Secured Debt" which is not the case of AIG and BOA.Yes, but senior secured debt can be put in place in as little as 2 weeks. In simple terms, the senior structure of the notes prevents that from taking place; the subordinate structure of the notes does not. I still remember the news stories that appeared during the last recession when my firm put in place an approximately $500MM senior secured loan against a well known publically traded borrower which, prior to this loan, had no senior secured loans but plenty of money borrowed pursuant to subordinated notes, the bondholders of which had not quite expected to have to deal with a senior secured lender.
Bankgeek
Senior Member
posted: Aug. 5, 2008 @ 8:18p
Unreal. Not one analyst was even close. It's almost as if they were talking about some other company. How did that happen?
Bankgeek said: But maybe AIG stock is a better bet right now? They seem to have hit bottom.
I work for a major insurance company and I could list about a million reasons why AIG probably isn't done yet.
nadiapatrick
New Member
posted: Sep. 27, 2008 @ 8:14p
As we all know AIG is not a reliable investment option these days and what bank is? I would stick with more reliable companies like Agape World for now eventhough their ROI is only 10-12% every 75 days. I have been investing with this company for 5 yrs and they are much more reliable.. This company has been in business, licensed, and has maintained a good reputation through out the nation for almost 10yrs. So good that they had an article not too long ago in Entrepreneur Magazine. http://www.entrepreneur.com/hot100/details/200873.html
If your interested in AGAPE I can send you the Account executives information via email. If you want more information about the company you can visit:http://www.agapeworldinc.net/
nadiapatrick said: As we all know AIG is not a reliable investment option these days and what bank is? I would stick with more reliable companies like Agape World for now eventhough their ROI is only 10-12% every 75 days. I have been investing with this company for 5 yrs and they are much more reliable.. This company has been in business, licensed, and has maintained a good reputation through out the nation for almost 10yrs. So good that they had an article not too long ago in Entrepreneur Magazine. http://www.entrepreneur.com/hot100/details/200873.html
If your interested in AGAPE I can send you the Account executives information via email. If you want more information about the company you can visit:http://www.agapeworldinc.net/
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