The original bond was worth $2.7M (or at least someone paid that much for that bond at some point), and the recent price was $36K, i.e., the bond traded hands for 1.3 cents on the dollar.
These kind folks bought $1K interest in the bond just to see what happens.
Also, a very illustrative cartoon to go with it.
Good read.
Full disclosure: ripped off calculated risk blog.
P.S. Since tripleB has been quiet around here, I figured someone has to step up to the call of duty.
Zaos said: At about a cent on the dollar, it has the potential for a very good return with just moderately high risk. Anyone know where to buy these again? Look for anything Moody's rated AAA from about 2004-2006.
The B6 bond was originally rated A-/A3. It represents a skinny layer (0.6%) from 3.75% to 4.35% of the capital structure. It pays Libor+107 coupon on principal (ETA: as well as principal after all other bonds above it--from 4.35% to 100%--are paid off, which is guaranteed not gonna happen). These folks in the NPR story bought about 1 year's worth of coupon payment. If the bond lasts longer than 1 year they will make out OK.
This issue was a public offered bond. If you look for it you can probably find the prospectus.
enc0re
Senior Member
posted: Mar. 13, 2010 @ 1:31p
Are there any online brokers offering these toxic assets? I remember a few CDS showing up on Zions Direct auction site, but that's it.
It sounds like a fun (to me) gamble.
tolamapS
Senior Member - 2K
posted: Mar. 13, 2010 @ 1:49p
Zaos said: At about a cent on the dollar, it has the potential for a very good return with just moderately high risk. Anyone know where to buy these again?
That's what I was thinking.
Let's start the Fatwallet Finance Toxic Asset Accumulation Fund LLP.
Sounds better than FART, I mean, TARP.
tolamapS
Senior Member - 2K
posted: Mar. 13, 2010 @ 1:52p
largeeyes said: So why does their portion of the bond die? Would that mean the whole bond is kaput?
See nycll's post above.
If I interpret that post correctly, the bond represents interest in a CMO (collateralized mortgage obligation) of some sort.
Think of the different seniority interests in a bond as a stack, and think of water rising. Rising water shows increasing defaults. When the watermark covers your position in the seniority structure, you are kaput. Folks higher than you are stillo not kaput.
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