The Company's portfolio provided a return on Net Asset Value of 0.1% during the 1st quarter, 1.3% for the last 12 months, and an annualized return of 13.2% since going public on March 17, 2009. Currently, the Company's portfolio has a short duration (3 years) and provides a coupon yield of 7%.
Interest rates in North America are at 50-year lows. However, the spread between High Yield and Government bonds is still near the long term average. Please refer to graph below. The Company does not view a 1.8% 10-year U.S. treasury bond as an attractive investment. As famed investor James Grant would say, the U.S. government is offering investors "return-free risk".
To view the graph associated to this release, please visit the following link: http://media3.marketwire.com/docs/514dnc_graph.jpg.
The Company is very selective when it comes to investing in high yield bonds. At March 31, 2013, the portfolio held 26 issues, by contrast, the high yield universe has over 2,000 issues. Investing in a concentrated portfolio of the best opportunities allows the Company to provide a higher level of income than the index while preserving capital over the long term. To give you an idea of the types of companies in the portfolio, we include some brief comments on a few of the bond holdings.
Paramount Resources 8.25% due December 13, 2017. Paramount is an Alberta based intermediate natural gas exploration and production Company with assets in Alberta, Northwest Territories, and North Dakota. Paramount expects to more than double its production from 22,000 boepd to a run rate of 50,000 boepd in 2014, as their gas plant in Musreau is commissioned and their Montney wells are brought on stream. Paramount estimates the free cash flow, after CAPEX, from their Montney play alone will be $340 - $520 million. In addition to its producing assets, Paramount has an extensive land position and a number of investments in other, predominantly public, oil and gas companies. It has a current market cap of $3.3 billion, of which management owns 50%, and the value of their holdings in public companies alone, being $800 million, is worth more than their debt outstanding of $700 million. The bonds owned by the Company are currently yielding 7.3% to maturity and are well secured by the increasing cash flows and the extensive asset base of the Company.
Mirabela Nickel 8.75% due April 15, 2018. Mirabela is a nickel producer with assets in Brazil. Mirabela endured the very strong headwind of lower global nickel prices. The price of the metal is down 36%, to $7.54 per pound, over the past two years. Mirabela's management has responded by lowering operating costs to adjust to this difficult environment, making Mirabela one of the lower cost producers. Using conservative estimates for operating costs and nickel prices in 2013, Mirabela should generate EBITDA of $50 million, which is enough to meet its interest payments of $40 million on its debt of $465 million. In addition, they currently have $140 million in cash on hand providing ample liquidity. Mirabela bonds mature in 2018 and are currently yielding 11.1%.
North American Energy Partners 9.125% due April 7, 2017. North American Energy provides a wide range of mining, heavy construction, industrial, and piling services to customers in the Canadian oil sands, mineral mining, commercial and public construction and conventional oil and gas markets. A new CEO, Martin Ferron, was appointed in June 2012. He has re-focused the business plan and cost structure, thereby improving margins, and has since sold the money losing pipeline business. As a result, EBITDA has improved to $70 million annualized and Deans Knight expect cash flows to continue to grow, as this only includes two quarters under new management. North American Energy currently has $330 million of total debt which, in addition to growing cash flows, is supported by a valuable heavy equipment asset base. The notes currently yield 9.7%.
Most Popular Stories
- American Airlines, US Airways Complete Merger
- ACA Delay Stresses Small Businesses
- Questions Remain in Jenni Rivera's Death
- Unemployed Wait as Lawmakers Debate
- General Dynamics Plans 200 New Jobs in N.M.
- Harley Issues Motorcycle Recall
- Dell Offers Undisclosed Number of Employee Buyouts
- Saab Gets Back into the Game; U.S. Auto Sales Soar
- Auto Dealer Builds Big Solar Project
- Authorities Close to Deal with JPMorgan Chase over Madoff Response