BondSavvy provides CUSIP-level corporate bond research, which includes between 20-25 new corporate bond investment recommendations each year. Many individual investors and investment advisors do not have the time to read SEC filings and listen to company earnings calls and do the financial analysis necessary to determine which corporate bond investments can outperform the market. We do all of this work for you and provide the information investors need to make successful corporate bond investment decisions.
BondSavvy determines which corporate bonds present the most compelling risk-reward investment opportunities, and we present these bond recommendations to subscribers during The Bondcast, a subscriber-only interactive webcast. We present the following corporate bond research for each new bond recommendation during The Bondcast:
1) Corporate bond investment rationale: In one sentence, we explain why we believe each bond is a compelling investment.
2) Business analysis: We review the issuing company's business, including key sources of revenue and profit. How does the issuing company make money and what momentum does the company have across its businesses? We also discuss the macro drivers and trends of the issuing company's industry.
3) Capital allocation: What does the company do with the money it earns? We compare the amount of debt the company has recently paid down with its capital expenditures, share repurchases, dividends, and business acquisitions.
4) Financial covenants: Does the bond issuer have to maintain specific financial covenants
such as leverage ratios and interest coverage ratios, and where
do these credit ratios stand today?
5) Potential for bond ratings upgrades and downgrades: While corporate bond ratings have many weaknesses, corporate bond rating upgrades and downgrades can materially impact bond prices, as the largest owner of many individual corporate bonds continues to be bond funds and bond ETFs. Most of these funds have specific rules as to the credit ratings of bonds in their respective funds. Therefore, if a corporate bond is downgraded from investment grade to below investment grade, it can often cause a significant reduction in the bond price due to forced selling by bond funds that can no longer own the bond due to the ratings downgrade.
6) Bid and offer price: Corporate bonds are quoted as a percentage of their face value, so a bond quoted at 90.00 is being valued at 90% of its par value, or $900. We seek to recommend bonds that are trading at a discount to their relative value.
7) Number of bid and offer quotes: BondSavvy's subscribers are primarily individual investors and financial
advisors investing on behalf of individual investors. We show the number of bid and offer quotes available on leading e-trading systems so we
can assess the liquidity of each recommended corporate bond.
8) Corporate bond trading activity: A key benefit of corporate bonds vs. municipal bonds is that there is a greater concentration of trading activity in corporate bonds vs. municipal bonds. Many individual corporate bonds can trade over 100 times in one trading day. While this is the case for many corporate bonds, there are some corporate bonds that do not trade often. Understanding bond trading activity is a key part of our corporate bond research, as bond price movements for thinly traded bonds can be more volatile than more regularly traded corporate bonds.
9) Historical bond prices: We use FINRA TRACE corporate bond data to show the historical bond prices of each recommended corporate bond and how our recommended corporate bond's price compares to historical prices for each bond.
10) Yield to maturity and credit spreads: These metrics tell investors how well they are being compensated given the level of corporate bond risk.
11) Leverage ratios and interest coverage ratios: We calculate leverage ratios and interest coverage ratios and compare them to each corporate bond's YTM, credit spread, and bond price to assess the
relative value of our recommended corporate bonds. We calculate both gross leverage ratios and net leverage ratios. In the numerator of
the net leverage ratio formula, we subtract a company's cash from its debt to obtain 'net debt.'
12) Revenue and EBITDA growth: Which way is the company's business headed? If a corporate bond issuer has a leverage ratio higher than that of comparable corporate bond issuers, we may still consider the bond if it has a compelling YTM and credit spread and revenue and EBITDA growth are solid.
13) Total debt and cash: A high level of cash relative to debt can help us get comfortable with a corporate bond if the issuer's credit profile has weaknesses in other areas. For example, a company's revenues could be slightly decreasing over time; however, if the company has a reasonable debt balance and significant cash, the bond could still be a compelling buy.
14) Capital structure seniority: Corporate bonds are senior to the stock of a company; however, they are typically junior to any senior secured debt, such as term loans and revolving credit facilities, that a bond issuer might have. If there is a significant amount of debt that is senior to our recommended bonds, this may materially impact our ability to recover the face value of our bonds in the event of a corporate bond default. In evaluating the risk of our bond recommendations, we show subscribers the extent of senior debt the issuing companies of our recommended bonds have.
15) Upcoming bond maturities: An inability to refinance or pay off corporate bonds that are maturing is what caused the Chapter 11 filings of Sears and Toys 'R Us, among many others. We lay out the upcoming corporate bond maturities of our corporate bond issuers to assess if they have the wherewithal to either pay off or refinance the debt of upcoming maturities.
16) Interest rate risk: How sensitive is the recommended corporate bond to changes in underlying US Treasurys? Watch our video explaining interest rate risk and credit risk here.
After we make an initial investment recommendation, we monitor company earnings releases, SEC filings, and bond price performance to determine if an investment
recommendation has changed. We then advise subscribers to either buy more of the same bond, reduce holdings, or to sell all remaining bonds of
that CUSIP. We present these updated recommendations in quarterly editions of The Super Bondcast as well as through subscriber newsletters
sent regularly over the course of the year.