If you are worried about a bubble in junk bonds, you are likely not alone. As the chart below shows, with the “BofA Merrill Lynch US High Yield Master II Effective Yield” hanging out in the sub-6% region, it is not surprising how hard it is to come by good value among non-investment grade bonds.
Even if you are struggling to find a bond with an acceptable combination of yield and credit risk, there is still value in building a watch list so that when the time comes to take advantage of sell-offs, you can be quick to act. One company’s bonds worth considering for your watch list are those of PulteGroup. The company is focused on reducing debt and headed in the right direction from a ratings perspective, making its 2032, 2033, and 2035 senior unsecured notes enticing prospects—especially in the event of a pullback in prices.
For the purposes of this article, after sharing a bit about PulteGroup, I would also like to share the details of the 2033 maturing notes (the Pulte notes I currently own).
Company Overview
- One of the largest homebuilders in the United States.
- Major brands include Centex (entry-level homebuyers), Pulte Homes (move-up homebuyers), and Del Webb (active adults).
- In 2013, the average unit selling price was $305,000, up from $276,000 in 2012. Also, in 2013, 86% of sales prices fell in the $100,000 to $450,000 range, and 85% of total unit sales were of single-family detached homes.
- Focused on paying down debt – As of December 31, 2013, senior notes outstanding were $2.058 billion, down from $2.510 billion at the start of the year. Additionally, the company retired $898.5 million of debt in 2010, $323.9 million in 2011, $592 million in 2012, and $461 million in 2013..
- On December 31, 2013, year-end cash stood at $1.653 billion, debt-to-capital was 31%, and net debt-to-capital was 8%.
2033 Notes Highlights
- The 2033 notes were issued as Pulte Homes, Inc. notes (not to be confused with the subsidiary Pulte Homes). Pulte Homes, Inc. changed its name to PulteGroup, Inc. in 2010.
- May 15, 2033 maturing, 6.375% coupon, senior unsecured notes (CUSIP 745867AP6), are rated Ba2/BB+ by Moody’s/S&P, pay interest semiannually, and were recently asking 99.44 cents-on-the-dollar (6.426% yield-to-worst).
- Price history can be seen in the chart below:
As the chart shows, the notes have rallied significantly in recent months and years. If today’s price/yield is not suitable for your portfolio, but you like the credit risk, consider adding the notes to your watch list.
- The 2033 notes have a make whole call.
- The 2033 notes have a conditional put for a change of control.
- Read more details in the Prospectus Supplement.
Investors interested in learning more about the 2032 and 2035 notes can read the prospectus supplements here (2032) and here (2035).
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