What do Ford and Dish Network have in common?
- They are iconic brands and major players in their respective industries.
- They all have debt coming due in the next 7 to 9 years which is rated non-investment grade by either Moody’s or S&P.
- These bonds yield between 4.64% and 6.13% (yield to worst).
Both bonds are also recommended by Rom Badilla, chief research strategist of Bondsquawk.
Here are the details of the bonds with some additional commentary:
Ford (F) Coupon Rate 8.875% Maturing January 15, 2022 CUSIP 345370BJ8
Yield To Worst 5.13%
Ford, the automobile manufacturer, is rated investment grade by one rating agency and junk by the other. This divide reflects that Ford is in the middle of a turnaround. If sales in North America remain strong and its European division can stop losing money, the company should regain an investment grade rating from both S&P and Moody’s. Turning around Europe which lost almost $500 million last quarter will not be easy, as European demand is likely to be sluggish for years to come.
Rom points out that Ford is generating lots of cash and has been using it to lower its debt load. Over the last two years, the company has reduced its debt by $20.7 billion, or roughly 27%. More debt reduction is expected with the company having the ability to reduce debt by another $4.4 billion from operating profits over the next 12 months. A reduced debt load and profitable underlying business are both good for its bonds.
Rom’s article on Ford.
Dish Network (DISH) Coupon Rate 7.875% Maturing September 1, 2019
Yield To Worst 4.64%
I think of satellite TV as a dying business. Recently, I was considering getting “cable TV” as part of my internet package. However, I decided to sign-up for Netflix instead. As more people bundle their internet and TV together or move away from “broadcast” TV entirely, Dish Network’s business will be severely diminished. However, the process that I am describing will take time. (How long is the billion $ question.) Right now, Dish Network is in a very strong financial position.
Rom points out that the Dish Network has a Net Debt to EBITDA ratio of 1.26. Essentially, the company could pay off all of its debt, using its cash and operating profits, in about 15 months. This ratio is really excellent as many investment grade rated companies have net debt to EBITDA ratios of 3 or higher. Rom is basically arguing that the bears are so focused on the future and that they ignoring that today and tomorrow (7 years from now when the bonds mature) when the company will be in a great financial position to meet its debt obligations.
Full Article: Add Income With Dish Network High Yield Bond
