A Safe And Recession-Resistant 8.4% Baby Bond Yield From TravelCenters Of America

The last couple of months have been an exciting time for TravelCenters of America LLC (TA). The 12/5/2018 sale of its standalone convenience centers raised $331 million. The proceeds from that sale of non-core assets have enabled TA to better focus on its travel center business. The sales proceeds are being put to work with the 1/17/2019 purchase of 20 of its leased travel center properties from Hospitality Properties Trust (HPT). These deals have substantially reduced the risk for the TravelCenters of America 8% Senior Notes (TANNZ) baby bonds. This article provides 10 reasons for income investors to consider TANNZ. The major risks are also highlighted.
What is TANNZ? TANNZ is a par $25 unsecured debt issue maturing on 10/15/2030. It has an 8% coupon and interest is paid quarterly. At a recent price of $24.44, TANNNZ is now trading at a cash yield of 8.2% and a yield to maturity (calculated from my Panick High Yield Report Excel model) of 8.4%. See prospectus for additional details. TANNZ is currently callable at par, but call risk is not a concern with the issue trading below par. TANNZ is a smaller issue with only $100 million par value outstanding. The average daily trading volume is about 8K shares. Limit orders and patience are recommended when trading. Note that bond owners never receive a K-1. Bond interest is never considered a qualified dividend for tax purposes.
How does TANNZ compare to TANNI and TANNL? TravelCenters of America 8.25% Senior Notes (TANNI),... Read more