What Does Value Look Like? Bank of America 9%+

Below you will find a chart/slide on one of our largest holdings and my single largest personal holding.

The security is a floating-rate security issued by Bank of America.

I am hoping to use this note as an informational tool – and an example of particular value.

A floating rate bond has a period of fixed payment interest – in this case, 5.875% at the issue price of $1000.  At its call date, the bond begins floating on an index rate + a fixed spread.

In 2028 this security will begin floating on 3 month LIBOR + 2.98% spread.  Today that would equate to 7.46%.  Held to the call date, this bond will pay 9.3% per year (55% cumulative) and then begin floating (2028) at the prevailing level of rates relative to the index rate.

Looking backward, we can see the bond frequently was trading well above its par value (a premium) which effectively lowers the rate the investors collects.  We have actively sold this bond at a 14% premium to its par value in the past (when the yield was below 4%).  Today the bond trades at a massive discount, and yields roughly 9.3%.  We are active buyers at this level.

Interest rates have become the new obsession of investors (always our obsession).  While disconcerting to many, the opportunity for investors is far better than it has been in a decade, or more.  Bank of America, and the other SIFI banks (structurally important) have very solid credit quality.

We are 100% focused on generating income with the least credit risk possible.  After the suspension of reality for the past several years, it is wonderful to have an environment where our tools can be properly used.

Thank you for your interest.  Please advise questions.

Julien B. Booth

Chief Investment Officer – Fixed Income & Real Assets

BRC Wealth Management

704-608-3100