Short Maturity Bonds

Most companies try to manage the maturity schedule of their outstanding debt by buying back the shorter maturity debt in their capital structure.  Bonds that fall into this category tend to offer a lower yield and a lower level of volatility than comparable, longer-maturity bonds. This lower level of risk is due to the borrower’s need to address the short bonds in its capital structure (buy-back, refinance, or pay-in-full at maturity) before they address any other issues.

High-yield mutual funds are sellers of this type of paper due to their need of high-yielding bonds to hold long-term.  This creates opportunities for investors to obtain low-volatility yield with the potential of a short term redemption event.  An example of this is the Chesapeake Bonds of 2018,  these bonds have displayed low volatility and offer a coupon of 6.875%. On April 29, 2011 Chesapeake Energy Corp. used excess cash on its balance sheet to buy-back $126 million of its 6.875% bonds at a premium.

 

 Short Maturity Bonds

Issue Rating Size Maturity Equity Market Cap. 
HCA Inc. 5.75% Due 2014 B3/B- $500M 3/15/2014  $11.56 Billion (NYSE: HCA)
Chesapeake Energy
6.5%  Due 2017
Ba3/BB+ $1.1B 8/15/2017 $14.17 Billion (NYSE: CHK)
FMG Resources 7% Due 2015 B1/BB- $2.04B 11/1/2015 $18.25 Billion (ASX: FMG)
AES Corp. 7.75% Due 2015 Ba3/BB- $500M 10/15/2015 $9.90 Billion (NYSE: AES)
Tesoro Corp. 6.625% Due 2015 Ba1/BB+ $450M 11/1/2015 $3.53 Billion (NYSE: TSO)