Conditional redemption

Investing Strategies Bonds & Fixed Income Investments
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I own a bond issued by Commercial Metals (CUSIP # 201723AL7). I very recently received a notice from
Fidelity that it has been called. I thought this bond wasn’t callable until 7/15/22, so I didn’t
understand. Fidelity will be closed until Tuesday, so no help there. I went to the company’s site
(Commercial Metals) and found a press release that stated:

“IRVING, Texas, Jan. 13, 2022 /PRNewswire/ – Commercial Metals Company (NYSE: CMC) (“CMC”) announced today that it has delivered a conditional notice of redemption (the “Notice”) to the trustee of its outstanding 5.375% Senior Notes due 2027 (the “2027 Notes”). The Notice calls for the redemption of all of the outstanding $300 million aggregate principal amount of the Notes on February 15, 2022 (the “Redemption Date”) and is conditioned on the closing of the issuance and sale of debt securities (in one or more series) in an aggregate principal amount of at least $600 million on pricing, terms and conditions satisfactory to the Company in its sole discretion, which condition the Company may waive at
its discretion.”

I guess my biggest question is - can I sell it? I recently had thought of selling it, as Fidelity was offering $104.625, and the yield to call was very poor. If it were called at 7/15/22 it would be for
$102.688. It would be great if I could hold it to maturity (7/15/27) as the coupon is 5.375 %, but I
am sure one way or another it will be called this year. I have had a lot of bonds called before, but
never one “conditionally”. I would appreciate any help on this.
Norm

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I thought this bond wasn’t callable until 7/15/22, so I didn’t understand.

Here’s the applicable part of the information on redemption from the prospectus (my bolding) https://www.sec.gov/Archives/edgar/data/22444/00011931251722…

2. Redemption.

(a) At any time and from time to time, prior to July 15, 2022, the Securities may be redeemed in whole or in part at the sole election of the Company, at a Redemption Price equal to 100.000% of the principal amount thereof (the “No Call Redemption Price”) plus the Applicable Premium as of, and accrued and unpaid interest thereon, if any, to, but not including, the relevant Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date falling prior to or on the Redemption Date pursuant to Section 307 of the Indenture).

The premium price of $102.688 for all of 2022 is provided later in the prospectus.

I guess my biggest question is - can I sell it? I recently had thought of selling it, as Fidelity was offering $104.625, and the yield to call was very poor.

I’m guessing that ‘recently’ was prior to Jan 15, 2022, when the semi-annual interest payment of $26.875 per bond became due to the holders. If that’s the case, you should be happy that you didn’t sell then, since the premium of $102.688 plus the interest of $2.6875 per $100 adds up to $105.3775 per $100 - more than the $104.625 you would have received. If you were to sell it now that you are already due the interest payment, my guess is that the most you would get is around $103.14, which is the premium price plus the additional month’s interest that will be due when the notes are called on 2/15. Due to the bid-ask spreads on bonds, you will probably be offered less than that.

I have had a lot of bonds called before, but never one “conditionally”.

In the letter that you quoted, the condition is that Commercial Metals is able to issue new debt securities for $600MM with pricing and terms acceptable to the company. Since 10 year interest rates are still lower than they were when this bond was issued in July 2013, my guess is that they will be able to issue at a rate that’s lower than the 5.375% that these notes pay. So it doesn’t seem like it’s much of a condition.

AJ

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AJ:
Thank you. I appreciate the info. I bought it in a taxable account on 3/13/20 at $98, so either
way I’m going to have a long term capital gain. I guess I will hold it until it is called. I also have
a lot more of this issue in a Roth account, but won’t have any tax consequences there. Thanks again.
Norm