Bonds from RMR Group

[BMK]

I'm looking at a couple of bonds issued by RMR Group.

The first has a maturity of 05/15/24 and a coupon of 4.25%. Recent asking price was 95.23. Schwab's standard calculator shows a YTM of 9.786%.

The other one has a maturity of 02/01/25 and a coupon of 4.50%. Recent asking price was 86.041. YTM is 11.906%.

All other variables appear to be the same. The Moody's and S&P ratings are the same for both bonds. The ratings have not changed recently. Both bonds are rated Baa3 by Moody's and BBB- by S&P. They are not junk bonds. They are at the low end of investment grade.

Why the huge difference in price between these two bonds? Both bonds almost feel too good to be true. Is this company in trouble?

Risk of default feels very, very low. What am I missing?

FYI: E*TRADE identifies the issuer as Office Properties Income Trust.

The CUSIPs are 81618TAE0 and 81618TAC4.

 

[MoreLeverage]

I’m not sure about those two issues, but RMR and the family running it have a history of shareholder abuse and egregious compensation. Maybe there’s a sleaze premium in the credit spreads?

 

[ETJ]

Bonds don't re-rate automatically. The issuer pays for the rating process and commonly only at issuance. They will also re-rate in new bond issuance and then pretty much everything re-rates. Those ratings are probably from the issuance. The marketplace rating is in the yield.

 

[BMK]

Bonds don't re-rate automatically. The issuer pays for the rating process and commonly only at issuance. They will also re-rate in new bond issuance and then pretty much everything re-rates. Those ratings are probably from the issuance. The marketplace rating is in the yield.

Okay, so the ratings are not recent, and may have little or no relevance.

But that doesn't explain the wide difference in price between the bonds.

The two bonds are identical except for the interest rate and maturity. Yes, those two variables are what drive bond prices. But the interest rates are only a quarter point apart, and the maturities are only about 9 months apart.

Why such a huge difference in price?

 

[zdreg]

The two bonds are identical except for the interest rate and maturity.

They are the same in your eyes but not in the eyes of the market.

 

[zdreg]

Risk of default feels very, very low.

Is that what passes for analysis on ET?

 

[ETJ]

Answer doesn't change. The market has less of an expectation the 2025s will refund. I would also look at when they last traded. Over 8% for those maturities are considered junk. Doesn't mean they won't pay - just means the marketplace is pricing them accordingly.
Sounds like you are dead set on buying them - good luck.

https://www.marketwatch.com/story/j...ive-with-stocks-but-less-volatile-11667473704

 

[BMK]

Sounds like you are dead set on buying them

I haven't made a decision yet LOL just wanted to know what other people think

 

[newwurldmn]

Prices could be stale. Corporate bonds trade by appointment.

The bonds could actually be different with callable features or putable features.

The bonds may not tie to the same collateral.

Okay, so the ratings are not recent, and may have little or no relevance.

But that doesn't explain the wide difference in price between the bonds.

The two bonds are identical except for the interest rate and maturity. Yes, those two variables are what drive bond prices. But the interest rates are only a quarter point apart, and the maturities are only about 9 months apart.

Why such a huge difference in price?

 

[BMK]

I did not buy any of these bonds LOL

They now have a junk rating of Ba1

The new rating is dated Nov. 16, which was actually one day before I posted my original message. But when I looked at them on Nov. 17, they had a rating of Baa3.

Apparently, it took a couple days for the new rating to get to my broker's website...