Veteran Trader Finds Clients Warming Up to Bond Buys

Wall Street West
by Benjamin Mark Cole

Not many bond traders are also ordained rabbis, but George Lintz, of Sherman Oaks-based Lintz Financial Services has spent nearly 20 years buying and selling "odd lots" of bonds, often U.S.-backed IOUs such as "Ginnie Maes."

Lately, Lintz said, he's been getting a lot of new converts, and not of the spiritual type. The stock market, of course, is in its third year of droops. "Six percent doesn't look so bad anymore," Lintz said.

His existing clientele, too, has stepped up bond-buying activities. Lintz's clients a conservative group made up mostly of risk-averse wealthy individuals and pension funds kept half of their portfolios in IOUs through the 1990s. But now, "they have moved into 80 percent bonds," Lintz said.

Ginnie Maes, the widely used nickname for Government National Mortgage Association bonds, are pools of home mortgages guaranteed by Uncle Sam. They tend to yield a few hundred basis points more than ordinary U.S. Treasuries. Other federally affiliated entities, such as the Federal National Mortgage Association, also issue mortgage-backed bonds, with various levels of government backing.

Still, Lintz likes to invest in what he calls "triple triples" U.S.-backed bonds that receive at least a "AAA" rating by all three major credit-rating agencies: Standard & Poor's, Moody's, and Fitch.

Lintz, who employs eight bond traders, long ago concluded that odd lots, such $6,000 or $23,000 worth of Ginnie Mae bonds, traded at a discount to market. The big institutional players like larger lots, and smaller lots are like carpet discards after a big building project, Lintz said. His strategy is to bargain for the smaller lots, and put the bonds into inventory for his clients. Over any 10-year period, Lintz thinks his collection of GNMAs outperforms U.S. Treasuries by 250 to 350 basis points (2.5 to 3.5 percentage points).

Are there any other ordained rabbis trading bonds? "I haven't met any," Lintz said. "The two activities are not really related."

Bargain Hunter

Michael Tennenbaum, who has run Special Value Management LLC in West Los Angeles for the past six years, is known to take big positions in tech and aerospace shops, such as his buyout of the old aerospace house Whittaker Corp. three years back.

Tennenbaum, once of brokerage Bear, Stearns Cos., isn't talking about it, but in late June, Special Value led a group of funds in acquiring a 28 percent stake in Poway-based Anacomp Inc., a data storage information company.

Anacomp, a publicly held company, declared Chapter 11 last October, and emerged on Dec. 31 in a prepackaged bankruptcy. Bondholders ended up controlling the company, and Anacomp shares ended up being traded on the over-the-counter bulletin board.

Tennenbaum wasn't a bondholder, but word from Anacomp is that he acquired the shares now worth more than $30 million from bondholders who wanted out.

Many bondholders have little desire to be involved with a company that's been through bankruptcy, and will often sell at first chance. .

Goldeneye

James Montgomery, founder of the Santa Monica-based investment banking botique Digital Coast Partners, always seems to land on his feet.

Sort of a James Bondian character, Montgomery a few years back announced he was setting up a venture capital fund, and even an incubator. He raised a couple hundred million bucks, with the ease of someone waving down a taxi in Manhattan. He backed a few winners early.

But when dot-com values skyrocketed, Montgomery largely held back, and he quickly shuttered his incubator. With 16 investment bankers on staff, he set out instead to win advisory work, and now represents no less than 20 companies seeking buyers. Montgomery sets his fees at 5 percent of a company's first $15 million in sales price, and 3 percent of everything after that.

He recently sold Westlake Village-based Homestore.com Inc.'s consumer credit division, ConsumerInfo.com, to credit-reporting giant Experian for $130 million.

At a recent breakfast meeting he hosted at the Lux Summit Bel Air hotel, Montgomery predicted that larger public companies and private equity outfits would start buying smaller tech firms, now that values are reasonable.

Short Home Depot?

Donald H. Straszheim, president of Straszheim Global Advisors Inc., and Merrill Lynch & Co.'s former chief economist, recently published a list of public companies that purchased naming rights for football stadiums or sports arenas. The list was pretty grim, including, of course, Houston-based Enron Corp. (Enron Field), and Adelphia Communications Corp. (Adelphia Coliseum in Philadelphia). Both companies are worth pennies on the dollar compared to when they bought stadium names.

Now comes word that Home Depot Inc. is putting its moniker on an 85-acre Olympic and sports training facility to be built in Carson.

Bad news?

"Well, the stadium list is a bit tongue-in-cheek," Straszheim said.

Straszheim reasoned that when companies are flush with cash, they build HQ's and buy stadium naming rights that probably coincides with when a company's stock is up. "But Home Depot stock is already down to $30, from $50 earlier this year," said Straszheim. Perhaps news of Home Depot's naming rights to the Carson facility leaked out.

California Dreams

In the late 1980s, Japanese investors were buying anything they could in California. Technology, companies, and real estate Tokyo-based insurance giant Shuwa Corp., for example, was a substantial investor in downtown office buildings. There was even talk that downtown high-rises would become public companies trading on Japanese exchanges.

Of course, the Japanese took some losses, and then their economy went into a funk that is ongoing. But Thomas McLain, partner in the Los Angeles offices of law firm Sidley Austin Brown & Wood, said the Japanese are again buying California companies and technologies.

"There is a real shortage of engineers in Japan, and certain types of creative talent," McLain said.

Japanese trading houses, including Mitsubishi, Mitsui, Sumitomo and Itochu, have set up billion-dollar plus funds to make acquisitions. Itochu is setting up an office in Los Angeles just for the purpose of acquiring technology, McLain said.



Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at sevencontinents@mindspring.com.

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