[villages07]

A week or so ago, there was a full page ad in the Sun from a Bond Seller outfit offering Villages CDD #6 bonds...5.7% tax free yield to maturity; price 93.628; coupon 5.25, unrated, 30 yrs, callable in May 2017. Appears that the minimum investment is $15K.

Here's the link: https://trading.fast-trade.com/fmsbo...fferingId=7773

Question....I've never invested in muni/tax-free bonds; for those of you who have gone down this road....does this sound like a wise investment? They may be unrated, but, we have a pretty good idea how "safe" and stable the underlying obligation (i.e. the Villages) is.

Are these bond resellers making a bunch of money? i.e. did they pay $100 for a bond then now trying to sell it for $110 6 months later.

OK, you financial gurus...let's hear your opinions!!!

Thanks,

V07

[Donna]

I would also be very curious to know... :dontknow:

[billethkid]

I cannot say much about the bond being offered because I only know what was in the one pager ad. However, a noteable point for me was the bond was listed as "unrated".
For example corporate, federal or state bonds can have up to a AAA rating...the best....pretty much a guarantee to perform as advertised as well as backed by a solid financial position to protect the investment.
If you pursue I recommend getting an opinion from a financial advisor-type about the rating.

BTK

[Barefoot]

V7, I have also seen the ads, and would love to know the answers to your questrions. Please, Financial Experts/Advisors: I know there are some of you out there!

[Villages Kahuna]

As a retired banker, here's what I can conclude from this situation.

• First, I wonder who FMS Bonds.com is? They say they are a registered broker-dealer, "registered" meaning recognized by the SEC. They do mention membership in a couple of well-known industry associations on their website. They appear to have some physical presence in Boca Raton, although that could be nothing more than a mail box.
  
• The broker-dealer's unaudited 2007 year-end financial statement says they only have assets of a little more than $100 million. This is obviously a small broker-dealer. They sure can't carry much inventory for sale with assets on only $100 million.
  
• How they acquired the bonds for re-sale is a curious question. It's almost certain that the CDD 6 bonds were initially "privately placed" by the bond underwriter. I might have guessed that a bank, maybe even Citizens First, might have been the purchaser of the original issue. But because the issue was almost certainly a small one, maybe FMS Bonds.com was the buyer of the initial offering. Their website says they have a little less than $4 million of the bonds in inventory, so maybe they were the original buyer of the CDD 6 bond issuance.
  
• The bonds were never submitted for a rating by any of the rating agencies. First, the financial strength of CDD 6 is almost certainly not substantial enough to earn anything more than a "junk" rating or even an official "unrated" designation. Even if the CDD could have gotten a rating, which is unlikely, that step is extraordinarily expensive for a small issue. Of course, it isn't needed if the bonds are purchased by a single private party, who presumably knows and understands the credit-worthiness of the CDD.
  
• Actually, the buyer of these bonds would be taking somewhat of a multiple credit risk if they bought these bonds according to the terms of the offer. Note that there would be no delivery of the physical bonds to the buyer. It would be a "book entry" on the books of FMS Bonds.com. That means that an investor would be taking the risk that the issuer (CDD 6) wouldn't keep scheduled payments current, but would also be betting on the continued financial solvency of FMS Bonds.com. They would be receiving the payments from CDD 6 and passing them on to the buyer. FMS says that their accounts are insured to a reasonable level, but an insolvency on the part of the broker-dealer would still create a bit of a sticky situation.
  
• These bonds were probably initially sold last year. They appear to be ten-year bonds with a final maturity in 2017. The are "callable" at any time to permit their early repayment should funds become available to the CDD to do so. This feature suggests that these may be the bonds sold to finance the infrastructure improvements within CDD 6 and are callable to permit the use of funds from homeowners who pay off their individaul property bonds to be applied to retirement of the bonds issued.
  
• The bonds have a "coupon" interest rate of 5.25% on the original issue price of 100. The dealer is now offering the bonds for sale at a discount from the original offering price, currently 93.633. The decline in the face value of the bonds is a calculation that produces an interest rate ("yield") that is an attempt to keep the bonds competitive with other bonds being sold in the market. In this case, the yield on these bonds would be 5.7% to the buyer if the bonds were not called before maturity. In today's market, a tax-free rate of 5.7%--actually a 6.84% rate if a buyer was in the 20% tax bracket--isn't particularly attractive for an unrated bond. There are plenty of bonds currently available with "investment grade" ratings that are yielding close to 8% on a taxable basis. For that same buyer in the 20% tax bracket, that would yield 6.4%, but for a substantially higher quality bond.

My personal bottom line on these bonds and this broker-dealer is that I think I can make as much money with far less risk with other fixed income securities. Beyond that, I'd feel a lot more comfortable calling my broker at Merrill Lynch to ask questions as opposed to some unknown in a bucket shop at an 800 number which may or may not be located in Boca Raton or making a several thousand dollar investment on line. I'd also be a lot more comfortable relying on a large bank or brokerage firm passing along the scheduled interest and principal payments as opposed to some online broker-dealer who doesn't even list an address or name to call.

I hope this helps.

[Muncle]

Detailed, yet succinct. Great answer to a potentially very involved issue. (No pun intended.) Thanx for taking the time to provide your obviously knowledgable insight. I'll look elsewhere to make my millions.

[villages07]

Kahuna,

:bow: :bow:

Thank you for a very knowledgeable response...the scariest part is that you don't physically have the bond in your hand and depend on FMS to pass on earnings to you. No thanks.

Like Muncle, I will look elsewhere for investment opportunities. It sounded good at first glance but upon deeper investigation seems too risky....not The Villages/CDD bonds themselves, but, the way this outfit resells them.

I've often wondered how/if you can buy CDD bonds directly from TV. I might look into this angle further.

Again, thanks Kahuna....you've probably saved several people from making an uninformed investment decision.

V07

[TV MAN]

:bow: :bow:

Yes Thanks Kahuna for the great explanation.

Hey V7 I would also like to know about buying the bonds directly from the CCD. Keep us posted if you find anything.

[dadspet]

Impressive response! Thanks for the time it must have taken you.

[The Great Fumar]

Thanks Kuhuna !!!
you hit me right between the eyes when you stated that we're probably a book entry and not a bond in hand person..........
I seriously appreciate your time to explain this to us......
I too will look elsewhere.........
enlightened fumar

[chuckster]

Many thanks Kahuna for the CDD bond explanation. Much appreciated. :bigthumbsup: