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Earn 10.5% Yield To Maturity With Ion Geophysical's 2021 Bonds

Published Mon, 11 Feb 2019 16:50:47 -0500 on Seeking Alpha

Ion Geophysical (NYSE: IO) reported solid fourth quarter earnings last Wednesday. The company's revenue and EPS beats sent the stock rallying by more than 20%. Despite the rise in share prices, the company's 2021 bonds dropped in price from the high to mid-90s. At the current price of 96.5 cents on the dollar, combined with a 9.125% coupon, the bonds yield 10.5% to maturity. A deeper look into Ion's financial performance and outlook should help fixed income investors determine if their high yield bonds are a good investment.

Source: FINRA
2018 was a challenging year for Ion Geophysical, mainly due to the continuing volatility in the energy markets, which the company serves. Revenue, gross profit, and operating income each declined in 2018 versus the previous year. A substantial portion of the company's operating loss came from the non-cash write-off of long-term assets. Not including the asset impairment, the 2018 operating loss still exists, but less than $10 million off 2017 and better than 2016's results.

Source: Company 10-K
Ion Geophysical's asset impairment was one of two notable changes to the company's balance sheet in 2018. The asset impairment accounted for 75% of the company's total net property assets. Fortunately, the impairment was offset by a $40 million decline in long-term debt. The company's current assets now exceed the value of its long-term debt, a plus for bondholders. Nonetheless, the company did have a decline in equity for 2018 as... Read more