S: Grant's Interest Rate Observer (Vol.19, No. 22/Nov 23, 2001)

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'OPERATION ENDURING BUBBLE'
    Late Monday, a Revlon subsidiary issued $363 million of four-year senior
secured notes. Rated Caa1/B-, the securities bore a 12% coupon and were priced
to yield 13.125%. Two things to know about this transaction: The offering size
was bumped up from $250 million, and the price spurted by three points right out
of the investment banking gate.
    So far from being risk averse are the bond and stock markets that they
border on being fact averse. Revlon hasn't been profitable since 1997, when its
stock was quoted at 50 (today, it's less than seven). In the past 12 months,
cash flow (as defined) has failed to cover interest expense. The chairman is
Ronald O. Perelman. "I'll be honest with you," says Michael Lewitt, junk bond
investor deluxe in Boca Raton, Fla. "There are things you can buy with a 13%
yield that probably have a lot less aggravation." . . .


THE INNERMOST FARRELL
    "Don't confuse my opinions with the management of the company," advises
Michael A.J. Farrell, chairman and CEO of Annaly Mortgage Management (NLY).
Those opinions and that management are the topics at hand.
    Annaly, as constant readers know, is a mortgage REIT, a virtual thrift on
which Grant's has been, and is now, bullish. (For the record, family and friends
of Grant's have invested in it.) It pays a repo rate on its liabilities and
earns a mortgage yield on its assets. In the September quarter, it paid and
earned so well that its annualized return on average equity topped . . . .


CALLING ALL CHICKENS
    Freeport-McMoRan Copper & Gold owns one of the world's best ore bodies in
one of the world's worst locations. The mine is Grasberg, and the setting is
Irian Jaya (West Papua), Indonesia. Just step on a plane in Los Angeles and 37
hours later, you're there.
    Location isn't the only bearish fly in what we judge to be a bullish
ointment. There is the balance sheet (highly leveraged), the global economy
(receding), World War IV (as the struggle with militant Islam was styled on
Tuesday's Wall Street Journal editorial page) and the altitude of the pay dirt
(towering). Grasberg is situated at 14,000 feet in an environment so hot, yet so
cold, that a nearby mountain supports an equatorial glacier. However, if good
things happen to cheap stocks, something good may happen to Freeport (FCX). . .


NEW NEWMONT
    What about Franco-Nevada in view of its proposed (and contested)
consolidation with Newmont and Normandy? We have high hopes for a successful
deal, assuming that Newmont trumps a rival bid from Anglogold. . . .


THEY SAID IT
    Kevin Landis, co-founder of Firsthand Capital Management and hardy tech-
stock bull, had some advice for the value-seeking audience at the Grant's
conference last week. "[O]ne of the trade-offs of prudence," said Landis, "is
that you don't participate in what everyone else is excited about." Technology,
because it glows with excitement and because, as Landis noted, "it's cool," is
especially prone to confound prudent people. Pressed for some favorite
investment ideas, Landis mentioned. . . .




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