Actionable insights — Friday POW!: Macy's (M) 6.7% '34 bond

1. Hunt the BB "sweet spot" — buy default-resistant credit at high-yield coupons

1. Screen corporate bonds for the BB / BB+ band — one notch below investment grade — where the "BB anomaly" lives: historic default rates under 1% annually, yet coupons that pay a high-yield premium.
2. Confirm the yield is genuinely "juicy" relative to the risk-free curve: compute the yield-to-maturity from coupon, current price and maturity, then check the spread over a comparable-maturity Treasury (demand a few hundred basis points of excess).
3. Treat the rating as the entry filter, not the whole thesis — a BB+ that you can independently show is over-collateralized (next insight) is a fallen angel in waiting, not a junk bond.

• BB/BB+ issuers trading below par so the YTM exceeds the coupon; a spread wide enough to pay you for a default risk the fundamentals say is overstated.

2. Stress-test the credit by asset coverage — real estate vs market cap vs debt

1. Don't stop at the income statement: find a third-party appraisal of the issuer's hard assets (CoStar for real estate, here $7.9–10.5B) and compare it to both the equity market cap and the total debt.
2. Require the asset value to exceed the debt (ideally with a margin) so bondholders are covered even in a liquidation — and note when assets exceed the entire stock-market value, signalling the equity market is ignoring them.
3. Layer the balance sheet on top: cash on hand, net debt, and the trend in free cash flow — a credit paying down debt is upgrading itself underneath you.

• Asset-rich, multiple-poor issuers where appraised property covers the debt several times over; FCF growth that gives the company optionality to retire the bonds early.

3. Use insider / Buffett-grade validation as a confirming data point, not the thesis

1. Check whether a credible, long-horizon buyer has recently taken a stake — a Berkshire-type purchase is "a vote of confidence consistent with an operating turnaround."
2. Size the signal honestly: a 1% / $55M position is "walking around money," so weight it as corroboration of the cash-flow story, not as the reason to buy.
3. For a bond buyer, read an equity purchase as confirmation the enterprise is healthy enough to keep servicing debt — the equity sits junior to your claim, so its sponsor's confidence reinforces your safety.

• A respected long-term holder initiating a position in the equity of a company whose bonds you're underwriting; treat it as one input, never the trigger.

4. Demand a Change-of-Control put — turn LBO risk into an LBO gain

1. Before buying any below-IG corporate bond, read the indenture for a Change-of-Control (CoC) provision — LBOs are "anathema to bondholders" because they trigger downgrades and steep price drops.
2. Require the covenant to let holders put the bond back to the issuer at a premium to par on a change of control, so a buyout becomes a profit rather than a loss given a sub-par purchase price.
3. Quantify that protection at your entry price: the lower below par you buy, the larger the built-in gain if the put is ever exercised.

• A CoC / "poison put" clause priced near or below par; avoid otherwise-attractive bonds that lack it, since LBO chatter alone can crater an unprotected note.

5. Benchmark the bond against the stock market's likely forward return

1. Frame the buy decision not just "is this a safe yield?" but "does this contractual return beat what equities are likely to deliver over the same horizon?"
2. When the equity index looks expensive / late-cycle, a covered ~7½% locked yield to a fixed maturity can win on a risk-adjusted and absolute basis — a defined, senior claim versus an uncertain total return.
3. State the horizon explicitly (here, "the rest of the decade … maybe out to the 2034 maturity") so the comparison is apples-to-apples against a buy-and-hold equity allocation.

• Stretched equity valuations where a senior, asset-covered ~7½% to maturity rivals plausible stock returns; lock the yield while it's on offer rather than reaching for index upside.