TAKING STOCK: Nuveen Municipal Value Fund or Claire's Stores

Dear Mr. Berko:

In September of 2011, you recommended the Nuveen Municipal Value Closed-End Fund for my brother who bought it at $9.39 to yield over 5.2 percent. My brother invested $26,000 in this fund, and he's been happy with its price and dividend, which is tax-free. Now I have $11,000 in cash to invest, and I want to know if you would recommend this same tax-free investment for me. I could still buy 1,000 shares at the current higher share price. Nuveen's price has gone up to over $10 a share, but is it still good to own? Also, what do you think of Claire's Stores. My daughter-in-law worked for them when they were a public company back in 2006 and still does. The company got bought out and was taken private by Apollo Management in 2007. Management told her that they are going to go public again next month. Do you think this be better to own than the tax-free investment?

DH, Vancouver, Wash.

Dear DH:

NUVEEN MUNICIPAL VALUE BOND FUND (NUV-$10.06) was paying investors a $0.039 monthly dividend since June of 2004, and that dividend was recently reduced to $0.037 about a year ago. NUV has also paid shareholders a small capital gains distribution in each of the last dozen Decembers. The current 4.3-percent yield does not include NUV's annual capital gains payout that has ranged from $0.04 to $0.15 a share since 2001. However, while the payout was declining during the past dozen years, NUV's net asset value rose moderately from $9.22 to $10.67, certainly a result of falling interest rates.

This closed-end (non-leveraged) fund owns a $2 billion portfolio of long-term, high-quality municipal bonds (BBB and better), giving investors an equivalent taxable yield of 6.1 percent if they're in the 28 percent tax bracket or 7.3 percent if they're fortunate enough to be in the 39.6 percent bracket. NUV, that trades at a teeny premium (0.28 percent) to net asset value, was in an exhilarated class in September of 2011 at $9.39 when your brother bought it and the yield was a tad over 5.2 percent. That was two years ago.

However, the slowdown in the decline of interest rates seems to be accelerating and the crutch of the matter is, "When will interest rates head up again?" So with yields on almost all debt (even junk bond debt) at record lows, it seems that rates have nowhere to go but up. This will push bond prices lower and with yields at such ridiculously low levels today, a new investors' exposure to losses is significantly higher than ever before. I'm reluctant to own this.

The difference between men and boys is the price of their toys and for ladies and girls it may be the price of their accessories. Claire's Stores, your daughter-in-law's employer, is the queen of that bulky, chintzy, bright, overbearing, ugly costume jewelry, rings, wristbands, headbands, bracelets, handbags, purses, hair bows and other junk that decorate girls between the ages of 3 and 30.

When Apollo Global Management took Claire's private with a Leveraged Buy Out in 2007, the 3,100-unit chain, with stores in 50 states, had zero debt, revenues of $1.5 billion and produced a net profit of $190 million. Apollo paid $3.1 billion (average of $1 million per store location) to take Claire's private.

Fast-forward six years and Claire's is a hugely indebted mess that I wouldn't touch with a steam shovel. Apollo (which bankrupted the classy Linens 'n Things in a leveraged buyout) saddled Claire's with $2.4 billion in debt with interest payments exceeding $200 million a year. Today, under Apollo's guidance, Claire's reported 2013 revenues of $1.55 billion and a profit that dwindled to $6.2 million.

And, frankly, I suspect that the $6.2 million number will turn into a loss after Apollo's intended IPO later this year. Claire's has $560 million in debt that comes due in 2015, and there are no obvious provisions for paying it off. Claire's Stores today is an abomination compared to Claire's Stores of six years ago.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

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Published: Fri, Jun 14, 2013