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Re: Hybrid Securities GNSPA

Good thread. Debt holders are always in a stronger position than equity holders.
That's why BEPPA are incredible value when compared to the BBI price. BEPPA have been smashed down in tandem with the BBI price due to the perception that BBI is on a path to liquidation. BEPPA at less than 10c in the dollar is a speculative investment. If BBI survives to 2012, BEPPA are redeemed at $1.04 in either cash, BBI shares or a combination of both.
BEPPA is also fairly illiquid and two large instos have been exiting BEPPA and BBI at the same time. This has created a dislocated market. It really isn't an efficient market because there is forced selling and a lack of buyers. The price was driven down mercilessly. Look at the chart. 30c to 10c in November in basically two days for BEPPA.
My view is that BBI will survive and therefore buying BEPPA at 10c in the dollar with a return of $1.04 in three years time is too good an opportunity to pass up.
I also hold BBI.

BBI has NAV of $1 per BBI. This INCLUDES the $780M debt to BEPPA. Therefore, BEPPA in effect has a $2.4Bn cushion.
 
Re: Hybrid Securities GNSPA

BB have you found any other BEPPA styled hybrids? i know you havent done as much research as to there longterm future and if asset values are realistic but im looking at more hybrids that have a buyback at set value in future years which may be substancially above current price. i can then do my own research into the companies viability.

cheers
 
Re: Hybrid Securities GNSPA

Nathan, I just asked that exact question of BB on the BBI thread:)

Julia, yes your question on the potential cap gain with GNSPA is understandable. IN fact now that I know they are perpetual my interest has waned as cap loss is probably just as likely but I'mstill keen on finding others. (maybe this thread needs renaming but I don't know how eg delete the ref to GNSPA)
On certain other forums there are people who are convinced that GNSPA will be redeemed but personally that may be too much of a risks for me.

warren greenspan (must change that to bernanke)
 
Re: Hybrid Securities GNSPA

nathanblack said:
im looking at more hybrids that have a buyback at set value in future years which may be substancially above current price. i can then do my own research into the companies viability.
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TAPS (TTXPA) current price $82.50 resets on 30 June 2010

Each TAPS is a cumulative, reset, preferred security in the TAPS Trust which has an issue price or face value of $100 and a maturity date of 30 June 2015
unless redeemed or exchanged.
TAPS can be redeemed at a TAPS holder’s request at any reset date (the first reset date being 30 June 2010) at the Responsible Entity’s discretion, with
the Responsible Entity to elect whether the redemption is to be satisfied by way of cash or a number of HDF stapled securities or a combination of both.
Each TAPS holder is entitled to receive a cumulative, quarterly floating rate distribution based on the minimum 90-day bank bill rate plus a margin of
two percent per annum.
Click to expand...
 
Re: Hybrid Securities GNSPA

The hybrids are only as good as the company issuing them. The reason BEPPA is 90% off it's face value is that everybody thinks BB will go under, it's as simple as that. You might be higher up in food chain but if there is nothing left to give back to the note holders then you will get nothing back. I am currently holding an investment that has had the liquidators brought in and it seems I will only get back 50% of my money. Despite what's written in prospectuses and the promises some companies make when they go under you go under. In this case I just look at BB as high risk in every way and I simply wouldn't risk $1 with them but that is just my opinion and I could be wrong.

Lets talk about step up dates too. A lot of hybrids have step up dates/conversion date and buy back dates. Sometimes when these dates come up they can take the step up option. Again if you wanted your money back be careful it might not happen. Classic example is STOPB issued by Santos. STOPB is due for conversion/step up or buy back in September 2009. The current coupon is only 1.55% above the 6 Month Month bank bill rate. Now I have no idea of what Santos is going to do. The current price is $92 so you have a chance to make an 8% capital gain plus get the final interest payment. Looking at that it looks like a sure thing but hang on they might decide to step up the interest a further 2.25% and lock you in for another 5 years, again you won't get your money back and you must wait.

When looking at any hybrids, convertible notes or floating rate notes always look for the following:

1. Who is the issuing company, what is their rating, can they go under?

2. Be sure of a maturity date. Is it perpetual?

3. What happens at maturity? Do they convert to ordinary shares, can they step up and would you be happy with that.

4. What is the worst outcome that can happen to YOU. Plan for the worst outcome then you won't be so disappointed when it comes. When I bought SUNHB I thought to myself what is the worst outcome, in this case it was that it is perpetual, it paid cumulative interest income and that it will always pay .75% above the bank bill rate and now that is where I am.

There is risk with everything, you just have to plan for it, good luck.
 
Re: Hybrid Securities GNSPA

Bill M said:
The hybrids are only as good as the company issuing them. The reason BEPPA is 90% off it's face value is that everybody thinks BB will go under, it's as simple as that. You might be higher up in food chain but if there is nothing left to give back to the note holders then you will get nothing back. I am currently holding an investment that has had the liquidators brought in and it seems I will only get back 50% of my money. Despite what's written in prospectuses and the promises some companies make when they go under you go under. In this case I just look at BB as high risk in every way and I simply wouldn't risk $1 with them but that is just my opinion and I could be wrong.
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I share your opinion on BBI, Bill. Hugely risky.

Lets talk about step up dates too. A lot of hybrids have step up dates/conversion date and buy back dates. Sometimes when these dates come up they can take the step up option. Again if you wanted your money back be careful it might not happen. Classic example is STOPB issued by Santos. STOPB is due for conversion/step up or buy back in September 2009. The current coupon is only 1.55% above the 6 Month Month bank bill rate. Now I have no idea of what Santos is going to do. The current price is $92 so you have a chance to make an 8% capital gain plus get the final interest payment. Looking at that it looks like a sure thing but hang on they might decide to step up the interest a further 2.25% and lock you in for another 5 years, again you won't get your money back and you must wait.

When looking at any hybrids, convertible notes or floating rate notes always look for the following:

1. Who is the issuing company, what is their rating, can they go under?

2. Be sure of a maturity date. Is it perpetual?

3. What happens at maturity? Do they convert to ordinary shares, can they step up and would you be happy with that.

4. What is the worst outcome that can happen to YOU. Plan for the worst outcome then you won't be so disappointed when it comes. When I bought SUNHB I thought to myself what is the worst outcome, in this case it was that it is perpetual, it paid cumulative interest income and that it will always pay .75% above the bank bill rate and now that is where I am.

There is risk with everything, you just have to plan for it, good luck.
Click to expand...

A really helpful post, Bill. Thanks.
 
Re: Hybrid Securities GNSPA

BBI have to hybrid securitys at prestent SPARCS(NZ) and BEPPA(AUS). BBI have already offered rollover terms to SPARCS and also and early redemption.

Reading the fine print BBI has the option to pay $1 cash or $1script on maturity. Also they may buyback early or rollover. Certain events require holders approval whilst others can be forced on us.

I like your post Bill and it explains some pitfalls worth considering. They are certainly a more complex investment than ordinary shares and need full investigation.

They really are designed as income based product and not capital gain. and if bought for a steady income most offer a good deal(above term deposit rates) and if you chose a A+ rating or similar its low risk.

in BBI/BEPPA case dividends are suspended. so not exactly a income play atm. but there is a chance of capital gain also. im looking to add another dividend play to limit my exposure to inflation and BEPPA.

THANKS AGAIN Bill for explaining some pitfalls, which are from real experience(the best way to learn).
 
Re: Hybrid Securities GNSPA

Julia,
You have admitted you hadn't even heard of BEPPA until very recently yet you can now say they are too risky. I just cannot see how you could have put in enough time to thoroughly research BBI/BEPPA to come to such a quick conclusion. I am interested in your reasons.
 
Re: Hybrid Securities GNSPA

banska bystrica said:
Julia,
I suggest you buy CBA, WBC, NAB if you have no appetite for risk and don't understand BEPPA.
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Thank you for your advice.

banska bystrica said:
Julia,
You have admitted you hadn't even heard of BEPPA until very recently yet you can now say they are too risky. I just cannot see how you could have put in enough time to thoroughly research BBI/BEPPA to come to such a quick conclusion. I am interested in your reasons.
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I have held BBI shares in the past. Sold them when I sold everything else in January 2008 and am very glad I did. I don't hold on to falling stocks.

If you read Bill's post below, I am agreeing with him that "the hybrids are only as good as the company issuing them".
Given the woeful state of BBI, that's a good enough reason not to buy them imo. Plus of course the suspended dividends/distributions.

There are plenty of much more stable companies in the market, not overwhelmed with debt.


Bill M said:
The hybrids are only as good as the company issuing them. The reason BEPPA is 90% off it's face value is that everybody thinks BB will go under, it's as simple as that. You might be higher up in food chain but if there is nothing left to give back to the note holders then you will get nothing back.
Click to expand...

But good luck to anyone who has bought these. I hope it all turns around for you.
 
Re: Hybrid Securities GNSPA

Julia said:
Given the woeful state of BBI, that's a good enough reason not to buy them imo.
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That's a strange reason. BBI has plenty of debt but the balance sheet doesn't look to be in a "woeful state". Like the guy on CNBC says every night, "Life is full of risks my friend. If you don't want to take risks, you shouldn't be living". I understand most people's tolerance for risk is low. I take this opportunity to thank each and everyone of those people who sold out of BBI at under 4c and BEPPA under 6c. I will be forever grateful.
 
Re: Hybrid Securities GNSPA

When looking at any hybrids, convertible notes or floating rate notes always look for the following:

1. Who is the issuing company, what is their rating, can they go under?

2. Be sure of a maturity date. Is it perpetual?

3. What happens at maturity? Do they convert to ordinary shares, can they step up and would you be happy with that.

4. What is the worst outcome that can happen to YOU. Plan for the worst outcome then you won't be so disappointed when it comes. When I bought SUNHB I thought to myself what is the worst outcome, in this case it was that it is perpetual, it paid cumulative interest income and that it will always pay .75% above the bank bill rate and now that is where I am.

There is risk with everything, you just have to plan for it, good luck.
Click to expand...




Thanks Bill. Good points and just the sort of info I was looking for when I started this thread. I'm quickly learning.

Can you tell me (apart from reading the prospectus) if there is any site or publication or newsletter that covers that sort of info for interest rate securities. There's so many million words written in review of almost any share but so little on these int. rate sec's. Thanks Bill

Julia
I'm not trying to turn this into a BEPPA thread and I do appreciate your concerns about risk but I wonder who would show the most loss or gain in the following scenario.
*Buying the top 20 bluechips in say Nov 2007
or
*buying BEPPA at 7.9c and BBI going belly up and all assets liquidated


Yes I know the scanario is "stacked" but interesting nonetheless.

regards W

PS You are a genius for getting of the market when you did. Well done:)
 
Re: Hybrid Securities GNSPA

Warren Greenspan said:
I wonder who would show the most loss or gain in the following scenario.
*Buying the top 20 bluechips in say Nov 2007
or
*buying BEPPA at 7.9c and BBI going belly up and all assets liquidated
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Even BB has said in the BBI thread that if BBI is liquidated we may see nothing(despite the NTA). Most blue chips have lost about 50%(coming back up a bit now). so i would say the bluechips win out.

Anyway its not really about bluechip V BEPPA/Hybrids. A portfolio has room for both, infact if you dont hold atleast one major bank id be worried. its all about diversity.

my portfolio was ultra defensive, but im branching out now with smaller outlays on riskier/high reward stocks. im young and have time.

agree lets not turn this into another BEPPA thread. Hopefully others can share more experiences with other interest rate securities they held/hold and any pitfalls.
 
Re: Hybrid Securities GNSPA

Warren Greenspan said:
Julia
I'm not trying to turn this into a BEPPA thread and I do appreciate your concerns about risk but I wonder who would show the most loss or gain in the following scenario.
*Buying the top 20 bluechips in say Nov 2007
or
*buying BEPPA at 7.9c and BBI going belly up and all assets liquidated
Click to expand...
Wouldn't it depend on your investment time frame for buying the bluechips?

I don't want to be critical or unreasonable, but frankly it's not a very useful comparison. I have simply said that I find BBI as the issuing company too much of a risk to buy any instrument associated with it. Neither would I buy the ordinary shares in the hope of a return to my previous sell price of about $1.55. My choice, OK?

I don't propose to continue responding to requests to justify that choice.

If I could make a suggestion, Warren: Spend about $30 and buy "Secrets of Profiting in Bull and Bear Markets" by Stan Weinstein. Mr Weinstein offers clear and uncomplicated directions for understanding trends and reading charts.

If you read this you will see that no one was a genius for getting out of the market at beginning of 2008. The market peaked in November 2007 and by January the downtrend was clear, reinforced by nothing but bad news financially from most of the world.
 
Re: Hybrid Securities GNSPA

Julia said:
I have simply said that I find BBI as the issuing company too much of a risk to buy any instrument associated with it.
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You have made that decision based on "guesswork" and no-one said BBI is going back to $1.55. I'd be more than happy for BBI to get back to just 30c. That would price my BEPPA's at 40c+. Not a bad return from 8c hey?
I find it strange that you would state "I find BBI as the issuing company too much of a risk to buy any instrument associated with it" when you have little or no knowledge of the underlying fundamentals of BBI. Just because you sold them at $1.55 last year doesn't mean you have any idea of their situation now.
 
Re: Hybrid Securities GNSPA

Julia
No I realise it's not a "useful comparison".
It was really offered as a bit of a tongue in cheek alternative view and as I said I had stacked the scenario by choosing NOV 2007;)

Thanks for the tip re the Stan Weinstein book. I'm always open to new knowledge and ideas.

regards warren
 
Re: Hybrid Securities GNSPA

Warren Greenspan said:
Can you tell me (apart from reading the prospectus) if there is any site or publication or newsletter that covers that sort of info for interest rate securities. There's so many million words written in review of almost any share but so little on these int. rate sec's. Thanks Bill
Click to expand...

I used a publication called "The Intelligent Investor". They provided a run down on several interest rate securities last year. In short they did the homework for us. I looked at what they had to say then I searched for the prospectuses online and once I read the relevant ones I then made a decision. *NOTE* I am not suggesting for a minute that "The Intelligent Investor" is a good publication, just merely saying that they do cover hybrid securities.

Calliope that's a good site you suggested, here is the full link and has some great suggestions.

http://thebull.com.au/articles_detail.php?id=2114

Also take another look at hardyakka's post number 10. That site has done the numbers on the hybrids, you can easily see the companies ratings, interest income and other statistics, cheers.
 
Re: Hybrid Securities GNSPA

Thanks Calliope and Thanks (again) Bill.

I'm away from home for a few days but will follow up the links soon.

My mum and dad are in their 80's and have some of their $ sitting in term deposits etc which are suddenly down to3 or 3.5%. They depend on this interest to live so some of these higher rated, lower risk bonds on offer from the banks and AMP etc that are offering 7 or 8% bear investigation. The Bull article was a good read in this regard.

Keep it comin' boys and girls

Regards Warren
 
Re: Hybrid Securities GNSPA

Just joined up and hybrids are something I have become particularly interested in. The biggest trick is to read the original prospectus and be clear as the terms. Things to look for:

- are interest / divs cumulative or can they be suspended?
- you are a lender to the company ranking only above equity holders (how safe is it?)
- Most hybrids are potentially perpetual, they have a step up (i.e. the interest margin increases) at a point in time that was meant to be punitive and make the issuer redeem them but with interest margins having spiked the step up usually only brings the hybrid margin up to market. In saying that I think many will be redeeemed over time.

If they are trading at a substantial discount then they are worth considering,
eg Dexus DXRPA and Fairfax FXJPB. Even if they weren't redeemed if rates were to go up (and they will at some stage) then the value of these securities will increase because of the high coupon to be paid. I went through a heap of these and have tracked those listed below. I own DXRPA / FXJPB / SEVPC / FCLPA (much higher corporate risk) / RHCPA.


Company Code Rates Face Value Reset Step Up Maturity Terms Payment Terms Interest Cycle
Dexus (DXS) DXRPA 90BBR +1.3% $100 Jul-12 2% Shares or Cash Non Cumulative Quarterly
Fairfax (FXJ) FXJPB 180BBR +1.55% $100 Apr-11 2.25% Shares or Cash Non Cumulative Six Monthly
Futuris (FCL) FCLPA 90BBR + 2.2% $100 Jun-11 2.50% Shares or Cash Non Cumulative Quarterly
Ramsay (RHC) RHCPA 180BBR + 2.85% $100 Oct-10 2% Shares or Cash Non Cumulative Six Monthly
Santos (STO) STOPB 180BBR + 1.55% $100 Sep-09 2.25% Shares or Cash \ Six Monthly
Seven (SEV) SEVPC 180BBR + 2.55% $100 May-10 2.25% Shares or Cash Non Cumulative Six Monthly
Sydney Airport SAKHA 90BBR + 1.8% $100 Dec-12 2% Cash Cumulative Quarterly
Hasting (HDF) TTXPA 90BBR + 2.0% $100 Jun-10 NA Shares or Cash Cumulative Quarterly


I also own BEPPA but is very much a punt.
 
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