Bank of America/Countrywide Preferred Pair Trade

[GaryCRibe]

Curious if anyone here has looked at this, and it seems kind of crazy to me so I'd like to solicit thoughts.  The idea is basically to go long BAC preferred and short the CFC preferred.  Based on where they trade, the after-tax negative carry is roughly .60%/yr.  What you get for that is basically an option on BAC bankrupting the Countrywide subsidiary due to the liabilities associated with it.   

 

 

CFC-PA BAC-PH

Coupon 6.75% 8.20%

Par Value 25 25

Cash Div 1.6875 2.05

Current Price 21.25 23.75

Current Yld 7.94% 8.63%

 

AT Cash In 7.34%

AT Cash Out 7.94%

Neg Carry -0.60%

 

[given2invest]

I think, though not 100% sure, that BAC has fully assumed the countrywide preferreds.  I would look into that first.  I was involved in arbing many of these in 2008 when they went out of whack but didn't trade the countrywide.  I focused on the merrill's which were not assumed.