Convertible and Preferred Stocks

[gokou3]

A simple question regarding preferred shares.  They seem to have characteristics of bonds.  Are their prices sensitive to the general interest rate level?  Especially for the perpetual ones.

[T-bone1]

A simple question regarding preferred shares.  They seem to have characteristics of bonds.  Are their prices sensitive to the general interest rate level?  Especially for the perpetual ones.

 

They are, and for that reason I do not like the FFH pref's (and think it is smart of them to be selling).  I wouldn't want to own a non-convertible perpetual preferred . . . but I believe we will see inflation.

[lessthaniv]

A simple question regarding preferred shares.  They seem to have characteristics of bonds.  Are their prices sensitive to the general interest rate level?  Especially for the perpetual ones.

 

They are, and for that reason I do not like the FFH pref's (and think it is smart of them to be selling).  I wouldn't want to own a non-convertible perpetual preferred . . . but I believe we will see inflation.

 

Holders of the Preferred Shares, Series K will be entitled to receive a cumulative quarterly fixed dividend yielding 5.00% annually for the initial five year period ending March 31, 2017. Thereafter, the dividend rate will be reset every five years at a rate equal to the then current 5-year Government of Canada bond yield plus 3.51%.

[persistentone3]

FTP 6.5% 31Dec2016 convertible debenture.

The conversion price will be $37.50 for each common share.

 

But by the end of 2016 - both mills should be up and running producing lots of EBITDA.

 

I'd expect the stock price to be significantly higher than the conversion price and you get paid while you wait for the new mills to be built.

 

Trades at a bit of a premuim but think it's going much higher over the holding period.

 

;)

 

I have been looking at FTP.db as well but I have no idea how I can value the convertibles correctly. Anyone got an idea?

 

What is not clear to me is what is the claim in a reorganization for the debenture holders?  Is the claim exclusively against this new subsidiary that they are trying to jump start with the financing from the debenture?  That's a risky collateral for the investment.  Can ftp.db holders make subordinated debt claims to the parent in a reorg?

[Myth465]

I've been buying the CHK-DG (their non-exchange listed preferred).

 

A friend did a blog post on how much cheaper it is than their listed preferred (CHK-D):

 

http://www.creditbubblestocks.com/2012/02/limits-to-arbitrgage-dual-chesapeake.html

 

The "DG" trades at about 83, and is convertible into 2.5766 shares.  At par it yields 5%

 

At the current price of 83, it yields 6% and effectively converts at $32.21 (83/2.5766)

 

I think this is one of the best and safest and cheapest ways to play a natural gas rebound.

 

Thanks T Bone, I looked at CHK-D, and thought it was priced a bit too high. I will have a look at this one instead.

[lessthaniv]

FTP 6.5% 31Dec2016 convertible debenture.

The conversion price will be $37.50 for each common share.

 

But by the end of 2016 - both mills should be up and running producing lots of EBITDA.

 

I'd expect the stock price to be significantly higher than the conversion price and you get paid while you wait for the new mills to be built.

 

Trades at a bit of a premuim but think it's going much higher over the holding period.

 

;)

 

I have been looking at FTP.db as well but I have no idea how I can value the convertibles correctly. Anyone got an idea?

 

What is not clear to me is what is the claim in a reorganization for the debenture holders?  Is the claim exclusively against this new subsidiary that they are trying to jump start with the financing from the debenture?  That's a risky collateral for the investment.  Can ftp.db holders make subordinated debt claims to the parent in a reorg?

 

All this information is contained in the prospectus which you should fully digest before buying ...

Debentures, by definition are subordinate to some other senior claim(s).

 

The Debentures will be subordinate to Senior Indebtedness of the Company and to any indebtedness of trade

creditors of Fortress. The Debentures will also be effectively subordinated to claims of creditors of the Company's

subsidiaries, except to the extent that the Company is a creditor of such subsidiaries ranking at least pari passu with

such creditors. In the event of the Company's insolvency, bankruptcy, liquidation, reorganization, dissolution or

winding up, its assets would be made available to satisfy the obligations of the creditors of such Senior Indebtedness

before being available to pay the Company's obligations to the holders of the Debentures. Accordingly, all or a

substantial portion of the Company's assets could be unavailable to satisfy the claims of the holders of the

Debentures.

[persistentone3]

I've been buying the CHK-DG (their non-exchange listed preferred).

 

A friend did a blog post on how much cheaper it is than their listed preferred (CHK-D):

 

http://www.creditbubblestocks.com/2012/02/limits-to-arbitrgage-dual-chesapeake.html

 

The "DG" trades at about 83, and is convertible into 2.5766 shares.  At par it yields 5%

 

At the current price of 83, it yields 6% and effectively converts at $32.21 (83/2.5766)

 

I think this is one of the best and safest and cheapest ways to play a natural gas rebound.

 

Where did your friend ever find that gem?  The naming convention of the delisted preferred falls into no pattern, so it is nearly impossible to detect.

 

His article on these points to a CHK document that lists two convertible bonds as well.  I am not able to find those on FINRA's site, listed either by the issuer or by the CUSIPs.  Weird!  Is anyone able to find a CUSIP for those bonds that works?  There is an unrestricted CUSIP as well as a 144A CUSIP listed.

 

The column in that document for the 5% convertible preferred indicates a mandatory conversion date of 11/15/2010, but is this only for the case where the 20 day trading test is met? 

 

The same CHK document indicates a conversion floor price.  Does that mean that once the convertible falls below about $76 (did a rough calculation) that you can no longer convert at the 2.5766 ratio?

[Ross812]

I use this website to find all of my obscure related securities:

 

http://www.quantumonline.com/

 

Search by the parent symbol. If there are any related securities, a hyperlink will appear to show them. It lists every listed and non-listed related security along with Moody's and S&P rating. You don't need to register.

[T-bone1]

I've been buying the CHK-DG (their non-exchange listed preferred).

 

A friend did a blog post on how much cheaper it is than their listed preferred (CHK-D):

 

http://www.creditbubblestocks.com/2012/02/limits-to-arbitrgage-dual-chesapeake.html

 

The "DG" trades at about 83, and is convertible into 2.5766 shares.  At par it yields 5%

 

At the current price of 83, it yields 6% and effectively converts at $32.21 (83/2.5766)

 

I think this is one of the best and safest and cheapest ways to play a natural gas rebound.

 

Where did your friend ever find that gem?  The naming convention of the delisted preferred falls into no pattern, so it is nearly impossible to detect.

 

His article on these points to a CHK document that lists two convertible bonds as well.  I am not able to find those on FINRA's site, listed either by the issuer or by the CUSIPs.  Weird!  Is anyone able to find a CUSIP for those bonds that works?  There is an unrestricted CUSIP as well as a 144A CUSIP listed.

 

The column in that document for the 5% convertible preferred indicates a mandatory conversion date of 11/15/2010, but is this only for the case where the 20 day trading test is met? 

 

The same CHK document indicates a conversion floor price.  Does that mean that once the convertible falls below about $76 (did a rough calculation) that you can no longer convert at the 2.5766 ratio?

 

The Cusip is 165167826 . . . it trades like an equity on the pink sheets and is pretty liquid (although the bid/ask is usually a dollar wide)

 

The company can (and likely would) force conversion at any time if the stock trades at 130% of the conversion price for 20 days . . . (130% of $38.81 or $50.45 per share).  If this were to take place within one year, you would get $5 in dividends plus receive stock worth $130 . . . not a bad return (and you can of course keep the stock).  If it takes longer than a year, you keep on recieving dividends while you wait

 

The conversion price is adjusted down by the amount of cash dividends paid on the common stock above a threshold of $0.065 per quarter.  It has been adjusted down by $0.27 so far (in reality the amount of shares you recieve is adjusted up, but I prefer to think of it in terms of the coversion price). 

 

There is a floor to how far down it can be adjusted . . . this is a floor on how much lower the effective conversion price can be adjusted down by dividends paid (i.e. the price at which the number of shares you convert to is equal to $100).  This floor is set at $30.05 . . . so it can't be adjusted down more than another $8.75 by dividends - a high class problem and not one I anticipate having.

[persistentone3]

I use this website to find all of my obscure related securities:

 

http://www.quantumonline.com/

 

Search by the parent symbol. If there are any related securities, a hyperlink will appear to show them. It lists every listed and non-listed related security along with Moody's and S&P rating. You don't need to register.

 

Ross, of course I know about Quantum.  They don't show the Preferred G?

[persistentone3]

I've been buying the CHK-DG (their non-exchange listed preferred).

 

A friend did a blog post on how much cheaper it is than their listed preferred (CHK-D):

 

http://www.creditbubblestocks.com/2012/02/limits-to-arbitrgage-dual-chesapeake.html

 

The "DG" trades at about 83, and is convertible into 2.5766 shares.  At par it yields 5%

 

At the current price of 83, it yields 6% and effectively converts at $32.21 (83/2.5766)

 

I think this is one of the best and safest and cheapest ways to play a natural gas rebound.

 

Where did your friend ever find that gem?  The naming convention of the delisted preferred falls into no pattern, so it is nearly impossible to detect.

 

His article on these points to a CHK document that lists two convertible bonds as well.  I am not able to find those on FINRA's site, listed either by the issuer or by the CUSIPs.  Weird!  Is anyone able to find a CUSIP for those bonds that works?  There is an unrestricted CUSIP as well as a 144A CUSIP listed.

 

The column in that document for the 5% convertible preferred indicates a mandatory conversion date of 11/15/2010, but is this only for the case where the 20 day trading test is met? 

 

The same CHK document indicates a conversion floor price.  Does that mean that once the convertible falls below about $76 (did a rough calculation) that you can no longer convert at the 2.5766 ratio?

 

The Cusip is 165167826 . . . it trades like an equity on the pink sheets and is pretty liquid (although the bid/ask is usually a dollar wide)

 

The company can (and likely would) force conversion at any time if the stock trades at 130% of the conversion price for 20 days . . . (130% of $38.81 or $50.45 per share).  If this were to take place within one year, you would get $5 in dividends plus receive stock worth $130 . . . not a bad return (and you can of course keep the stock).  If it takes longer than a year, you keep on recieving dividends while you wait

 

The conversion price is adjusted down by the amount of cash dividends paid on the common stock above a threshold of $0.065 per quarter.  It has been adjusted down by $0.27 so far (in reality the amount of shares you recieve is adjusted up, but I prefer to think of it in terms of the coversion price). 

 

There is a floor to how far down it can be adjusted . . . this is a floor on how much lower the effective conversion price can be adjusted down by dividends paid (i.e. the price at which the number of shares you convert to is equal to $100).  This floor is set at $30.05 . . . so it can't be adjusted down more than another $8.75 by dividends - a high class problem and not one I anticipate having.

 

Tbone, I was asking for CUSIPs on the convertible BONDS.  These are columns 4 and 5 labeled "5.75% Cumulative Convertible" and "5.75% Cumulative Convert (Series A)" in the PDF on the Chesapeake web site, linked from the blog article referenced above.

 

My intent was to compare how similar debt was trading against the preferreds.  One assumes the debt might have better covenants and would trade higher.  But there might be a surprise there.

[T-bone1]

T-Bone, I was asking for CUSIPs on the convertible BONDS.  These are columns 4 and 5 labeled "5.75% Cumulative Convertible" and "5.75% Cumulative Convert (Series A)" in the PDF on the Chesapeake web site, linked from the blog article referenced above.

 

My intent was to compare how similar debt was trading against the preferreds.  One assumes the debt might have better covenants and would trade higher.  But there might be a surprise there.

 

The debt is obviously senior to the preferreds and probably yields 6.5% (I can check when I'm back in the office tomorrow), but they aren't comparable in my opinion.  The debt has a much higher conversion price ($50 vs. $30 or so on the converts at the current price) so the debt trades on yield while the preferred seems to have a floor at about a 6.5% yield it trades on the close-to-the-money conversion feature.

 

I also recollect that the convertible debt has anti-dilutive features that require you to accept cash rather than shares for the excess over par once the convertible debt is in the money. 

 

The preferred is obviously much cheaper (both preferreds are), and it should be cheaper.  How much cheaper it should be depends on whether you think $15 billion of equity is an adequate cushion against any potential downside.

[persistentone3]

T-Bone, I was asking for CUSIPs on the convertible BONDS.  These are columns 4 and 5 labeled "5.75% Cumulative Convertible" and "5.75% Cumulative Convert (Series A)" in the PDF on the Chesapeake web site, linked from the blog article referenced above.

 

My intent was to compare how similar debt was trading against the preferreds.  One assumes the debt might have better covenants and would trade higher.  But there might be a surprise there.

 

The debt is obviously senior to the preferreds and probably yields 6.5% (I can check when I'm back in the office tomorrow), but they aren't comparable in my opinion.  The debt has a much higher conversion price ($50 vs. $30 or so on the converts at the current price) so the debt trades on yield while the preferred seems to have a floor at about a 6.5% yield it trades on the close-to-the-money conversion feature.

 

I also recollect that the convertible debt has anti-dilutive features that require you to accept cash rather than shares for the excess over par once the convertible debt is in the money. 

 

Are both D and G perpetuals?    I'm just starting on the prospectus and don't see a maturity.

 

[persistentone3]

T-Bone, I was asking for CUSIPs on the convertible BONDS.  These are columns 4 and 5 labeled "5.75% Cumulative Convertible" and "5.75% Cumulative Convert (Series A)" in the PDF on the Chesapeake web site, linked from the blog article referenced above.

 

My intent was to compare how similar debt was trading against the preferreds.  One assumes the debt might have better covenants and would trade higher.  But there might be a surprise there.

 

The debt is obviously senior to the preferreds and probably yields 6.5% (I can check when I'm back in the office tomorrow), but they aren't comparable in my opinion.  The debt has a much higher conversion price ($50 vs. $30 or so on the converts at the current price) so the debt trades on yield while the preferred seems to have a floor at about a 6.5% yield it trades on the close-to-the-money conversion feature.

 

I also recollect that the convertible debt has anti-dilutive features that require you to accept cash rather than shares for the excess over par once the convertible debt is in the money. 

 

I hate when they put in those "features" into convertibles to create mandatory redemption when the stock gets to a price that would convert the debt at around 120% of the convert par value.  But Preferred D and Preferred G both seem to have just such a feature.    They can be mandatory converted at 130% of convertible par value.

 

Are both D and G perpetuals?    I'm just starting on the prospectus and don't see a maturity.

 

The CHK April 2012 investor presentation includes two 5.75% cumulative convertible preferred stocks.  One of these is with two CUSIPs:

 

165167776

U16450204

 

I don't locate either of those with a trading symbol or OTC on FINRA.  Any luck finding these?  Do they trade?  Are they still 144A status maybe?