RE:RE:RE:RE:Another picture - $50m 6% Debentures vs $50m common sharesv_guerriero wrote: There is no put to consider.
This is comparing owning the common equity here vs. The call option to buy it at 3.80, plus the yield component.
The only downside protection with the debenture is that you get your principal back if the stock is not above 3.80 and you can take that $1,000 and buy the stock at a lower price than your 3.80 option.
But that option is only valuable vs buying the equity today if you believe that the stock in 5 years is lower than today's price.
Now to some institutions, this is a pretty good 4.2% yield net of the common equity dividend. They can buy something that they otherwise might not be able to and have exposure to the upside.
I see a lot of the pension funds being interested in this given the low yield environment.
Being someone that invests frequently large sums into convertible debentures, the guaranteed capital is an important factor. So, I would never do your "synthetical" debentures unless I could buy puts, otherwise it's not "without risk". If the common shares were to go down to $2.20 and stay there until the debenture is redeemed, I would still lose $.48 per share on a trade where I would short the convertible debentures with your suggestion.
The attractiveness of the convertible debentures is that I can participate in share price appreciation if QTRH succeeds in their business model while earning 6% regardless of whether they succeed or not.
I'm not saying that the highlighted strategy wouldn't be of interest to someone out there, but imo it's not the same as purchasing the convertible debenture unless you buy puts, due to the difference in assumed risk on capital invested.