Hybrids – Debt and Equity’s Unattractive Offspring
What have you found in your junk email folder recently? Numerous notifications of inheritance (I didn’t realise I had so many deceased uncles domiciled in Africa)? Offers of companionship, predominantly the Eastern European variety? Once you’ve sifted through these you might also find several prospectuses for hybrids. For those unfamiliar with hybrids, they are, as the name suggests, instruments that combine various features of debt and equity. And they vary greatly in structure. But what they all seem to have in common is that when things are going well, their share price behaves more like debt, often trading close to their issue price or if you’re lucky slightly above it. But when things are going badly, they behave more like equity. Just take a look at their share price charts during the Global Financial Crisis. Actually, don’t bother. Let’s instead presume that an event like the GFC might never happen again in our lifetime and focus on what can happen in a more normal time. ‘When’ and ‘what’ being 2016 and Crown Subordinated Notes II respectively. Read full blogpost (VIEW LINK)
Daniel joined Forager in April 2016 as a senior analyst / portfolio manager for the Australian Fund. He is an avid value investor having previously worked at Investors Mutual and MMC Asset Management. He has a Bachelor of Commerce degree...
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