Symbol = NEE.PR.R I would love for someone to take a close look at this and tell me if I am getting this wrong. These are debentures (bonds) with a face value of $50, and they are currently trading at about $35. When you buy the bond, you also enter into a purchase contract in which you are obligated, on 09/01/25, to buy .5626 shares of the common stock at the price of $88.88 per share, if the market price of the common stock is $88.88 or lower. If the market price of the common stock on 09/01/25 is above $88.88, something else happens. But let's set that aside for now. The common stock is currently trading at about $55/share. On the conversion date of 09/01/25, you can redeem the bond for its face value of $50. You only paid $35 for the bond, so you have a nice gain of $15, plus you have earned a year and a half of interest. But now you have to buy .5626 shares of the common stock for $88.88 per share. $88.88 x .5626 = $50. So the cash you get for redeeming the bond will fund the purchase of the stock. But you are paying $88.88 per share for the stock on 09/01/25. The stock is currently trading at about $55 per share. Do people really think the common stock is going to go up 60% in the next 18 months? Do they think they can sell it shortly before 09/01/25, to avoid going through with the purchase? Do they think the bond will trade back up to its par value of $50 as it approaches 09/01/25? It's not going to do that if it is tied to an obligation to buy the common stock at a price that is waaaaay above the market price. The discount of $15 from the par value plus a year and a half of interest are not likely to make up for the difference between $88.88 per share and the market price on 09/01/25. When you buy the bond, you are effectively selling a put with a strike price of $88.88, but you're not collecting anywhere near enough premium. It's a put that is deep in the money, and you're not even getting the intrinsic value. Why would anyone buy this thing? Or perhaps the real question is: Why would anyone buy this thing for $35? Why isn't the discount much greater? What am I getting wrong here? https://quantumonline.com/search.cfm?tickersymbol=NEE-R&sopt=symbol
I am on a mobile and high as a kite, so take this with a brick of salt. It's a standard mandatory, conversion below the lower strike at lower strike and above the upper strike at upper strike. The upper strike is 111, which can safely be ignored. Effectively, you are long a $50 cash bond that pays about 7%, short 0.56 units of 88 put and long 0.45 units of 111 call. Coupon ex-dates is Mar 1st, Jun 1st and Sep 1st, with coupon being about 7%. The Mar 1st coupon is accrued but not paid, making the dirty bond price 50 * (1 + 0.75 * 0.07) ~= 52.6. Assuming the 88 strike put is at intrinsic, (55.4 - 88.88) * 0.56 ~= 18.75. That yields a bond price of 52.6 - 18.75 ~ $33.9. So it's rich but not crazy rich.
You are the site's tony stark. There's a throwaway line in Iron Man one where he presents at a physicist symposium completely drunk and it's an incredibly insightful presentation.