At 30 June 2015 we had 7.7% of the Portfolio invested in ELDPA.
These are hybrids. More correctly they are perpetual preferred shares. The ELDPAs have some characteristics of debt and some characteristics of equity. At issue, these instruments typically offer a debt like coupon or distribution which is normally fully franked. They offer very little equity-like upside given they are callable at par or $100/hybrid, but given they are subordinated to debt, they do have downside risk. Bluntly, they offer all the upside of credit and all the downside of equity. We never buy these as new issues because the risk asymmetry
is entirely unfavourable. Fortunately the Elders Hybrids are trading well below $100/hybrid face value, which is why there is an opportunity. [Read more…]