gnspa, page-6

Agree totally Lord...in buying hybrids you are buying a stream of income.

In the case of GNSPA that stream has an excellent running yield which is only going to get better as the Reserve Bank begins to increase the interest rate.

I've calculated that an official 1% increase will mean a 1.3% (or thereabouts) increase to my yield.

But of course, risk and reward are always associated.

When you are buying GNSPA you are punting that Gunns will survive...so you are really buying a share of a business but you do have a priority over the ordinary shareholders in the event of a collapse.

That said, every time Gunns goes back to the market to collect fresh capital, the GNSPA position gets stronger.

I'm hoping that they get their pulp mill up because it will be a great business...and I'm betting they will need more capital to do the deal as well.

Boom-boom...GNSPA gets stronger again.

As the interest rate rises..and it will because the average BBSW rate over the last 15 years is 5.75%...fully 2.4% higher than where we are right now...Gunns will be looking down the barrel of paying out 10.75% and this might then become exhorbitant cost of capital.

BTW...if you paid $74 for your GNSPA and the BBSW is at the average of 5.75%, your running yield would be 14.5%...not bad!

I'm perfectly comfortable with Gunns at present as they have their debt gearing at an okay level and appear to be well inside their covenant stipulations. But if you are concerned at the company...make the debt position your bell wether because that's where the attack will come from.