Step up date is June 2011 when margin goes from 2.2% over BBSW to 4.7% over BBSW. At that time, FCL has three choices (a) payout notes at face value ($100) (b) convert to shares at VWAP prior to June 2011 and (c) pay the stepped up margin.
On the assumption credit markets imnprove by then, I am told the likely outcome is for FCL to actually pay out rather than convert. This is because the issue is quite a small size of $150 million (though as a proportion of today's market cap of $200 million is quite large);
If finance markets are still diabolical in 2 years from now, they will probably step up.
Either way, provided FCL actually survives (and I think the consensus is that it will), FCLPA is a great buy.
Under the scenario where they convert or pay out in June 2011, the yield to maturity is around 80% PER ANNUM.
In the meantime, the stepped up yield at today's price of 23 and today's BBSW of say 3% is 7.7 divided by 23 or 33% PER ANNUM. The question you have to ask is if Futuris had iisued debentures today, would you invest if offered a rate of 33% PER ANNUM.
For me, on a risk reward basis, I think the answer is YES but I am happy to hear other views.
FCL Price at posting:
23.5¢ Sentiment: LT Buy Disclosure: Held
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