I never understood that first point...
Lets say they do step-up to 3.9%.
$90 would be reasonable price, April 2010, yes?
Still means you are only getting around 9.5% (running yield) per annum, holding a risky security?? I mean; 9.5% isn't a BAD return, don't get me wrong... but, it's not particularly fashionable? IMHO, FXJPB, GNSPA, AAXPB, etc are some examples of a greater expected return (with lower risk) at the moment? Won't similar examples exist in April 2010? It doesn't matter if you get 100% running yield on your purchase price?
EG:
If You bought MXUPA at $20 and get a $10 dividend from April onward, when MXUPA is $90, you are only getting a 11% return on your current money - this is the relevant part? It should be irrelevant that you are getting a 50% running yield on your original position? ESPECIALLY since the interest payments can't be reinvested at MXUPA at $20 again???
IMHO, MXUPA's real investment value is in the conversion price. In any NPV of the bonds calculation, or expected return calculation, or any value calculation of the bonds... surely it is greater the sooner they convert?
I also don't understand your second point. How would it tarnish their reputation? Don't people 'expect' bonds/pref shares/notes to often step up? I mean, that's why it's in the prospectus that they can? Is it actually considered a 'bad' thing by instos? For example, as a holder of GNSPA, I'd be quite happy for it to stay at it's stepped up rate forever and ever. BENHB, AAZPB and GNSPA have all stepped up?
I guess, I've never heard of it 'tarnishing reputation'... but, a few people have said it.. so I guess it might be true. I just don't understand why.
RE: your third point. Yes, that is a big possibility that I didn't explore. If Bank Debt is, say, BBSW+250 (reasonable)... 140basispoints is a 6.3M savings per annum.
Enough to bother doing something about... but, again, the BIG assumption there is that it can get it for +250...
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