This is great value for these hybrids - I guess someone is...

This is great value for these hybrids - I guess someone is bailing out because of the large impairment writeoffs of SWM reported yesterday and is concerned about SVW’s ability to pay hybrid dividends. SWM still made a decent operating profit is still paying dividends - and SVW, the parent company is in much better shape.

In the last report (1H FY15), SVW’s free cashflow was more than $200M (for six months) compared to hybrid dividends of $13M. The ratio of debt plus hybrids to cashflow was less than six years - that is, if free cashflow was directed to paying down debt and hybrids, the lot could be cleared in six years. These are much better metrics than comparable hybrid issuers such as Multiplex, Goodman, Ramsay Health, Nufarm etc - and these hybrids are paying between 6% and 7.5%pa. This is where SVWPA should be priced - which infers a price around $92, which is close to where the price was 12 months ago.

If SVW stops the hybrid dividend, dividends on the ordinary shares are stopped and they can’t restart until the missed hybrid divs are paid, or until one year after the hybrid divs start up again. So there is a lot of motivation to continue paying hybrid divs, and financially there is no reason why they can’t - not to mention the loss of reputation in the credit markets and SVW is an active player in these markets. I can see the SVWPA price going back up once the dust clears and in the mean time, we are paid 11+% pa.

I bought some more today.