By my calculations, a 10%pa return provides fair value if there...

By my calculations, a 10%pa return provides fair value if there is a 9.1% risk of the company defaulting. What do you think is the chance that Heritage would default? Could it be as high as a 9.1% every year?

CBA's recent PERLS V issue offers 3.4% above the BBSW: at current rates, this works out to approx. 7.25% gross return. This equates to a 6.8% risk of default. I think this issue provides a much safer bet than Heritage - i.e. bigger margin between the calculated default risk and the true default risk - but the returns aren't overly exciting at current interest rates.

I will keep an eye on HBS and certainly consider buying a few on market if it comes at a discount to face value.