Regarding buying back the notes, as they are not voting...

Regarding buying back the notes, as they are not voting securities the company can just purchase the debt on the secondary market without any approvals or notifications although they probably would put out a release to ASX in the interests of an informed market.

If the debt had a fixed rather than discretionary coupon, they would always be better off borrowing at market rates and retiring the debt at the very high running yield of the PXUPAs.

However: their borrowing capacity is fairly limited and if they don't pay a coupon the hybrids are not really a burden as no money is going out.

My guess is that at remarking they will just up the margin and then assess whether they pay in any particular year or not. I can't see them them allowing the hybrids to swamp the ordinaries or redeeming them at face value.

If the company survives, and there is no real reason why it will not (although it's no shooting star that's for sure), the hybrids will limp along probably being serviced more often than not but with the uncertainty as to payment perpetually seeing them marked down.

The ordinaries are really just trading at option value now. The Board firstly needs to restore profitability (easy to say) and then we will have a situation where the hybrids will become more certain and the capital value will creep up. Certainly, that they paid last time show that there is no real cause for hand wringing. Things could be worse: look at ELDPA where there is no distribution and they are trading at 40c/$ plus. PXUPA at least is paying distributions and as such should be trading at a much higher price. They are certainly preferable to the ordinaries.

Lizard