Hi Michael....
The converts are trading in the 87-89 range. Based on that price, they have a current yield of just over 9%, with a yield to maturity (2004) about 2% higher.
As you know, they are convertible at $17.55 per share, or over double the current market value. Assuming the stock got to that price (over a 100% return), the debentures would probably trade at a 20%-25% premium to par. Thus, from the current levels, the raw return would be about 33%-35% without the cash income.
This isn't much compared to the leverage in the common, but the risk is far less, with limited downside assuming you believe that is very little default risk. And, the reasonably assured growth of ITS over the next several years makes that highly unlikely. Moreover, any sale of the rail seating business will improve the balance sheet considerably, even further limiting the financial risk associated with the debentures.
Is it a good buy? Yep, I would say so. Very limited downside, and a reasonably good chance (assuming earnings approach 80 cents per share in 1999) that the total return on the debs could approach 40%-50%.
Have a good evening. |
