Hybrid Security - Important Terms

Important Terms

  • Returns: Predictable dividend, often franked therefore possible tax advantage to the holder
  • Capital price:
  • Price moves in line with share price (fixed conversion terms e.g. 1 hybrid convert to 1 share)
  • Bond like, price does not move in line with share price (variable conversion terms, face value (usually $100) convert to $100 worth of shares).
  • Discount: A discount is usually offered to the share price at the time of conversion.
  • Reset/resettable: At the reset date the terms of the security (dividend rate, next reset date) may change. The holder can elect to accept the new reset terms or convert into shares.
  • Cumulative/non-cumulative This refers to the event of missed dividend payments.
  • Cumulative: missed dividend payments are added to the next dividend payment.
  • Non-cumulative: missed dividend payments are forgone.
  • Redeemable/non-redeemable
  • Redeemable: At certain times the holder may have the option to sell the securities back to the company at the face value/issue price.
  • Non-redeemable / irredeemable: The company is not offering to buy the securities back.

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