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.