Symbol = NEE.PR.R
I would love for someone to take a close look at this and tell me if I am getting this wrong.
These are debentures (bonds) with a face value of $50, and they are currently trading at about $35. When you buy the bond, you also enter into a purchase contract in which you are obligated, on 09/01/25, to buy .5626 shares of the common stock at the price of $88.88 per share, if the market price of the common stock is $88.88 or lower.
If the market price of the common stock on 09/01/25 is above $88.88, something else happens. But let's set that aside for now.
The common stock is currently trading at about $55/share.
On the conversion date of 09/01/25, you can redeem the bond for its face value of $50. You only paid $35 for the bond, so you have a nice gain of $15, plus you have earned a year and a half of interest.
But now you have to buy .5626 shares of the common stock for $88.88 per share. $88.88 x .5626 = $50. So the cash you get for redeeming the bond will fund the purchase of the stock.
But you are paying $88.88 per share for the stock on 09/01/25.
The stock is currently trading at about $55 per share.
Do people really think the common stock is going to go up 60% in the next 18 months?
Do they think they can sell it shortly before 09/01/25, to avoid going through with the purchase? Do they think the bond will trade back up to its par value of $50 as it approaches 09/01/25? It's not going to do that if it is tied to an obligation to buy the common stock at a price that is waaaaay above the market price.
The discount of $15 from the par value plus a year and a half of interest are not likely to make up for the difference between $88.88 per share and the market price on 09/01/25.
When you buy the bond, you are effectively selling a put with a strike price of $88.88, but you're not collecting anywhere near enough premium. It's a put that is deep in the money, and you're not even getting the intrinsic value.
Why would anyone buy this thing?
Or perhaps the real question is:
Why would anyone buy this thing for $35?
Why isn't the discount much greater?
What am I getting wrong here?
https://quantumonline.com/search.cfm?tickersymbol=NEE-R&sopt=symbol
I would love for someone to take a close look at this and tell me if I am getting this wrong.
These are debentures (bonds) with a face value of $50, and they are currently trading at about $35. When you buy the bond, you also enter into a purchase contract in which you are obligated, on 09/01/25, to buy .5626 shares of the common stock at the price of $88.88 per share, if the market price of the common stock is $88.88 or lower.
If the market price of the common stock on 09/01/25 is above $88.88, something else happens. But let's set that aside for now.
The common stock is currently trading at about $55/share.
On the conversion date of 09/01/25, you can redeem the bond for its face value of $50. You only paid $35 for the bond, so you have a nice gain of $15, plus you have earned a year and a half of interest.
But now you have to buy .5626 shares of the common stock for $88.88 per share. $88.88 x .5626 = $50. So the cash you get for redeeming the bond will fund the purchase of the stock.
But you are paying $88.88 per share for the stock on 09/01/25.
The stock is currently trading at about $55 per share.
Do people really think the common stock is going to go up 60% in the next 18 months?
Do they think they can sell it shortly before 09/01/25, to avoid going through with the purchase? Do they think the bond will trade back up to its par value of $50 as it approaches 09/01/25? It's not going to do that if it is tied to an obligation to buy the common stock at a price that is waaaaay above the market price.
The discount of $15 from the par value plus a year and a half of interest are not likely to make up for the difference between $88.88 per share and the market price on 09/01/25.
When you buy the bond, you are effectively selling a put with a strike price of $88.88, but you're not collecting anywhere near enough premium. It's a put that is deep in the money, and you're not even getting the intrinsic value.
Why would anyone buy this thing?
Or perhaps the real question is:
Why would anyone buy this thing for $35?
Why isn't the discount much greater?
What am I getting wrong here?
https://quantumonline.com/search.cfm?tickersymbol=NEE-R&sopt=symbol
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