more questions/clarification on the CSU warrants:
first, warrants do not HAVE to be exercised, and CSU would wind up with both Series 1 and Series 2 bonds, correct?
second, how do you see trading in the bonds affected? eg. as Series 2 can't be called before 2040, would this make them more valuable than Series 1? Or, if they can be called at any time, would this make them less valuable.
third, the interest rate for the bonds will still follow the same criteria for both Series 1 and Series 2?
fourth, using $10,000 (a round number that makes calculations easier), a holder would then receive 100 warrants? What about numbers that would involve parts of warrants eg. $111,100
thanks for straightening this out
Paul L
Yes, exercising warrants is optional, so both series may possibly exist. But, the warrants will trade (if the company announces a redemption), and if one doesn't want to exercise the warrants they can be sold. But effectively, the warrants 'neutralize' the redemption. Investors simply swap Series I for Series II so they end up with the exact same security, with no redemption right by the company anymore. Since the debentures trade at a premium, we would expect all debentures to be swapped rather than taking a loss on redemption (at $100). Generally, if a bond cannot be called it should trade at a higher premium. With Series I bonds at $137 today, there is still a loss (over five years) upon redemption. So no redemption eliminates this loss (assuming they are always at a premium). All other terms of Series II are identical to Series I. The twist here is that warrants are given to shareholders, not bondholders. One share gets one warrant. One warrant allows $100 face value to be swapped from Series I to II.