Q: As I write this the CSU.RT debenture purchase rights are trading at $.005 and the series 1 debentures are trading in the range of $136-$138. If my math is correct, for a few pennies worth of the rights one can purchase $100 face value of the debentures at $133 which is a $3-$5 discount to where they are currently trading. Is this a no brainer or am I missing something? Why are the CSU.RT rights trading so cheap?
5i Research Answer:
The rights expire on Sept 29, so the price reflects the limited time value. The math is correct, however the arbitrage is likely not going to work well in reality. We think if an investor offered more than a nominal amount of bonds for sale the quote would quickly move against them.