No. of Recommendations: 6
Alphabet (parent of Google) is selling $15 billion in mandatory convertible preferred stock as part of an $80 billion mega-capital raise to fund artificial intelligence infrastructure. These depositary shares, expected to trade under the tickers GOOGM and GOOGN, convert to Class A and Class C shares in three years.
The mandatory convertible offering features specific mechanics, yields, and structures:
Pricing & Structure: Expected to be priced at $50 a share, this offering is split between two series linked to Class A (GOOGL) and Class C (GOOG) common stock.
Yield & Premium: The issue yields about 6.25% to 6.75% annually and carries an estimated conversion premium of 20% to 25%, meaning investors do not participate in the first 20% to 25% of stock gains.
Mandatory Conversion: Unlike traditional convertibles with a bond floor, these must convert into common equity at the end of three years, functioning effectively as yield-enhanced common stock.
No. of Recommendations: 0
Mandatory Conversion: Unlike traditional convertibles with a bond floor, these must convert into common equity at the end of three years, functioning effectively as yield-enhanced common stock.
So, the preferred shares convert to common shares after three years regardless of the price of the common?
How does that work exactly?
No. of Recommendations: 4
In general, mandatory convertibles give you a slightly better outcome if the stock price falls, a flat spot (the same return for a range of middling stock prices) in a middle section, and a positive return if the stock soars but your return rises at a lower rate. So lower upside and slightly milder downside.
Though I haven't looked into any issue-specific quirks, the payoff is probably like the first chart here
http://convertarb.net/?page_id=708Jim
