Cox Terminal Payoff

[Sundar]

Guys,
With data in the table on Exhibit 7 this is the terminal payoff I came up with from Cox's perspective. This is assuming that the investor to satisfy the obligation, buys the common stock at the end of 3 years with extra cash and chooses to retain the preferred stock as is, since it pays 7% coupon which is better than market rates for a BBB rated industrial bond (Exhibit 6). Notice the spread between the Call and Put (where the terminal payoff is a constant at 50$).



With this I think we can rewrite the Terminal payoff in terms of Call/Put/Stock as below.

From Parity Eqn: Bond - Put = Stock - Call

or

Bond - Put + Call = Stock

But I haven't figured out how to interpret this data and not sure if I'm in the right direction...


rgds,

sundar

[Sundar]

[Gabriel Bowers]

Hi Sundar,

I agree with your interpretation. "S = B + C - P"

I think the interesting point of this instrument is that the stock delivered is limited from 1.44x to 1.2x per share PRIDES share.  This indicates that even if the stock dropped to say ~$20/share, the PRIDES owner would only be able to swap a PRIDE bond for 1.4414 COX shares instead of 2x shares.

Gabriel