What are convertible debentures and what is the Canadian Convertible Debentures Project?
As an asset class, publicly traded Canadian convertible debentures (convertible bonds) hold considerable appeal from both an investment and academic perspective. A convertible debenture is, at its core, an interest-paying debt obligation that also allows a holder the option of converting the debenture into a pre-specified number of share in the common stock of the issuing company.
As such, a convertible debenture is a hybrid security with both fixed income and equity characteristics - and features many of the benefits of both. This makes a convertible debenture attractive for an investor, as it provides the opportunity to participate, at least in part, in share price increases in the underlying stock, yet also offering the downside protection of a bond, as long the issuing company remains solvent. In other words, it's a bit of the best of both worlds.
Like anything else in finance, however, there is no free lunch, and the benefits also come with notable risks.
First, the convertible debentures market in Canada is relatively small, with a limited number of issues. By my count, there are only about 130 separate issues trading on the TSX Exchange as at the time of writing (February 2017), and a few GICS sectors tend to be more represented than others - in particular real estate, industrials, and resource issuers.
Second, the convertible debentures market tends to be illiquid, despite being exchange-traded. Bid-ask spreads can be rather wide, making liquidity risk - and the costs associated with it - a real cost.
Third, convertible debenture issuers in the Canadian market tend to be small and mid-cap issuers, which means they often have higher credit risk than larger cap issuers of fixed income securities. As a general rule, it's correct to assume that most issuers of exchange-traded convertible debentures are below investment grade.
Another consideration: finding information on the sometimes opaque nature of the Canadian convertible debentures market can be a bit tricky. It's maybe because of this more than anything that I decided to start the Canadian Convertible Debentures Project. We're still getting started here, but in time, I'm hoping this little site will become a good source of information on a very interesting asset class, and maybe also spark some good discussion along the way.
What are the Peanut Convertible Debenture Power Rankings?
The Peanut Convertible Debenture Power Rankings are intended to be a regular, cornerstone feature on this blog, and I aim to update them approximately monthly.
The rankings are based on two main considerations: (1) a proprietary quantitative model I developed to help myself determine the "fair value" of any particular convertible debenture issue and (2) a qualitative judgement (based solely on my own humble opinion) on the particular issue, issuer, economic environment, interest rates, and other factors.
The parameters and factors of the quantitative model are proprietary and still a work in progress. In general terms, the model "fair value" is based on pricing of the fixed income component combined with an estimate of conversion option.
The coverage universe of the Peanut Power Rankings does not encompass the entire Canadian convertible debenture universe. Instead, the focus is on the particular issues from companies that I believe are deemed to be decent (or better) credit risks, with reasonable (or better) underlying equity to drive price increases in the debentures. In other words, safety with potential for upside gains is the priority. The coverage universe will change as interesting new issues come to the market, and as old issues either mature or redeemed. Any long positions I hold in any issues will be disclosed.
For the most current version of the Peanut Power Rankings, please click here.
Important: the Peanut Power Rankings are provided as information and opinions only and are not intended to be a provision of investment advice or a recommendation of any investment action in any form. As with all information concerning investments, it is highly recommended that an individual consult with a qualified investment professional before making any investment decisions.
What is the Peanut Convertible Debentures Index™?
The Peanut Convertible Debentures Index™ is a proprietary, approximately equal-weight, "dirty bond" index that is intended to track the performance of the Canadian convertible debentures market. Constituents of the the Peanut Convertible Debentures Index™ are based on the Peanut Power Rankings; currently there are 16 constituents in the Index. For more information on the Peanut Convertible Debentures Index™, please click here.
What is the Peanut Convertible Debentures Big Board?
The Peanut Convertible Debentures Big Board is our attempt at providing a larger Canadian convertible debentures list perhaps somewhat reminiscent of the well-known, but now defunct, convertible debentures list that used to reside on the pages of the Financial Post. At present, there are approximately 50 convertible debenture issues on the Peanut Big Board, but this is subject to change from time to time. For more information and the current version of the Peanut Convertible Debentures Big Board, please click here.
Who is Peanut?
Well, this is Peanut:
As you can clearly see, Peanut is a North American grizzly bear (Ursus arctos horribilis). He is also the editor-in-chief of The Canadian Convertible Debentures Project and he wants to remind everyone he sits atop the food chain. Peanut has many fans around the world - in particular, he's big in Japan and Sweden (true story: a picture of him is in the IKEA Museum in Älmhult, Sweden)!
If Peanut is the bear, then who's dingobear?
Well, I guess that would be me - dingobear is just my pen name. I also go by the name Felix. A little about me: I'm a husband, a photographer, a financial analyst, a CFA® charterholder, a mediocre gardener, a Montreal Expos fan and, occasionally, a blogger. I believe bacon, waffles, and maple syrup make the world a better place and that it's okay to eat breakfast food for any meal of the day. Also, I've been following capital markets for over 20 years and, of course, have a particular interest in convertible debentures.
I don't claim to be an expert on convertible debentures, and am not one, but find convertible debentures to be just about the most interesting asset class there is (yes, I know I'm a nerd). Note that this site is intended for information only and is not meant to be a provision of any advice, convertible debentures are risky assets that carry with them the risk of financial losses, and it is highly recommended that a reader consult with a qualified investment professional before making any investment decisions.
I like the Canadian Convertible Debentures Project. How do I support you?
It makes us happy if you like the content on this blog and if it helps you in your investing adventures in Canadian convertible debentures. If you would like to support us further in addition to coming by regularly to read our material, there are a couple of ways you can help.
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Second, if you enjoy reading this blog and you'd like to make a contribution to help support us in our mission of making quality, independent, Canadian convertible debentures content freely available to all investors out there, we would be humbled and grateful for any amount of support. We work hard to provide you with good quality information on convertible debentures that may be difficult to source elsewhere.
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Did you take the pictures on this blog?
Yes. Hope you like them. Please see my photography website, dingobear photography, or my online gallery at Fine Art America for more photos. However, please note that my photos on this blog or elsewhere cannot be reproduced for any purpose - I own the copyrights for the pictures and enforce the copyrights. If you have interest in licensing them for your own projects or uses, please contact me at convertibledebs@gmail.com or visit my portfolio at Alamy Images, which licenses my work on my behalf. Thanks.
