Trust preferreds vs. debt
The differential on Sprint 2028 senior debt vs. the underlying trust preferred is incredible:
The debt: 6.875% coupon, at 63 cents on the dollar. Current yield: 10.9%
The trust preferred: 7.000% coupon, at 42 cents on the dollar. Current yield: 16.7%
These securities are identical in terms of credit risk. The only difference is the coupon and liquidity. Is liquidity worth a 5.8% yield premium? Apparently the market thinks it is – this is a great example of how a small investor can take advantage of an illiquid market opportunity – squeezing in the time to move $20,000 of capital into a position may be worth it for a retail investor, but not worth the time of day for a hedge fund.