While we don’t own the Crown Hybrids (CWNHB) in the MM Income Portfolio, I’m sure plenty of our subscribers do. The below sets out MM’s take on what could happen to the notes from here given the Blackstone bid.
The decision to redeem the notes sits with the Crown Board. The notes have a first call date in July of 2021 however they are essentially perpetual notes with a maturity out 75 years. Putting the takeover to one side, given Crown’s current balance sheet and the Royal Commission playing out, we doubt they’ll redeem them on this date, instead, they’ll wait until they have a better balance sheet (which happens this year as they get a large windfall from property settlements), and the Royal Commission has passed. If they don’t pay them back in July, it does become expensive debt for them, however they’ll suffer that in the short term. In our view they will be redeemed at some point in the next 12 months given the cost of the debt at 4% over bank bills i.e. they can get cheaper finance elsewhere.
The same would happen if Blackstone is successful. Under Blackstone ownership, CWN could borrow at significantly cheaper rates than what these notes pay. Ultimately, MM believe these notes will be redeemed within 12 months, but this is unlikely at the first call date in July 21. If we are right with our view and timing, there is 7% on the table here.
MM like the CWNHB around $97 for income & some capital gain
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