APN Media bond issue

Here's a timely reminder from Gareth Morgan to always read and understand the prospectus before subscribing to a new issue.

http://www.gmi.co.nz/pages/news/829/...beware%2Bbonds

Gareth is being irrational.

If I could buy a bond at a five year price and get a 3% margin in selling it after 2 years (1.5% per year) - I think this is fair.

Longer term bonds are usually priced at a higher yield than short term bonds (the famous "yield curve"). Hence, the margin I would make on the APN bonds is the 1.5% premium plus the yield curve difference between 5 years and 2 years.

I really don't see anything here to complain about.

There are a number of examples, currently on market, with this type of buyback provision. It is hardly something new - it is definitely not unfair.

I think Gareth was just pointing out that all the options are APN Media's way, which of course is to be expected. If rates increase, it's likely that there won't be any buyback; if rates drop enough to make financial sense for APN to buy the bonds back and re-finance at a lower rate, then that's the probable outcome.

I said "timely" because I suspect that a lot of the "repriceable" issues of bonds, preference shares, perpetual securities etc which were sold in recent years were bought by investors who didn't understand the interest rate risk that they were accepting.

I cant think of any call that has been exercised because they could issue new bonds at a lower rate. Indeed rates are so low I suspect it would be nigh on impossible to achieve that in the public markets. The call options are usually for some form of capital reconstruction/takeover purpose