Global Value Investing

[ratobranco]

CHK convertible preferreds. Has anyone seen these?

CHKDG.PK is traded on the pinks, current price 84.5. They are cumulative, non-callable. They currently pay a 5.8% dividend yield, and convert to 2.57 shares of CHK on the owners request. That translates to about $33 a share for CHK, which is trading at $24, but has been as high as $70 in its history.

Then you have the NYSE-traded preferred shares of CHK, ticker CHK-PD, which currently are priced at $94. They pay around a 4.7% yield, convert to 2.27 shares of CHK, which is about $41.4 a share of CHK.

Makes no sense whatsoever. CHKDG.PK looks attractive to me, you get a yield and wait for the CHK turnaround story to play out. It's like an inflation protected security, because you have a convertible option in an oil/gas company.

At the same time, CHK has meaningful debt, natural gas prices are getting crushed (though CHK is converting production to liquids), and the CEO is a very aggressive gambler, etc. I would go long/short CHKDG.PK and CHK-PD, but for the fact that the borrow is 10% on CHK-PD, thus killing any spread.

Any thoughts? Anyone looked at this?