Converts

The answer of course? Convertible debt. I have been wondering why companies don't use converts more instead of equity. Since it is a convert it has built in claims to equity and can give you 'dividends' (interest payments) before the company's corporate tax. It seems to have the benefits of equity (upside potential) with tax efficiency of debt. If I was a company I would issue something like 1000-year converts that are convertible at any time to equity. By making the conversion terms so easy and because you can't simply hold it like regular convertible debt, it is less of a call option and more of a straight equity play. The extremely long term horizon essentially makes it like equity because the convert price will fall if the implicit stock price falls.

There are potential tax implications of the long-term convertible which would make it too equity like, however using derivatives and options (ie create a synthetic equity through a perpetual long / call and short put) I am confident that this structure can be created and be done tax-free.

First post

This is my first post ever woot.

I'm an investment banker and wanted to create a forum where I could throw around some financial topics and also trash investment banking for all it's worth.

Enjoy!

My first post is to all the people who are in Lev Fin or whatever its called at your bank of choice. We all knew eventually we would get up and see how badly PE shops are raping us from behind. Worse than when an MD asks us to "run a quick LBO of Microsoft" at 10 pm. 20% cuts across the board? Start pumping that resume out as fast as you can.

I used to think that PE shops were super smart and were amazing finance people. I've soon realized that they are crooks just like the bankers, but are soo much smarter. Case in point, Blackstone. For those who haven't read their prospectus, I'll quickly paraphrase, Blackstone management alone retain right to all future cash flows, if you have bought any stock you might as well use it as toilet paper because it is going to be worthless. Their tax efficient scheme to retain a high percentage of their profits was genius. Structuring it so that the public who just invested sees none of it? Priceless.

I like the poor senior bankers who thought they would never be hurt by these PE shops. The daddy's to all the PE shops are now getting bit as the PE shops don't seem to care if the debt sits on their investment bank's balance sheet. Won't the relationship suffer? No, because the banks have a short memory and will line up again to offer their services. It's like that dirty slut that comes back no matter how many times you kick her out of your room after banging her.

I love the market. Back to its all-time high. Has anything changed? Are fundamentals different? Didn't the fed's rate cut signal to anyone else that we are gonna get screwed with inflation going forward? The dollar already sucks and is just going to keep taking a beating. When my currency is at parity with Canada it is time to flip out. Canada??????

I'm so ready for a crash, what else could sustain the economy now? I am not a huge fan of this whole investment boom. Nothing has fundamentally changed in the economy. During the tech boom we may have had a ton of companies who had no business of being there but at least we did have a huge change in technology that is driving a lot of the current changes in technology.

I'm done for now, but I'll leave you with this. What is a way to pay equity holders dividends before corporate taxes? Answer next time.