Here’s One Way to Play the Slide in ViacomCBS Stock

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A latest convertible safety bought by

ViacomCBS

presents a great way to play the depressed shares of the media firm, in accordance to one veteran convertible investor.

“It looks pretty attractive,” says Tracy Maitland, founder and chief funding officer at Advent Capital Management, which runs about $11 billion largely in convertibles, together with the

Advent Convertible & Income

closed-end fund (ticker: AVK).

ViacomCBS shares have been hammered currently on gross sales associated to the unwinding of a big place by Archegos Capital Management, and the convertible has been hit as effectively. ViacomCBS (VIAC) shares have been off 6.7%, to $45, on Monday and are down greater than 50% since March 19.

The $1billion, 5.75% necessary convertible bought final week by ViacomCBS (VIACP) fell 3% Monday, to $65.34, and is down about 35% from its providing value of $100—marking considered one of the worst showings for any new convertible in the previous decade.

Convertible securities usually provide appreciable draw back safety when inventory costs fall, however the ViacomCBS deal is an exception due to a function that outcomes in the necessary conversion of the securities into ViacomCBS widespread inventory.

Maitland says the convertible now has a present yield of shut to 9% and a conversion premium of about 21%. He views that mixture as engaging relative to the inventory, now yielding about 2%.

He contends that ViacomCBS inventory might be value $60 or extra inside a 12 months, pushed by the firm’s push into streaming and the worth of its media belongings, together with Paramount, Nickelodeon, and NFL soccer.

His view is that the convertible ought to provide higher draw back safety than the inventory and comparable upside, creating a positive or “asymmetric” profile. Advent has purchased the convertible after its massive drop.

The typical convertible is a bond, which regularly has a 4 to six-year maturity, giving buyers consolation that they are going to be repaid barring a default by the issuer. This offers conventional convertibles draw back safety when the inventory declines, whereas it presents upside if the fairness rallies.

But the ViacomCBS convertible will routinely convert in three years into widespread inventory primarily based on a components. Holders are possible to get roughly 1.18 shares of the inventory assuming it trades underneath $85.

So-called necessary convertibles are extra like fairness alternate options than true convertibles and have a lot increased yields due to the higher threat. Many latest convertible bonds have carried rates of interest of zero. Issuers of mandatories embody electrical utilities. Credit-ratings corporations have a tendency to deal with mandatories like fairness somewhat than debt, which is how typical convertibles are evaluated.

Write to Andrew Bary at andrew.bary@barrons.com