What is Structured Yield Product Exchangeable For Stock - STRYPES
Structured yield product exchangeable for stock (STRYPES) is a type of convertible bond issued by companies that pays a quarterly cash coupon. STRYPES can also be exchanged for a certain number of equity shares or a cash equivalent when the bond matures. A convertible bond is a debt security that can be converted into a predetermined amount of the underlying company's equity shares at certain times during the bond's life, usually at the discretion of the bondholder. STRYPES were created and trademarked by Merrill Lynch, and are traded on major exchanges.
BREAKING DOWN Structured Yield Product Exchangeable For Stock - STRYPES
Structured yield product exchangeable for stock (STRYPES) is essentially a type of hybrid investment that is neither a stock nor a bond. Instead, it’s a type of convertible security that was initially created to help sell the stock of a company that pays a low dividend. The yield paid on the STRYPES makes up for the low dividend yield until the investor converts the STRYPES into common shares. The features of the STRYPES allow high-risk companies to access investment capital that might otherwise be unattainable. Executives of a company that issues STRYPES can also use them to gain cash periodically without significantly diluting a company's share value.
STRYPES are a type of specially structured convertible that permit the issuer to design its security in a way that suits a specific business goal, whether it is divesting a business, deferring taxes or repairing the company’s balance sheet, for instance. Another example of a specially structured convertible bond is liquid yield option notes, or LYONs, which are zero-coupon bonds that are callable, convertible and putable.
Most convertibles of this nature are synthetic, the term given to financial products that are created artificially by simulating other instruments with different cash flow patterns. Synthetic products are structured to suit the cash flow needs of the investor. They are created in the form of a contract and, therefore, given the name synthetic.
STRYPES and Other Non-Traditional Convertibles
STRYPES and LYONS are not the only non-traditional convertible products that have come to market. Other similar models include:
Each of these hybridized models has its own set of unique risk and reward characteristics. They share the same basic features, including an upside potential that is typically less than that of the underlying common stock, due to the fact that convertible buyers pay a premium for the privilege of converting their shares; they also enjoy higher-than-market dividend rates.