On 10th April 2006 Futuris Corporation Limited (named changed to Elders Limited in 2009) issued perpetual, subordinated, convertible, unsecured notes (ASX Code: ELDPA) raising $150 million. Distributions on these securities are discretionary, floating rate, preferred and non-cumulative. The interest rate margin was set at 2.20% p.a. above the 90-Day BBSW until the First Remarketing Date on the 30th of June 2011. Under the terms of the notes Elders has the right (but not the obligation) to Convert or Resell some or all ELDPA units on the last business day before any Remarketing Date (every 5 years), or at other times under special circumstances.   On the 4th September 2009 Elders announced a new capital management policy to protect the company which resulted in the suspension of distributions on the notes for a period of two years. The knock on effect of this was that common equity dividends and capital distributions may not be made to Elders ordinary shareholders until the last 12 months of unpaid distributions are paid to noteholders (this was part of the terms of the hybrid transaction). As a result, payment of dividends to ordinary shareholders were suspended also. Although the initial suspension period was for two years the company went through a series of changes to its policies and distributions and dividends remain frozen as at today. During the suspension period, the first Remarketing Date passed (June 2011) and Elders announced that it had elected not to initiate a remarketing process. Therefore, the margin on suspended distributions stepped by 2.50% p.a. under the terms of the issue. The next remarketing date on the 30th of June 2016 would result in additional 2.50% p.a. margin step-up if the notes are not resold or converted into ordinary shares.   More recently in August 2015, Elders notified the ASX of its on-market purchase of 375,000 hybrids at a price of $80 ($30 million buy-back) in an attempt to normalise its capital structure. Following this purchase there remains 1,125,000 notes outstanding. We note that the hybrids bought by Elders have not yet been cancelled.   With the second Remarketing Date approaching (30 June 2016) and the company’s intention to re-commence paying ordinary dividends by September, Elders has announced that it will undergo an equity capital raising to facilitate the on-market purchase of the majority, if not all, the remaining hybrids. The only clear motive for this action, rather than conversion on the last business day before the 30th of June 2016, is that management believe they can buy back the hybrids at a price below par value ($100). We believe that given the circumstances hybrid holders should demand a premium to the current market price ($89) once the on-market purchase scheme commences but ultimately should sell their holding to Elders. Click here for the ASX Announcement