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Subject:  Re: TLT vs WFC.PR.L Date:  2/26/2020  11:15 PM
Author:  aj485 Number:  85589 of 87036

Again, the only way the conversion can happen is by the share price appreciation and management cannot force it at will.

Sorry, that means that there is a possibility for a forced conversion. Management can force conversion at will once the share price target is met.

That's different than what you said, which was: You cannot do a forced conversion on WFC-L, in other words, management cannot force the conversion.

And buyers at current price levels will suffer a capital loss if a forced conversion occurs.

WFC-L closed at $1535 today. If it takes 20 years for the share price target to be met (a CAGR of 7.9% from today's closing of $44.14), and a forced conversion to occur, the buyer will have captured 20 years of the $75 dividend, or $1500, but will suffer a capital loss of $235, since the 6.3814 shares of WFC common that they will get are only worth $1300 at the target prices of $203.723, for net cash realized of $1500 - $235 = $1265 That's a YTW of 4.12% if the conversion occurs in 20 years, as compared to the unadjusted yield of 4.88%, so it's a pretty significant drop.

Yes, that 4.12% is higher than the current TLT or UST yields. But what are the chances that TLT and UST yields will stay that low for the next 20 years? And what if the forced conversion occurs in just 10 or 15 years? That YTW drops into something starting with a 3 for both of those cases.

As I said, I already own WFC-L, but I bought it at a price where I will get a capital gain if the conversion is forced. Long term buyers at current premium prices need to be aware of the possibility for capital loss if conversion is forced. If you are recommending the stock, you should mention that possibility.

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