Enbridge hybrid notes are convertible to shares in the event of a bankruptcy or insolvency. He likes the company for its stable business, strong recurring cash flow and C$97 billion market value.
“I’m not worried about a restructuring with Enbridge,” said Leach. “That is just extremely remote, so I don’t really need to worry about whether I have unsecured or secured notes.”
With C$63 billion in debt, Enbridge’s subordinated notes are rated one notch below investment grade at Moody’s Investors Service, which means that some institutional investors can’t hold it. That’s causing them to trade about 380 basis points above benchmark government bonds, in line with companies that are way further into junk, he said.
Leach, who holds an economics degree, uses models supplemented with credit and equity market metrics to quantify credit risk on a more granular level than spreads, taking the human emotion out of the equation, he said. The second step is to then analyze this data to figure out where the “markets might have it wrong.”
“While part of me is happy I’m not writing code anymore, it has helped me a lot in terms of building some of these algorithms for our quantitative models,” Leach said.
This article was provided by Bloomberg News.