market folly

David Einhorn's Greenlight Capital just released his presentation from the Ira Sohn Conference on preferreds.  The presentation is entitled "Greenlight Opportunistic Use of Preferreds (GO-UP)."

If you missed it, we've also posted up a summary of Einhorn's presentation at Ira Sohn, as well as notes from the Ira Sohn Conference.

On its website, Greenlight has posted its idea for a security that would satisfy investors' enormous appetite for yield.  They argue that many companies have great balance sheets but their stocks trade at low multiples as investors don't want to pay for earnings.

While most companies elect to pay dividends, Einhorn says that these companies then just become "a stock with a low P/E and an attractive dividend."

Greenlight advocates companies creating a new type of preferred security, essentially a "perpetual preferred stock distributed directly to shareholders, so that shareholders would own and could separately trade both the GO-UP and the common stock."


Here's how Einhorn envisions it:

- 4-6% dividend rate (taxed at preferential rates)
- Quarterly cash payments
- Customary protective provisions


Greenlight also highlights the benefits to issuers:

- "Since the liquidation preference only needs to be satisfied upon a sale or wind-down of the business, there is no immediate use of cash, no maturity or refinancing risk, and no default risk."

- Very high quality credits (trades to reflect long-term interest rate expectations)

- Bought or sold as needed to suit investment goals


Embedded below is David Einhorn's slideshow from Ira Sohn on preferreds:




You can download the slideshow here.  And Greenlight has also posted an Excel spreadsheet analysis on its website here.


For more actual slideshows from the Ira Sohn Conference, head to Bill Ackman's presentation on J.C. Penney as well.