Description

Although illiquid, I couldn't resist letting VIC members know of this 300%+ IRR opportunity, that is easily hedged.  The big assumption is being able to buy a position near today's price.  Alleghany Corporation (Y) is a NYC based $2BB market cap P&C insurer.  The common stock Y trades for $260/share.  There is a 1.13mm share preferred issue that last traded at $215 and mandatorily converts on 6/15 this year at a variable convert ratio somewhere between a minimum of .8994:1 and a maximum of 1.0613:1.  In addition, the last dividend of $3.8036 goes ex tomorrow. 

The convert ratio is the average of the 20 trading days prior to 6/15 convert date.  Today is the 8^th day and 12 more trading days before conversion.  The average so far assuming a $260/share close today is $264.30.  The threshold appreciation is $249.34, so the ratio is currently at .9433, or $245.28 parity ($260 * .9433).  With the preferred at $215, that is $34.08 gain on $215 cost, 15.8% return in 18 days or over a 300% IRR. 

The borrow on Y is available to create an excellent arbitrage opportunity.  Y is a well managed, underleveraged insurer that trades below book so perhaps a hedge is not necessary but I would rather not risk it. 

I realize liquidity is pitiful and this trades spotty so not expecting a great rating, but I was able to get a little stock today.  Just another indication that the market still offers inefficient, compelling investment opportunities.

Catalyst