Have you taken a look at Yellow Media's (YLO) preferred series 1?
YLO stinks, but its preferred 1, priced around $1.40 as of Oct 5th, looks like an interesting bet.
YLO's most recent three months free cashflow is about $69m, so there is a good chance that YLO will continue to pay its preferred dividends, which is about $32m annually for all outstanding preferred.
Here is the opportunity--after Dec 2012, a preferred 1 holder will collect $1.33 of dividend and have the option to put back to YLO for $25 cash. But, from Mar 2012 to Dec 2012, YLO can retire the preferred 1 by issuing 12.5 common shares, if the price of common share remained below $2.00.
The worse case scenario would be that YLO decides to pay back in common shares as soon as Mar 2012 arrives. Since Feb 2013 is the earliest debt maturity date for YLO, it's more likely that common shares should worth something greater than zero before Feb 2013. In addition, since YLO is a business with no real assets, creditors' interest would be to let YLO ride out as long as possible, instead of forcing a liquidation event. Therefore, even if YLO decides to retire the preferred 1 in common shares in Mar 2012, a preferred 1 holder should be able to recoup some money from the open market (12.5 shares x the then market price for YLO common) plus dividends of $0.53.
There fore, the worse case is a manageable loss, and the upside can be tremendous.
FYI, here is the description of the Preferred Series 1:
On March 6, 2007, 12,000,000 cumulative redeemable preferred shares, Series 1 (Preferred Shares Series 1) were issued for gross proceeds of $300 million. A dividend of $1.0625 per share per annum is payable quarterly on the Preferred Shares Series 1, yielding 4.25% per annum. The Preferred Shares Series 1 are redeemable by the issuer at par for cash on or after March 31, 2012, or by the issuance of shares of Yellow Media Inc. between March 31, 2012 and December 31, 2012. The Preferred Shares Series 1 are also retractable for cash at the holder's option on or after December 31, 2012 at a price equal to $25.00 per share plus any accrued and unpaid dividends in arrears.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I am long in Yellow Media Preferred Series 1.