Most people are familiar with debt instruments such as bonds and notes. A relatively new addition to the debt landscape is the kicker, which is essentially an added feature that makes the debt more desirable to potential investors. In this post, we’ll explore what kickers are, how they work, and some of the benefits and risks associated with them. We’ll also take a look at some recent examples of high-profile kickers.
What is a kicker and why do issuers add them to debt instruments
A “kicker” is a provision added to a debt instrument that provides for an enhanced coupon rate or other benefit to the holder under specified conditions. Kickers are typically added to bonds in order to make them more attractive to investors. The conditions under which the kicker is triggered can vary, but they often involve the issuer achieving certain financial targets, such as exceeding a certain level of earnings per share or maintaining a certain credit rating. While kickers can provide a valuable downside protection for investors, they can also add complexity to the instrument and may be less attractive to potential buyers if the condition is not met. Issuers should carefully consider whether a kicker is appropriate for their particular security before adding one.
How do kickers work and what are the benefits to investors
Kickers are an important part of any investment portfolio. They provide a way to protect your investment from market volatility and help to ensure that you receive a steady income stream. There are two main types of kickers: interest rate kickers and price appreciation kickers. Interest rate kickers offer a fixed interest rate for a certain period of time, typically five years or more.
This means that if market rates rise, your investment will still earn the same fixed rate of return. Price appreciation kickers, on the other hand, offer a percentage of any increase in the price of the security over a set period of time. For example, if you purchase a stock for $100 and it appreciates to $110 by the end of the year, you would receive 10% of that appreciation, or $1. Kickers can be an extremely valuable tool for investors looking to protect their portfolios from market volatility and earn a consistent return.
What are some of the most common types of kickers
The most common types of kickers are interest rate and price appreciation kickers. Interest rate kickers offer a fixed interest rate for a certain period of time, typically five years or more. This means that if market rates rise, your investment will still earn the same fixed rate of return. Price appreciation kickers, on the other hand, offer a percentage of any increase in the price of the security over a set period of time. For example, if you purchase a stock for $100 and it appreciates to $110 by the end of the year, you would receive 10% of that appreciation, or $1.
Other less common types of kickers include call protection, which limits the issuer’s ability to call the security prior to maturity, and put protection, which gives the holder the right to sell the security back to the issuer at a specified price.
How can investors protect themselves from potential risks associated with kickers
When it comes to investing, there are always risks involved. But with proper research and due diligence, investors can minimize their exposure to potential losses. One type of investment risk that is often overlooked is the potential for “kickers” – clauses in a contract that can result in a sudden, unexpected windfall for one party at the expense of the other.
For example, a real estate investor might agree to sell his property for a set price, only to find out later that the buyer has obtained a loan with a much lower interest rate than expected, resulting in a much higher profit for the buyer. Similarly, a stockholder might agree to sell his shares for a certain price, only to see the stock skyrocket in value soon after the sale. To protect themselves from these types of risks, investors need to be aware of kickers and assess the potential downside of any deal before agreeing to it. By doing so, they can minimize their exposure to potential losses and maximize their chances for success.
What are some of the most recent examples of high-profile kickers
Some of the most recent examples of high-profile kickers include the following:
• In March 2017, Verizon agreed to purchase Yahoo for $4.48 billion, but included a $350 million kicker for the latter company if it met certain performance milestones.
• In December 2016, Disney agreed to purchase Lucasfilm for $4.06 billion, with a $500 million kicker if the studio hit certain box office targets.
• In 2015, Comcast purchased NBCUniversal for $16.7 billion, with a $1.5 billion kicker if the company hit certain financial targets.
Kickers can be an extremely valuable tool for investors, but they also come with potential risks. By understanding what kickers are and how they work, investors can make more informed decisions about whether or not to include them in their portfolios.
