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  5. ECN.DB: I own ECN Senior Unsecured 6% Debentures maturing on Dec. [ECN Capital Corp. 6.00% senior unsecured debentures due December 31 2025]
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Investment Q&A

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Q: I own ECN Senior Unsecured 6% Debentures maturing on Dec. 31, 2025. They are currently trading at 84 cents on the dollar, corresponding to an annualized Yield-to-Maturity of about 18%. I am concerned that this extremely high yield indicates serious doubts as to their ability to repay this debt (in cash). What is your opinion as to the viability of ECN?
Asked by Gregory on May 29, 2024
5i Research Answer:

Considering only 19 months to maturity, the yield is high and reflects the risk here as well as the small size of the company. The stock is down 43% this year, and the company is sensitive to rates and the economy. It is expected to be profitable this year and next, and cash flow has been positive recently. Interest expenses are high, but this is also a reflection of its business (loans). But on a risk basis, it has $1.3B in assets vs $900M in short term liabilities. Not a huge cushion, but OK for a short term viewpoint. Bloomberg default risk is 1.19%, which is high on average but not overly so. Management does have financing skill, and we think it should be able to refinance these bonds, with even better likelihood if rates fall. We would be less comfortable if the dividend were to be cancelled. As it is, ECN could save about $14M annually without the dividend, in order to protect the bonds. There is, no doubt, risk here, but we think the yield reflects the situation well. In terms of 'viability', we do think ECN will be able to remain solvent, certainly, for the time period in question.