The Pru Yield 15 and 20 are investment products that aim to payout 3% p.a and 4% respectively in coupon and give 100% principal protection at maturity on 10 Jun 2010.
The 100% return and coupon payout is dependent on a few factors, among which:
1) Out of a list of 100 companies, there are no more than 20-30 of them that goes into bankruptcy.
2) The underlying bonds (DEPFA ACS bank, Westpac Banking Corp, BNP Paribas SA, Deutsche Bank AG(Sydney Branch)) are held to maturity and there are no defaults. A default of each company will impact the maturity value negatively by about 25%.
3) The swap counterparty, Deutsche Bank, is able to fulfil its obligations.
As of 31st Mar 2009, the NAV value of the fund has dropped more than 60% from it’s initial price. This is due to a couple of factors:
1) 4 defaults in the list of 100 companies, with 3 more being priced in.
2) A deterioration of credit conditions since Sep 08.
Based on current estimates, the product can take about another 14 (assuming 0% recovery value on the bonds of the defaulted company) and 22 defaults (assuming 30% recovery value) in the list of 100 companies before the principle will be affected.
In the event it happens, the entire capital will be at risk and unitholders might get back nothing.