Default likely on hybrid securities

Elstree Investment Management, a specialist fund that invests in hybrid equity instruments that pay high rates on interest on deeply subordinated debt, said that some of these high yield securities could lose up to 15 per cent of their value. Elstree’s management said any security that paid an interest rate of more than nine per cent “has lots of embedded risks”. The FIELDS security sold by Australian Onshore Energy Fund, for example, is showing a large capital loss. Elstree said it expected one large default every four or five years among hybrids, and one small default each year.