From: Ens, Amanda Sent: Tuesday, February 14, 2017 3:47 PM To: jeffrey E.; Richard Kahn Subject: *TEVA 7% TEWF - Play the preferred if you believe there's a dvd cut coming Would add to your position. We have a BUY on TEVA and like being long via the mandatory convert preferreds yielding 11.2%. There has been a lot of speculation about TEVA possibly cutting their common dividend. The company has stated they want to keep their IG rating and have even considered asset sales. TEVA did mention yesterday on earnings call that they don't plan on cutting their dividend, however with a new CEO coming in and a rough landscape ahead, it's still a possibility. If there is a cut in the dividend, the 7% convertible pfds would have some room to run higher if you factor in the high delta and the need for yield in the marketplace. The TEVA 7% TEVVF pfds trade at $623 vs. $34 and yield 11.24% vs. 4% dvd yield currently in the common. On a +/- 20% move in the common, you participate 90% of the upside and 76% of the downside. On a +/- 10% move in the common, the Pfds participate 95% on the upside and only 59% on the downside. This was highlighted a couple weeks ago after the stock fell and BAML upgraded the stock to a BUY. Not only will you outperform the stock here, if there is a cut, you can win big. The options market is pricing in a 25-40% dvd cut which would put the dvd to $0.20-0.28 from $0.34. There are 8 dividends left in the pfd and the theoretical delta is 14.5 shares per that you're short per pfd you are long. If they cut to $0.28 (6c), the pfds should move up at least 0.06 x 8 x 14.5 = $6.96 or equivalent of 70c in bond terms. This would just be the change to theoretical value. There could also be good size richening outside of this as in what happened to the KMI A 9.75% mandatory pfds after the company cut their dvd. The shares went from fair value to 11.5% rich now. Table showing the impact of various dividend cuts over the life of the convert: A