Brookfield's BRP notes carry a BBB- rating yet yield more than some junk-rated debt. The gap creates an income opportunity, one analyst said.
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Brookfield's BRP notes carry a BBB- rating yet trade at yields that exceed some junk-rated debt. The gap caught the attention of a Seeking Alpha contributor who called the notes "grossly undervalued" and the highest-yielding security in the BBB- category.
The notes are baby bonds backed by Brookfield Asset Management, a firm with a diversified portfolio of infrastructure and renewable energy assets. The parent's investment-grade profile makes the default risk on the notes appear low for the yield they offer.
Reasons for the discount exist. The notes are callable, meaning Brookfield could redeem them early if rates fall, capping upside. Trading volume is thin, which can amplify price swings when investors enter or exit. The security also lacks the liquidity of larger bond issues.
For income-focused investors, the BRP notes offer a yield pickup versus comparable corporate bonds. The trade-off is lower liquidity and call risk. The analyst wrote that the gap persists and the notes remain the highest-yielding BBB- security by a wide margin, a view supported by current market pricing.
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