First, the story of RSO is the story of the rest of the market right now. There is nothing wrong with RSO. It has a steady cash flow, a strong and sustainable dividend, a great portfolio, and a good model that includes a history of managing defaulted properties into profitability. There are risks in this market, but at a 44% yield, there is lots of room for things to go wrong without threatening your investment.
The biggest problem at RSO right now is an irrationally low share price based on the same things that that have created irrationally low prices across this sector and the market in general. There are a lot of bargains right now. RSO is certainly one of them.
As for Ethison's statement of RAS having to repay $400M in debt by 2012, that is simply inaccurate, and at several levels:
1 - While RAS does not have the right to repay principal on these bonds until 2012, RAS has the right to buy these notes on the open market at prevailing prices and has been doing so. The balance on these notes was $425M at the end of 1Q. It was reduced by 5%, to $404M, by the end of 2Q at a substantial discount. It can presumed that RAS is opportunistically buying these bonds as the become available at discounted prices. If RAS continues to buy back bonds at that rate between now and 2012, the remaining balance will be less than $85M at the first "optional repayment date" in 2012.
2 - 2012 is an "optional repayment date". Holders who are content to continue receiving payments on the bonds are likely to continue to hold them. Even if RAS does not buy back a significant number of notes by 2012 at a discount, it is entirely likely that holders will not request the optional repayment.
3 - These are convertible notes and we are still three and a half of years away from the optional repayment date. Almost any persistent and significant rise in price is likely to result in conversions to common based on the prevailing formula.
4 - The only special circumstances that would result in cash redemption involve bankruptcy, default, and change in ownership.