EPP.PR.A : Inventory Blow-Out Sale!

I have been advised that the underwriters are seeking to get this issue off their books at $21.50.

I mentioned this issue’s new low on July 23. It commenced trading May 25 … bang smack in the middle of the decline in the overall preferred share market.

At 21.50, this issue has a yield in excess of 5.75% … very attractive, but remember that it is rated only Pfd-3(high) by DBRS and should not comprise more than about 5% of a diversified preferred share portfolio.

Update: It should be noted that the issue is rated by S&P as BBB-, or P-2(low) on their Canadian Preferred Share Scale.

Update #2, 3:40pm: I don’t think the underwriters are having a very nice time. Now quoted at 20.30-00, 3×5, with 9,550 shares traded, new low of 20.10. Ouch! CIBC has been on the sell side of the last ten trades. With an annual dividend of $1.2125, a price of 20.21 corresponds to a yield of 6% … grossed up, that’s the equivalent of 8.4% interest!

3 Responses to “EPP.PR.A : Inventory Blow-Out Sale!”

  1. kaspu says:

    While I know that this letter deals only with canadian prefs, I have a question regarding both canadian and us prefs. With all the fooferall in the US regarding sub-prime problems, and perhaps prime problems, it seems that corporate preferred shares, even good investment grade (BBB+), have seen their spreads relative to the Benchmark US 10 year has widened quite a bit. My questions are:

    1. Even with the US 10 years going back below 5%, there has been no similar lowering of high credit pref yields. Is this due to a general creditor boycott in regard to preferred shares, which can be illiquid, or is is this a wiespread phenomenom to all non-goverment debt?

    2. are the canadian preferreds affected by this US credit fea? or do they trade more closely to how the canadian treasuries fare?

    3. There has been quite a bit of talk about the ratings agencies goofing up regarding junk-bonds. Yet it seems to me that this scepticism has also spread to the investment grades. Is this your impression as well? And if so, how are to trust the various rating agencies?

    4. Back to the US. There are many different types are highly rated synthetic preferred shares (STRATS, SPARQS etc.) These are usually backed by investment grade bonds, and the prospectus seems fairly clean. Are there any canadian equivalents? As well, can these be classified as CDO-type investments, even though many are rated A and higher.

    Thanks in advance,. I know this is quite a bit to ask. But what the heck…..

  2. […] On a completely unrelated thread, assiduous reader kaspu asked: While I know that this letter deals only with canadian prefs, I have a question regarding both canadian and us prefs. With all the fooferall in the US regarding sub-prime problems, and perhaps prime problems, it seems that corporate preferred shares, even good investment grade (BBB+), have seen their spreads relative to the Benchmark US 10 year has widened quite a bit. My questions are: […]

  3. […] I thought it would be fun to look at the valuation of EPP.PR.A, given what I’ve┬áheard about the underwriters getting impatient. […]

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