CBU.PR.A: Normal Course Issuer Bid Renewed

First Asset CanBanc Split Corp. has announced:

acceptance by the Toronto Stock Exchange (the “TSX”) of the Corporation’s Notice of Intention to make a Normal Course Issuer Bid (the “NCIB”) to permit the Corporation to acquire its Preferred Shares and Class A Shares (collectively, the “Securities”).

Pursuant to the NCIB, the Corporation proposes to purchase through the facilities of the TSX, from time to time, if it is considered advisable, up to 65,998 Preferred Shares and up to 65,998 Class A Shares of the Corporation, representing approximately 10% of the public float which is the same number as the Corporation’s issued and outstanding Securities, being 659,982 Preferred Shares and 659,982 Class A Shares as of the date hereof. The Corporation will not purchase in any given 30-day period, in the aggregate, more than 13,199 Preferred Shares and 13,199 Class A Shares, being 2% of the issued and outstanding Securities as of the date hereof. Purchases of Securities under the NCIB may commence on January 5, 2011. The Board of Directors of First Asset Investment Management Inc., the manager of the Corporation, believes that such purchases are in the best interests of the Corporation and are a desirable use of the Corporation’s funds. All purchases will be made through the facilities of the TSX in accordance with its rules and policies. All Securities purchased by the Corporation pursuant to the NCIB will be cancelled. The NCIB will expire on January 4, 2012.

On December 30, 2009, the Corporation announced that it was making a Normal Course Issuer Bid, which commenced January 5, 2010, to purchase up to 122,735 Preferred Shares and up to 122,735 Class A Shares through the facilities of the TSX. Under the bid, which expires on January 4, 2011, an aggregate of 7,600 Class A Shares were repurchased at an average price of $20.16 per Class A Share including commissions. No Preferred Shares were repurchased.

This is an interesting issue, since the NAV was 38.09 as of November 30 while the capital units were last quoted at 23.10-39, 3×20, and the preferred shares at 12.76-08, 5×20. The securities are trading at a huge discount to NAV!

These numbers are even more dramatic than the ones last discussed on PrefBlog, in the post Why is CBU.PR.A priced so high?.

The annual retraction date is in January and it will be most interesting to see what happens. Given the discount from NAV, it is clear that the retraction feature is valuable. On the other hand, exercising the whole unit retraction feature necessarily involves “selling” the preferred share at its $10 book value rather than the $13-odd market price … and a $13.00 indicates a yield to maturity 2016-1-15 of 0.43%.

One might therefore wish to purchase the capital units in the low $23 area, which is well below their intrinsic value of $28-ish and hold them as a speculation … but then of course one has to start worrying about the effect of MER, etc. Still, MER considerations don’t usually inhibit players from holding the capital units of other vehicles!

CBU.PR.A is not tracked by HIMIPref™.

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