BCE announced earlier:
Beginning on June 17, 2011 and ending on July 22, 2011, holders of Series AI Preferred Shares will have the right to choose one of the following options with regards to their shares:
1. To retain any or all of their Series AI Preferred Shares and continue to receive a fixed quarterly dividend; or
2. To convert, on a one-for-one basis, any or all of their Series AI Preferred Shares into BCE Inc. Cumulative Redeemable First Preferred Shares, Series AJ (the “Series AJ Preferred Shares”) and receive a floating monthly dividend.Effective August 1, 2011, the fixed dividend rate for the Series AI Preferred Shares will be set for a five-year period as explained in more detail in paragraph 5 of the attached Notice of Conversion Privilege. Should you wish to continue receiving a fixed quarterly dividend for the five-year period beginning August 1, 2011, you do not need to take any action with respect to this notice. However, should you wish to receive a floating monthly dividend, you must elect to convert your Series AI Preferred Shares into Series AJ Preferred Shares as explained in more detail in the attached Notice of Conversion Privilege.
Today BCE announced the chosen rate:
BCE Inc. will, on August 1, 2011, continue to have Cumulative Redeemable First Preferred Shares, Series AI outstanding if, following the end of the conversion period on July 22, 2011, BCE Inc. determines that at least two million Series AI Preferred Shares would remain outstanding. In such a case, as of August 1, 2011, the Series AI Preferred Shares will pay, on a quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the following five years that will be based on an annual fixed dividend rate equal to 4.15%.
If converted, the symbol for the Ratchet Rate issue will be BCE.PR.J, which does not currently exist.
It appears to me that with such a low rate being offered and rates about to go up, that issue should see a lot of conversions. What do you think?
I’m not so sure about that. Canada Prime is now at 3.00%, and BCE.PR.J will (eventually) pay 100% of prime.
For total returns to be equal over the five years until the next exchange, prime must increase gradually to 5.30% (assuming a constant increase), which is not beyond the bounds of credibility.
However, to realize the dividends, BCE.PR.J must continue to trade below par; if it trades significantly above, the percentage of prime paid will decrease, with a floor of 50%. This part does start to strain credulity, particularly when combined with the first requirement.
I haven’t made up my mind yet, but it’s certainly no slam-dunk!
[…] BCE.PR.I is tracked by HIMIPref™, but is assigned to the Scraps index on credit concerns. BCE.PR.J will be tracked by HIMIPref™ when it commences trading. The issues and exchange potential were discussed on PrefBlog in the post BCE.PR.I: Rate Change to 4.15%; Exchangeable to Ratchets […]