I got a call today from an investor concerned about the recent performance of the SLF preferreds. This poor performance is well illustrated by the following three graphs, which plot Current Yield against Annual Dividend.
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Click for Big
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As may be seen, the prices of the SLF preferreds have changed so that their Current Yields are now significantly higher than what they would be if they had maintained their relationship (shown on the 9/9 chart) with the GWO and PWF preferreds (note that GWO and SLF issues plotted are DeemedRetractibles; the PWFs are Straight Perpetuals and should have current yields greater than the other two issuers’ preferreds, but don’t. The market hasn’t been pricing in any possibility of regulatory redemption in 2022-1-31!
So what’s the problem? The only news of note lately has been the SLF purchase of McLean Budden, which doesn’t sound like a big deal. SLF common hit a new 52-week low on the NYSE recently, but a comparison of common prices for the three dates doesn’t really provide any clues:
| Comparitive Common Prices | |||
| Date | SLF | GWO | PWF |
| 9/9 | 24.68 | 20.70 | 25.47 |
| 9/30 | 25.03 | 20.61 | 25.66 |
| 10/5 | 24.93 | 20.88 | 25.55 |
In the absence of news or a confirming signal from the common I have to conclude that the variance from the relationship with the other two series of preferreds examined is due to liquidity pressures – in other words, I think somebody’s selling a whack of these things and is taking a big market impact cost in order to do so.
I wondered if a big SLF pref holder had gotten wind that the insurance regulator is going to take a different view of the capital treatment for perpetual preferreds compared to the bank regulator. I may have missed it, but I still haven’t seen confirmation that lifeco perpetuals will be treated the same as bank (former) perpetuals. But I noticed that MFC and GWO perpetual issues weren’t getting hit nearly as bad as SLF, so it is probably just a big seller, as you stated. I sure wish the insurance regulator would confirm the capital treatment for these things instead of leaving the companies (and investors) wondering.
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I still haven’t seen confirmation that lifeco perpetuals will be treated the same as bank (former) perpetuals.
Neither have I. The issue is still open, as far as I’m concerned.
But I noticed that MFC and GWO perpetual issues weren’t getting hit nearly as bad as SLF,
Also, you will note that in the graphs, the SLF issues are quite significantly above the curve defined by GWO / PWF – so (assuming equivalency of credit and liquidity factors) the SLF issues are cheap even as PerpetualDiscounts, never mind the redemption effects that the market does not appear to believe in.
I sure wish the insurance regulator would confirm the capital treatment for these things instead of leaving the companies (and investors) wondering.
That’s OSFI for you! They’re really screwing up the market.
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