FTU.PR.A : Ripe for a Downgrade?

I’m not sure how long FTU.PR.A will be able to hang on to its Pfd-2 rating from DBRS.

As of January 15, Asset Coverage was 1.59:1, according to the company. The S&P 500 Financials Price sub-index was 360.73 on January 15; declining to 342.03 on January 18. Given the shock and horror experienced since then, let’s just chop another 10% off that, just for fun to see what happens. This is by no means a crazy estimate for the value of this index at the close tomorrow, January 22 … and will mean a price level of 307.8.

Such a drop would be a 14.7% decline in market value from the time of the last NAV for FTU.PR.A, which in turn implies a projected asset coverage of under 1.4:1. On the positive side (for the pref holders!) is the declaration in the prospectus:

No dividends will be paid in any year on the Class A Shares so long as any dividends on the Preferred Shares are then in arrears or so long as the Net Asset Value per Unit is equal to or less than $15.00 (calculated as described under ‘‘Details of the Offering — Valuation of Assets’’). Additionally, no special year-end dividends will be paid if after payment of such a special dividend the Net Asset Value per Unit (calculated as described under ‘‘Details of the Offering — Valuation of Assets’’) would be less than $25.00.

We shall see! I consider it somewhat astounding that the capital units, symbol FTU, closed at $5.97 today, above their January 15 asset value. I will admit that my rough valuation above does not consider differences between the underlying portfolio and the sub-index; ignores short calls that are now more likely to expire worthless; and takes a rather gloomy view of tomorrow’s market action …. but $5.97? Really?

Update, 2008-01-22: Well – so much for market-timing! The emergency 75bp Fed cut to 3.50% averted disaster, and the S&P500-Financials closed at 342.03 today.

That’s down 5.18% from the January 15 level, which implies an estimated asset coverage of 1.51:1 … but that’s still looking a little fragile!

Update, 2008-1-23: S&P Financials closed at 373.33 today, which puts them up 3.49% from the January 15 level, which implies an estimated asset coverage of about 1.65:1. Remember this, next time I make a market prediction!

2 Responses to “FTU.PR.A : Ripe for a Downgrade?”

  1. […] Asset coverage of just under 1.6:1 as of January 15, according to the company. Now with a pre-tax bid-YTW of 6.97% based on a bid of 9.35 and a hardMaturity 2012-12-1 at 10.00. It’s certainly trading as if it’s lost investment grade status! […]

  2. […] Asset coverage of just under 1.5:1 as of February 29, according to the company. Probably a little less now! Ripe for a downgrade, perhaps? Now with a pre-tax bid-YTW of 8.17% based on a bid of 8.90 and a hardMaturity 2012-12-1 at 10.00. […]

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