BCE.PR.F Secondary Offering

I am advised by multiple authoritative sources that there is a secondary offering under way (or is it “under weigh”? You can find much furious discussion of this on the web) for 2-million shares of BCE.PR.F, offered at 23.75.

The issue closed today at 23.95-98, 12×177. This is a wonderful issue for analysis, because there are so many ways of looking at comparators, but the easiest is its Strong Pair BCE.PR.E, a RatchetRate preferred. The two issues are interconvertible on 2015-2-15 and every five years thereafter. Until then BCE.PR.F pays a fixed 4.541% of par. while BCE.PR.E pays 100% of Canadian Prime, although this may be reduced if the price goes above 25.00.

BCE.PR.E closed today at 22.40-50 on less than a board lot traded; we can use this price for comparison purposes since it is close to the other BCE RatchetRates. The Pairs Equivalency Calculator (quick method) tells us that given a price of 22.40 on BCE.PR.E and 23.75 on BCE.PR.F, Canada Prime should average 2.32% until the February, 2015, Exchange Date for the total return on the two issues to be equal.

Seeing as Canada Prime is now 3.00% and is forecast to rise, if anything, over the next three years, BCE.PR.F looks grossly expensive at 23.75. I suspect that it is trading on the basis of its Current Yield of 4.78% and that the market is, as usual, ignoring conversion and dividend reset probabilities.

BCE.PR.F was last mentioned on PrefBlog when there was a secondary offering three-odd months ago. BCE.PR.F is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

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