BCE Inc. has announced:
BCE Inc. will, on March 1, 2013, continue to have Cumulative Redeemable First Preferred Shares, Series AC (“Series AC Preferred Shares”) outstanding if, following the end of the conversion period on February 19, 2013, BCE Inc. determines that at least 2.5 million Series AC Preferred Shares would remain outstanding. In such a case, as of March 1, 2013, the Series AC 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 3.550%.
That’s a good step downwards from its last reset in 2008 to 4.60%!
As noted earlier:
As far as deadlines for conversion go:
In order to convert your shares, you must exercise your right of conversion during the conversion period, which runs from January 15, 2013 to February 19, 2013, inclusively.
Note that brokerages will have their own deadlines for notice, which may be a few days earlier than the date on which BCE must be notified – so if you’re contemplating conversion, check well in advance!
Less than two weeks to go! So if you’re planning to convert from BCE.PR.C to or from BCE.PR.D, better start getting your ducks in a row now!
BCE.PR.D is a RatchetRate preferred, by which I mean it pays between 50% and 100% of Canada Prime on its par value of $25. The percentage paid increases when the market price of the issue is significantly less than $25, and decreases when the price is significantly above. The issue has been well below par for some time and the current percentage is 100%.
Given that Canada Prime can be estimated to be about 200bp above three-month treasury bills, this makes BCE.PR.D the rough equivalent of a FloatingReset (of which none yet exist; they will appear by conversion from FixedResets) with an Issue Reset Spread of 200bp, for as long as it trades below par. Since +200bp is a pretty skimpy spread for an issuer of BCE’s credit quality, it is reasonable to assume that it will trade below par for the next five years … while always remembering that it might not!
Given the above, we can assume that BCE.PR.D will pay 100% of Canada Prime for the next five years; thus, it will pay more dividends than BCE.PR.C if the average Canada Prime Rate over the period is more than 3.55%.
I think there’s a pretty good chance of that, and even if that turns out not to be the case, it is hard to imagine that Canada Prime will actually go down over the period, so the downside of being wrong isn’t all that terrible.
Therefore, I recommend that holders of BCE.PR.C convert to BCE.PR.D and recommend that holders of BCE.PR.D retain their holdings (at least, so far as conversion is concerned; no recommendation is made here regarding potential trades out of BCE.PR.D into any other issue).