PrefBlog

Commerce Split has announced:

When the fund was launched on February 16, 2007 the price of CIBC common shares was $102.15. As of June 12, 2008 the price of CIBC commons shares has declined to $62.54 or a drop of 38% since the inception of the fund.

This sharp decline has resulted in the fund’s net asset value being reduced significantly and has required the Company to implement the Priority Equity Protection Plan in accordance with the prospectus. This plan was implemented to maintain a preferred share coverage ratio of 125% as defined in the prospectus. The Company has executed trades to remain in compliance with the Protection Plan by purchasing permitted repayment securities.

Currently, the portfolio has over $2.45 in notional value of permitted repayment securities per unit (a unit being 1 Priority Equity Share plus 1 Class A Share) thereby reducing the risk to Priority Equity shareholders to any further declines in the price of CIBC common shares.

The Company’s investment portfolio also has approximately $10.57 in CIBC exposure per unit ($9.49 per unit in CIBC common shares and the equivalent of $1.08 per unit in exposure through long CIBC call options) which provides exposure to any potential upside in the value of CIBC common shares. The Company has call options written on a portion of these positions at higher levels.

The Company’s portfolio is continually rebalanced and adjusted based on market conditions to provide both security for Priority Equity shareholders and upside potential for Class A shareholders. The Company may buy or sell additional shares of CIBC, the permitted repayment securities, and or option positions based on market conditions and provided that the Company remains in compliance with the Priority Equity Protection Plan.

The company is a little shy about providing details on its website regarding historical NAVs and precise dates of Protection Plan enforcement. The last instance of PEPP invocation was reported on PrefBlog and appears to have lasted only a week. CM shares closed today at $63.45, a loss of over 9% month-to-date. The unit NAV on May 31 was $12.62, and it was 92% invested … call it $11.60-worth of CM. A nine percent loss on that is worth $1.04 … so it seems reasonable to assume that the XCM unit value is now about $11.60.

XCM.PR.A is not rated by any rating agency and is not tracked by HIMIPref™.

This entry was posted on Friday, June 13th, 2008 at 6:24 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.