BAM.PR.J To Be Redeemed

Brookfield Asset Management Inc. has announced (as part of a new issue announcement):

its intention to redeem all of its outstanding Class A Preferred Shares, Series 12 (TSX:BAM.PR.J) for cash on April 6, 2014. The redemption price for each Preferred Share, Series 12 will be C$26.00 plus accrued and unpaid dividends thereon (for greater certainty, excluding declared dividends with a record date prior to the redemption date).

You gotta love the redemption date. It’s a Sunday.

One should always be wary of investment managers cherry-picking their past recommendations, but I will admit that I have a certain fondness for BAM.PR.J which was a long-time favourite recommendation in PrefLetter in the ‘Operating Retractible’ category. BAM issues weakened immediately following the Canadian ABCP collapse in August, 2007, and stayed very weak for a long time. For instance, I recommended it in December, 2008, near the bottom of the market at 14.00-25. I hope everybody loaded up!

It should also be noted that this issue is being redeemed at a premium ($26 vs. issue price of $25) and the premium is taxable as a Deemed Dividend, rather than as a capital gain. If we may assume that the issue will trade marginally below the total Future Value if held to redemption until it is actually redeemed, investors will want to think carefully about the choice between selling the issue in the market (incurring commission and getting slightly less than the full redemption amount, but being taxed on the premium as a capital gain) or holding to redemption (and being taxed on the premium as a dividend).

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