TA Proposes Sleazy Exchange Offer

TransAlta Corporation has announced:

that its Board of Directors has approved a transaction pursuant to which all the currently outstanding first preferred shares in the capital of the Corporation are proposed to be exchanged for shares in a single new series of cumulative redeemable minimum rate reset first preferred shares, series 1, in the capital of the Corporation (the “New Preferred Shares”) pursuant to a plan of arrangement (the “Arrangement”). The terms of the New Preferred Shares will be substantially the same as the terms of the existing first preferred shares with the exception of an adjustment to the reset spread to 5.29%, a change to December 31, 2021 for the next reset date, and the addition of a minimum reset coupon rate of 6.5%.

The Corporation currently has four series of cumulative redeemable rate reset first preferred shares outstanding, being the series A shares, series C shares, series E shares and series G shares, and one series of cumulative redeemable floating rate first preferred shares outstanding, being the series B shares (collectively, the “Existing Preferred Shares”). Pursuant to the Arrangement, the outstanding Existing Preferred Shares will be exchanged for New Preferred Shares at an exchange ratio specific to each series of Existing Preferred Shares.

The Arrangement is expected to provide several benefits to holders of Existing Preferred Shares including:

  • dividend volatility will be minimized as a result of the downside protection provided under the terms of the New Preferred Shares, which will include a “minimum floor” mechanism pursuant to which holders of the New Preferred Shares will have certainty that the reset coupon rate will be no lower than 6.50%;
  • the dividends to be paid to holders of the New Preferred Shares are expected to be greater than the current dividends received by holders of the Existing Preferred Shares over the initial five-year reset period based on current interest rate levels;
  • trading liquidity is expected to be enhanced, as the consolidation of the Existing Preferred Shares into one series of New Preferred Shares is expected to provide holders of New Preferred Shares with more flexibility and depth in the market to buy and sell such New Preferred Shares; and
  • the exchange of Existing Preferred Shares for New Preferred Shares will constitute an automatic tax deferred exchange for Canadian income tax purposes. The Arrangement will, however, provide holders of Existing Preferred Shares with an option, at their election, to have the exchange occur in a manner which may allow a shareholder to realize a capital gain or a capital loss for Canadian income tax purposes.

The Arrangement is also expected to benefit TransAlta by:

    reducing the Corporation’s notional capital balance of preferred shares by approximately $300 million, which strengthens the balance sheet and improves certain financial ratios; and
  • providing future preferred share issuance capacity based on the equity treatment guidelines of the Corporation’s credit rating agencies.

Pursuant to the Arrangement, (i) holders of series A shares will receive 0.503 of a New Preferred Share; (ii) holders of series B shares will receive 0.550 of a New Preferred Share; (iii) holders of series C shares will receive 0.705 of a New Preferred Share; (iv) holders of series E shares will receive 0.790 of a New Preferred Share; and (v) holders of series G shares will receive 0.820 of a New Preferred Share. The New Preferred Shares will pay fixed cumulative dividends of $1.625 per share per annum, yielding 6.5% per annum, payable on the last business day of March, June, September and December of each year, as and when declared by the Board of Directors of TransAlta. The dividend rate will be reset on December 31, 2021 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 5.29%, provided that, in any event, such calculated rate shall not be less than 6.50%. The New Preferred Shares will be redeemable by TransAlta, at its option, on December 31, 2021 and on December 31 in every fifth year thereafter.

The Corporation will deliver an information circular, describing the proposed Arrangement in greater detail, to holders of Existing Preferred Shares entitled to vote in connection with the Arrangement, with a view to completing the Arrangement in the first quarter of 2017. Holders of Existing Preferred Shares are encouraged to review the information circular as it includes important information pertaining to the Arrangement.

The closing of the Arrangement will be subject to various conditions to be set out in the information circular, including: (i) the approval of not less than two-thirds of the votes cast in person or by proxy at a special meeting of holders of each series of Existing Preferred Shares; (ii) approval of the Arrangement by the Court of Queen’s Bench of Alberta; and (iii) any required regulatory approvals, including the listing of the New Preferred Shares on the Toronto Stock Exchange.

PricewaterhouseCoopers LLP has provided its fairness opinion that the Arrangement is fair, from a financial point of view, to holders of each series of Existing Preferred Shares. Based on the fairness opinion and after consulting with its financial and legal advisors, among other considerations, the Board of Directors of the Corporation (i) has unanimously determined that the Arrangement is in the best interests of the Corporation; (ii) has unanimously determined that the Arrangement is fair to the holders of each series of Existing Preferred Shares; and (iii) recommends that holders of each series of Existing Preferred Shares vote in favour of the Arrangement. In connection with the Arrangement, CIBC World Markets Inc. acted as the financial advisor to the Corporation and Norton Rose Fulbright Canada LLP acted as legal counsel to the Corporation.

DBRS has assigned the new issue a provisional Pfd-3 Trend-Negative rating.

The market seemed to like the proposed exchange, with TA preferred issues jumping in price:

Ticker Bid
12/16
Bid
12/19
Change Implied
New Issue
Price
TA.PR.D 11.91 12.26 +2.94% 24.37
TA.PR.E 11.40 13.00 +14.04% 23.63
TA.PR.F 15.59 17.05 +9.36% 24.18
TA.PR.H 16.97 19.07 +12.37% 24.14
TA.PR.J 18.07 19.70 +9.02% 24.02

So it looks as if prices instantly adjusted on the day to reflect a $25 trading price for the new issue, less a deal-risk discount of about 4%. So far, this is normal and unobjectionable.

The objectionable part of this plan becomes clear once we start looking at the Implied Volatility of the FixedResets. One thing is very clear: given the higher coupon on the new issue, it may be expected to trade at a much higher price than the issues it replaces – regardless of the exact level, it will also be clear that there is therefore much less potential upside (if spreads narrow), if any, before the issue gets called, while the downside (if spreads should widen) is more or less the same. Normally, as is formally explained by the theory of Implied Volatility, the reduced chance of an upside win is offset by a higher yield, which will result in increased income if spreads remain stagnant.

This deal takes away that upside, without compensation.

For instance lets look at the Implied Volatility of the TA series of FixedResets as of last Friday:

impvol_ta_161216
Click for Big

The curve has been fit using the four extant FixedReset issues only (TA.PR.E is a FloatingReset). We can see that in order to be consistent with four extant issues, the new issue should yield about 7.5%, whereas in fact it only yields about 6.5%. In this model, the fair price for the new issue is about 21.69 and purchasers of the TA shares at the new level are going to be awfully disappointed.

It may certainly be objected that the derived level of Implied Volatility in the above analysis is unwarrantably high at 25% and I have certainly not been shy about stating in the past that I consider a reasonable value to be in the high single digits. So let’s re-run the analysis, constraining Implied Volatility to be 10%. We get:

impvol_ta_161216_constrained
Click for Big

Even with this constraint, we see that in order to be consistent with Friday’s closing bids for the extant issues the new issue should offer a yield of just under 7.0% – compared to the 6.5% actually offered – which in turn implies that the free trading price of the new issue is predicted to be about 23.30 … again, purchasers of the TA shares at the new level are going to be disappointed.

Finally, we can look at the Implied Volatility analysis with end of day prices. Obviously, as shown in the table above, there was a very large move in the prices of these issues. This happened very quickly as illustrated in the day’s chart for TA.PR.H:

taprh_161219
Click for Big

… and the day’s action has changed the Implied Volatility analysis to:

impvol_ta_161219
Click for Big

It is only in this analysis that we may conclude that the new issue is well-priced, as the theoretical yield for consistency is only 6.35% compared to the actual offer of 6.50%.

All of this analysis leads to the conclusion that this is a rotten deal for the preferred shareholders, so rotten that we may call it a sleazy attempt by the company to pull the wool over the eyes of unsophisticated retail investors. As the company admits, they look forward to:

reducing the Corporation’s notional capital balance of preferred shares by approximately $300 million

That $300-million is money that currently can potentially be earned by the current shareholders with price increases on the extant issues; price increases that could result from an increase in the GOC-5 yield, or from straightforward spread narrowing. The company is giving up nothing – NOTHING! – in order to capture this entire amount for themselves.

But, whimpers the incompetent dork from PriceWaterhouseCoopers who signed his name to the fairness opinion, we are giving up something!

the dividends to be paid to holders of the New Preferred Shares are expected to be greater than the current dividends received by holders of the Existing Preferred Shares over the initial five-year reset period based on current interest rate levels.

Sure, based on current interest rate levels. But my vast experience in fixed income has led me to the arcane knowledge that interest rate levels do not always remain constant – however convenient it might be for analysis to assume that they do – and that we should at least be aware of what happens in various scenarios. So with the aid of a handy xlsx MS-Excel spreadsheet we can draw a graph of what will happen if the GOC-5 yield changes:

totaltadividends
Click for Big

Yes, that’s right: preferred shareholders will get a little extra income after the Exchange for as long as the GOC-5 yield is under 2%. Once they rise above that, though, the Exchange makes them worse off. There is no compensation in this deal for the reduction of potential income in the event that yields rise. Whether yields rise in the future is a matter of opinion, snivel the directors who claim this is fair to shareholders … but with the North American economy beginning to show signs of life, it will be very hard to find takers for bets they’ll remain constant when these bets are presented straightforwardly and honestly.

So, to put things in a nutshell, Transalta wants to eliminate (more or less) potential capital gains should spreads narrow in the future, and reduce potential income increases should GOC-5 yields increase in the future; all this for a very, very tiny increase in current income. Hell, why not send them the deed to your house and car, while you’re at it?

This is a shitty deal for shareholders. Vote No. I will note that as a matter of practicalities, the idea of selling into this stupidly inflated market and becoming indifferent to how this abusive deal turns out is also quite attractive.

Update, 2016-12-24 I was perplexed by a comment on Financial Wisdom Forum:

More on the TransAlta exchange.

http://business.financialpost.com/news/ … picks=true

FWIW, I am quite satisfied with the offer because I’m a trader and am more than happy to bail on these PF-3 issues because I really believe that one would have to be wearing super sized rose coloured glasses to think that they would someday trade or be redeemed at par, especially with a company like TA that has slashed the dividend on the common to 4 cents/quarter.

The case for the “No” vote does not depend on the hope that the shares will “someday trade or be redeemed at par”, and demonstrating this should actually make the argument more clear for those who have difficulty with the concept of Implied Volatility.

Let us examine the specific case of TA.PR.D; the following analysis framework may be applied to the other series with changes in numbers.

TA.PR.D:

  • pays $0.67725 p.a. until the next Exchange Date
  • will reset to GOC-5 + 203bp (paid on par value of $25) on each Exchange Date
    • This is equal to (25 * GOC-5) + (25 * 203bp)
    • which is equal to (25 * GOC-5) + $0.5075
  • may be redeemed at $25 on each Exchange Date
  • Exchange Dates are 2021-3-31 and every five years thereafter

The company proposes to exchange each share of this for 0.503 of a New Preferred Share; each New Preferred Share will

  • Pay 6.50% of $25.00 = 1.625 until the next Exchange Date
  • will reset to GOC-5 + 529bp (paid on par value of $25) on each Exchange Date
  • may be redeemed at $25 on each Exchange Date
  • Exchange Dates are 2021-12-31 and every five years thereafter

The fact that holders will be getting only 0.503 New Preferred Shares for each share of TA.PR.D makes the changes a little more complex for many investors, so as a thought experiment, let’s design a Notional Share which we will assume will be offered 1 for 1 for TA.PR.D, with the new holdings, in total, having exactly the same characteristics as the proposed new holdings of the New Preferred Shares.

A Notional Preferred Share:

  • pays $0.817375 until the next Exchange Date
  • will reset to 0.503 (GOC-5 + 529bp) * 25 on each Exchange Date
    • This is equal to (0.503 * 25 * GOC-5) + (0.503 * 25 * 529bp)
    • which is equal to 12.575 * GOC-5 + $0.6652175
    • subject to a minimum rate of $0.817375
  • may be redeemed at $12.575 on each Exchange Date
  • Exchange Dates are 2021-12-31 and every five years thereafter

So when we compare the currently held TA.PR.D to the Notional Share we see that:

  • The Notional Share will pay an extra $0.14 annually for each of the next five years (approximately), for a total of $0.70.
  • The redemption price will drop from $25 to $12.575
  • The dividends after the next Exchange Date (if it is left outstanding) will depend on the GOC-5 yield, as indicated on the following chart
taprd_notional_dividendsafterreset_rev1
Click for Big

The big problem, of course, is the change in redemption price – holders lose out on a lot of potential capital gains if the market improves, either through increases in the GOC-5 yield (which should increase the trading price of the preferreds) or through a narrowing of spreads (which may occur because the market improves, or TA’s credit improves, or both). In addition, we see that increases in the GOC-5 rate greatly improve the dividend payout from TA.PR.D and the much higher redemption price means these potential increases will not be called away unless for a gigantic premium over the current price.

23 Responses to “TA Proposes Sleazy Exchange Offer”

  1. prefQC says:

    Hi James
    When you refer to the market being “[unduly] inflated”, are you referring to the pref market in general, the fixed-reset pref market, or just the market for TA prefs? Please explain. Thanks!

  2. SafetyinNumbers says:

    I find it very interesting that they are offering almost a 10% premium to the floating TA.PR.E vs the fixed rate TA.PR.D when they are inter convertible in a few years. What does that say about this market that undervalues many floaters (i.e SLF.PR.J, FTS.PR.I, AZP.PR.C etc…) versus its pair? Maybe it just says more about TA or PWC’s outlook on the 3 month t-bill rate vs the market.

  3. pharring says:

    Thank you for the insightful article, when you say implied volatility what exactly is that the implied volatility of?

  4. viTRifY13 says:

    I know I’ll be voting NO!!! This is a TERRIBLE offer from TA. So disappointed!

  5. David says:

    This could get really ugly if TRP and others with very low issue resets try to follow suit with something like this. To your point, on very low reset prefs normalization of interest rates could conceivably generate circa 100% gains from todays trading levels. This is not good, and the names of the legal counsel and fairness opinion issuer are not fly-by-night companies. It is unclear to me what % voting needs to approve to force the entire issue to forcibly convert, or if forcible conversion is even possible if one dissents. Keep fighting! It is only about money.

  6. edwinclwong says:

    “Purchasers of the TA shares at the new level are going to be awfully disappointed.”

    If purchasers of shares at new level are going to be disappointed, is there a level where existing shareholders would be sufficiently compensated to vote for the package? If the new rate should be closer to 7.5%, would it make sense for holders of TA.PR.H who purchased below ~$16.67 (current yield of 7.5%) to vote yes? Or?

  7. Alan says:

    I made TA aware of this excellent analysis and suggested their PR machine should clarify their position.

    As James said, consumer ignorance is highly profitable…for the issuer.

  8. Prefhound says:

    If I may provide a slightly different perspective:
    First, i really doubt whether implied volatility has much value with any prefs trading miles below par like the TA ones were/are. I had a long TA.PR.H position short TA.PR.D based on their long run yields eventually becoming equal and the new proposal came bang on my expectations for relative value (so, of course, I closed).
    Second, I accept that the low yield and lack of upside are problems with the offering, but there has been a capital gain boost coming from nowhere (so far), and enhanced liquidity will have some value, as will the minimum reset (rates can rise OR fall from here). The new issue may have a little better downside protection, so I don’t see it all as negative.
    Third, I also doubt that TA.PR.D has 100% recovery potential if GOC-5 increases. This issue has a lousy reset spread and higher rates/yields in general will still cause it to trade well below par given the current credit rating of TA. For example, if GOC 5 goes to 4% then PR.D resets at 6.03% and PR.H at 7.56%. If PR.H is at $25 and both have the same yield, PR.D will still be $19.70 at best, in a lot of years and assuming 7.56% is the right yield for both when GOC-5 is 2.8% higher. Generally speaking, low reset spreads will likely never return to par – they were issued with the market not understanding the risks of the class and are basically permanently impaired.
    Those who think the capital gain is spurious should vote with their feet and sell with the intention of re-buying when the new pref is issued. You might also find some interesting arbitrage or swap opportunities by monitoring the price ratios among the issues.
    Have fun!

  9. jiHymas says:

    When you refer to the market being “[unduly] inflated”, are you referring to the pref market in general, the fixed-reset pref market, or just the market for TA prefs?

    Just to the TA prefs. It’s not often we see gains of over 10% in a day!

    According to my calculations, the TA preferreds are still worth holding at their current levels, but there may be some who are afraid they’ll drop back if the offer is voted down (and thereby become even cheaper); and there may be others who are hoping they’ll drop back down if the offer fails, at which point they intend to buy back in.

    In other words, speculators on the deal and the market reaction to the vote, whatever it might be, might wish to speculate. Long term holders might consider continuing to hold after a jump like this is speculating!

    I find it very interesting that they are offering almost a 10% premium to the floating TA.PR.E vs the fixed rate TA.PR.D when they are inter convertible in a few years. … Maybe it just says more about TA or PWC’s outlook on the 3 month t-bill rate vs the market.

    Yes, it’s very peculiar. If we look at today’s closing bids (TA.PR.D 12.16; TA.PR.E 13.00), we find a break-even average three month bill rate of 1.65% until interconversion 2021-3-31; which sounds reasonable enough but is far in excess of the -0.50% average for junk pairs.

    when you say implied volatility what exactly is that the implied volatility of?

    It is the implied volatility of the new issue spread against five-year Canadas. For an explanation of the calculations and some discussion of results see my essay on the subject via this link.

    It is unclear to me what % voting needs to approve to force the entire issue to forcibly convert, or if forcible conversion is even possible if one dissents.

    I’ll post again when the directors’ information circular becomes available.

    If purchasers of shares at new level are going to be disappointed, is there a level where existing shareholders would be sufficiently compensated to vote for the package?

    I would want a little more than 7.5% before I voted yes, but they would reach my point of indifference at around 7.25%.

    If the new rate should be closer to 7.5%, would it make sense for holders of TA.PR.H who purchased below ~$16.67 (current yield of 7.5%) to vote yes?

    The price where they purchased it is irrelevant. Basically, we can estimate that the price of TA.PR.H in the absence of an exchange offer will be about 17.00 (its range on 12/16 before the announcement), which will be adjusted by interim market moves.

    It’s a difficult question to answer, because you start getting into the whole ‘price vs. value’ debate (see my comments about speculators, above).

    I made TA aware of this excellent analysis and suggested their PR machine should clarify their position.

    Ha! I wonder how far that link made it up the line, if at all!

    First, i really doubt whether implied volatility has much value with any prefs trading miles below par like the TA ones were/are.

    So do I! According to my unconstrained analysis as of 12/16 (discussed in the post), the embedded options had values between $0.02 (TA.PR.D) and $0.66 (TA.PR.J). In the version of the analysis with Implied Volatility constrained to be 10%, all option values are zero.

    but there has been a capital gain boost coming from nowhere

    See my comments regarding speculation, above.

    enhanced liquidity will have some value

    Not much, I believe. As of December 16, all of the TA FixedResets had good liquidity, well in excess of the $100,000 Average Daily Trading Value I calculate. This implies that each of the four issues is above the median when compared with the liquidity of the MAPF portfolio as of November 30. I certainly wouldn’t pay much for a boost above current levels.

    minimum reset (rates can rise OR fall from here).

    It is quite true that yields can always go lower, and certainly TA’s press release tries to emphasize the value of the reset floor:

    » dividend volatility will be minimized as a result of the downside protection provided under the terms of the New Preferred Shares

    I’m not inclined to pay much attention to these floors which (basically) protect against five year Canada yields declining from summer, or even current levels. I believe that the economy is on the mend at the central bankers globally are champing at the bit to get bond yields above the inflation rate. But it takes two to make a market!

    Third, I also doubt that TA.PR.D has 100% recovery potential if GOC-5 increases.

    Yeah, me too. A reasonable increase in GOC-5 doesn’t result in everything magically trading at par; and neither does a reasonable narrowing in spreads. But every little bit helps; and I will point out that in your example, the increase in GOC-5 to 4% results in TA.PR.D increasing to $19.70 from Friday’s level of $11.91. That’s a 65% gain, which I deem satisfactory.

  10. gokou3 says:

    Re: “Third, I also doubt that TA.PR.D has 100% recovery potential if GOC-5 increases.”

    A counterexample is in BCE.PR.E, a floating rate issue linked to prime. It went up close to 100% in the 2009-11 timeframe when rate was supposed to increase from the bottom. There were many similar floating rate issues with large gains in that time frame.

    My family and I held TA.PR.D and TA.PR.E with expectation of capital gain. The company is now attempting to strip away that potential. I have voted with my feet by selling. Not sure if such a move will make the 2/3 vote requirement incrementally easier to attain or not. Note though every one of the 5 preferred series need to have this 2/3 approval per the company press release:

    “The closing of the Arrangement will be subject to various conditions to be set out in the information circular, including: (i) the approval of not less than two-thirds of the votes cast in person or by proxy at a special meeting of holders of **each** series of Existing Preferred Shares;”

    On the other hand, Dundee learned a hard lesson when it attempted to extend the maturity of its DC.PR.C preferred issue without paying up. Granted, Transalta has a CFO with Brookfield experience so perhaps it has a better mouse trap here. FWIW, it took many days after the extension announcement before the Dundee preferred shares dropped precipitately to attractive levels. I hope Transalta preferred will be a repeat of that.

  11. SafetyinNumbers says:

    In my view, the drop in Dundee pref on its announcement was more related to solvency concerns as they were trying to extend a retractable preferred. This is not a factor in the Transalta situation.

  12. fed says:

    Personally, I am against any changes to pref shares after issue. It can easily lead to dishonest practices leading to retail investors loosing out. I even feel the eventual Rona deal to be dishonest. The rules for pref shares are omplex enough as is.

  13. viTRifY13 says:

    Would someone be able to draft an open letter voicing the reasons for voting NO to the exchange offer? We should then email that letter to any mutual fund managers / ETF’s that are holding these Prefs to influence the vote towards NO. I’m concerned that if this goes through, it’ll set the precedent for other companies to do the same, thus almost guaranteeing a capital loss for individuals that purchased at the original issue price of $25

  14. gokou3 says:

    As of now, the Series C, E, and G shares are still trading at 6.5%+ yields (vs. a 6.5% dividend rate in the new shares). The C and E will reset next year, but GOC5 is currently at levels similar to those at their last reset.

    In short, the shareholders of these three series would forego 25-45% of capital gain (to par value, theoretical) for NOTHING. Why would they vote yes? Note EACH of the 5 series of preferred needs to have 2/3 approval for the share exchange to proceed.

  15. David says:

    This transaction has me increasingly bothered (I do not own any TA because of credit for full disclosure). TA appears to be, in my opinion, abusing the capabilities of a plan of arrangement to further the position of certain stakeholders at the expense of preferred holders. Their choices were to either outright redeem (never going to happen at $25) or make open market purchases (given how illiquid the pref market is, never going to happen) or make an offer to buy any or all outstanding shares at a certain price for a certain time (and they may get some take up for that, but likely small). Instead they are after the homerun using a plan of arrangement. I am not a securities lawyer, but I would welcome anyone’s point of view if they are.
    The question of value is highly problematic. The PwC valuation, we will have to wait and see, is doubtful to show at this stage significant analysis based on the embedded optionality within these instruments. Mr. Hymas has detailed interest and data on volatility, which in conjunction with a long dated “strike price (essentially infinite with these instruments) would likely argue for a much greater value to these prefs. Alas, unfortunately as others have pointed out, how can they be much more valuable than they traded at?
    My understanding of the process for a plan of arrangement is that it does require a court appearance by the company at which time any persons can attend and explain their reasoning why the arrangement is not fair. It is then up to the court to decide. Maybe we all chip in and buy Mr. Hymas a trip to Edmonton when the time comes.

  16. newbiepref says:

    I am curious to see if they intend to incentize the financial advisors the same way Dundee was planning on doing

  17. newbiepref says:

    sorry for the typo I meant incentivize

  18. jiHymas says:

    Note though every one of the 5 preferred series need to have this 2/3 approval per the company press release

    They will probably be able to waive the condition if they feel like it.

    Personally, I am against any changes to pref shares after issue.

    The ability to make changes has been used quite extensively in the Split Share space, with not much abuse – although there has been some!

    I find it hard to argue against letting the holders vote on changes of terms to what they hold. However, I find it very easy to argue against proxy solicitation fees that are paid only for favourable votes – that’s the abusive part.

    We should then email that letter to any mutual fund managers / ETF’s that are holding these Prefs to influence the vote towards NO.

    I don’t think they’ll care. You get ahead in Portfolio Management by sucking the arse of anybody who might, conceivably, some day, be your boss. Clients are just a tiresome annoyance. You’re better off trying to convince financial journalists to write about the issue.

    I’m concerned that if this goes through, it’ll set the precedent for other companies to do the same, thus almost guaranteeing a capital loss for individuals that purchased at the original issue price of $25

    That could indeed become a problem. We can only hope that 2017 does not bring a raft of such proposals.

  19. jiHymas says:

    In short, the shareholders of these three series would forego 25-45% of capital gain (to par value, theoretical) for NOTHING. Why would they vote yes?

    Yep, that’s the problem all right. They’re also giving up a chunk of the potential income increase if GOC-5 yields increase.

  20. jiHymas says:

    make an offer to buy any or all outstanding shares at a certain price for a certain time (and they may get some take up for that, but likely small).

    Or they could have initiated a purely voluntary Exchange Offer. I would have had no objections to that.

    Alas, unfortunately as others have pointed out, how can they be much more valuable than they traded at?

    A big conundrum in the preferred share market!

    My understanding of the process for a plan of arrangement is that it does require a court appearance by the company at which time any persons can attend and explain their reasoning why the arrangement is not fair.

    The trouble is that court challenges are very expensive; the challenger is also way behind the eight-ball, because a super-majority of his peers have already said they like the Plan just fine the way it is.

    am curious to see if they intend to [incentivize] the financial advisors the same way Dundee was planning on doing

    That’s pretty standard, I’m afraid. Proxy solicitation fees that are paid by the company only for votes desired by the Board are an obvious abuse of the system, but you won’t see a Beloved Regulator complaining.

  21. prepster says:

    On Dec 19 (after the close), JH recommended selling TA prefs. On Dec 20th, one could have sold TA.PR.H and bought one of his recommended low-priced fixed reset prefs – MFC.PR.F, SLF.PR.G, GWO.PR.N, IFC.PR.A. Since the close on Dec 20 until close on Jan 5, here’s their performance (using closing prices).

    TA.PR.H $18.88 – $18.81 – 0.37%
    MFC.PR.F $14.01 – $14.82 +5.78%
    SLF.PR.G $15.14 – $15.86 +4.76%
    GWO.PR.N $14.40 – $15.06 +4.58%
    IFC.PR.A $16.94 – $18.00 +6.26%

    The Defense rests.

  22. jiHymas says:

    On Dec 19 (after the close), JH recommended selling TA prefs.

    Well, I didn’t quite say that, although I did say it was tempting. Even after the deal-day jump in price, there was still a lot of value left in the extant preferreds – as long as the deal fails! See this comment on another thread for a discussion of the value – as opposed to price – of TA.PR.H.

    MFC.PR.F, SLF.PR.G, GWO.PR.N, IFC.PR.A. Since the close on Dec 20 until close on Jan 5, here’s their performance (using closing prices).

    I have to admit that I am quite pleased at the fortuitously timed demonstration that there is very little upside in the proposed new issue. That is the argument against the deal in a nutshell – all the upside is being given away for nothing.

  23. rdub1557 says:

    here’s a thought TA, why not just give me the $25 back I gave you some years ago for your useless POS pref issuance and we’ll call it quits?? All the above analysis whilst enlightening, just adds insult to injury, we’re getting the shaft as usual while some jobsworth collects his fees for spinning this rip off as a “win/win”. Vote NO!!!!!

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