The 5Banc Split Inc. new issue has been added to the HIMIPref™ database.
The anticipated closing date is 2006-12-15; it pays 4.75% as a cumulative dividend; it’s provisionally rated Pfd-2 by DBRS; and it’s a split share backed by … (wait for it) … five banks! BMO, BNS, CM, RY & TD are the portfolio shares.
I had a hard time deciding whether or not to include this issue in the database. It’s redeemable annually at the $10 issue price and I don’t like that. It means, for one thing, that the YTW will almost always be based on a call at the next annual date (assuming it trades at a premium, which, with a 4.75% dividend, seems likely for the forseeable future). I like the system whereby a declining schedule is put in place … like, f’rinstance, BSD.PR.A has. I’d be prepared to give up a little coupon for such a feature (how much? Consultancy can be easily arranged at a moderate fee).
In the end, I decided – sure, let’s include it. After all, it’s just replacing the FBS.PR.A and given that I expect a lot of redemptions over the next few years, I’d like to ensure I have a lot of issues with some history at all times, just to maintain continuity of the calculations.
The annual no-fee no-pain redemption feature for the capital units just creates a lot of churn (which may be the point, given that the selling commission is 3% on the prefs, 6% on the capital units.). This is a refinancing for 5Banc, with the old capital units eligible for tax-free conversion into the new capital units; the historical units outstanding have been:
| 5Banc Split Inc. Unit Activity | |
| Date | Units |
| 2001-12-28 (Issue) | +3,250,000 |
| 2002 | -168,855 |
| 2003 | -1,408,167 |
| 2004 | -605,827 |
| 2005 | -254,044 |
| For Redemption 2006-12-15 | 813,107 |
The dividend is certainly attractive and the issue should go to a premium immediately after issue – and the underwriters are selling the prefs separately. The upside is limited by the very onerous redemption schedule, though, and I calculate a curvePrice of $10.26 (excluding liquidity considerations). One thing to remember about this kind of issue is that redemption will be driven by Capital Unitholders trying to cash in on the Next Big Thing – it will not necessarily have anything to do with prevailing interest rates. You could get redeemed (and receive the $10 par value) if rates are at 10% and the prefs are trading at $7.50. I can’t model that possibility though, and I wouldn’t count on it!
The preIssue securityCode for this issue is P50008.
[…] So AIC expects to receive $9,295,625 of the total $9,585,625 paid by the ultimate owners. In other words, they’re raising this money with an efficiency of 96.97%. We can compare this to the efficiency of the 5Banc reissue, where they expect to see $285,850,000 of the total $300-million, for an efficiency of 95.28%. […]
[…] 5Banc Split Inc. has announced (via CCN Matthews) that its new issue of preferreds, FBS.PR.B, has closed. […]