What’s up with this issue? It’s not in the HIMI Preferred Indices (at the moment, anyway) due to volume considerations, but today it traded 41,832 shares and closed at 25.90-95, 78×20. AND it went ex-dividend today. Maybe to you and me, that means the price should go down, but not this time!
What makes this strange is that the pre-tax YTW on this issue is now -4.66% [that’s NEGATIVE 4.66% if the word-wrap on your browser is misbehaving!], based on the bid of $25.90 and a redemption call 2007-4-14 at $25.00. If it lasts until its scheduled hardMaturity 2011-3-15, then it will have yielded +4.76%, but just how likely is this contingency, anyway?
When we look at the financials, available via Scotia Managed Companies, we find the following history of units outstanding:
| SXT.PR.A Units Outstanding | |
| Date | Units |
| Issue, 2001-3-12 | 7,500,000 |
| 2003 | -107,540 |
| 2004 | -492,059 |
| 2005 | -2,161,719 |
| 2006 | -3,202,804 |
| Remaining | 1,535,878 |
Which in the first place goes a long way towards explaining why the issue no longer qualifies for index inclusion on volume considerations and in the second place demonstrates that the capital unit holders aren’t exactly shy about redeeming units. Scotia says that the SXT Capital Units had a NAVPS of $19.61 as of December 5 … the market didn’t do much today, so say that’s constant … SXT closed at $19.23-84, 40×50.
There will always be those who disagree, of course, but it seems to me that the increase in the Capital Units’ intrinsic value from about $17 last March to the current figure, together with the fact that the Capital Units were trading at a discount to intrinsic value of about 7-8% immediately following the last redemption, that has now been reduced to about 2%, makes the probability of redemption extremely high. Scotia has a great little feature on their website whereby a user can plot the intrinsic value and the market value and the discount over time. Have a look. Same pattern: discount goes to about 8% following the redemption period, increases gradually to about the current figure, then there’s a whacking great redemption.
Given that, I wouldn’t be paying $25.90 for these shares!
As I’ve said before, the world would be a better place if more split share corporations’ preferred shares had some degree of call protection via premia on early-call prices.
I’ve attached two graphs of data over the past year: Flat Bid Price and Yield-to-Worst. Check the glossary for explanations of flatBidPrice and yieldToWorst.
[…] For example, let’s look at SXT.PR.A, which gets mentioned in this blog occasionally due to its negative yield-to-worst. Financial data is available to September 15, 2006 from the manager’s website and may be stated as: […]
[…] I don’t get it. How about a word from the sponsor? “The special annual retraction date occurs on March 15th of each year. … The Company may redeem Preferred Shares on any annual retraction date at a price per share equal to $25.00 to the extent that Capital Shares are retracted under a special annual retraction.” I’ve brought this up before, but no one pays attention. Now with a pre-tax bid-YTW of -16.14% (NEGATIVE 16.14%) based on a bid of $26.11 and a call 2007-4-14 at $25.00. It will be most interesting to learn the percentage retraction this time ’round. […]
[…] I highlighted the possibility some time ago and warned again, but the price just stayed high. The issue closed today at 25.93-15, 10×3. Ouch. […]
[…] Well – who knows? Maybe somebody noticed that the pre-tax bid-YTW on this issue is negative – and not by just a little bit, seeing as it’s callable 2007-3-15 at $25.00. Now with a pre-tax bid-YTW of -8.12% based on a bid of $25.82 and a call 2007-4-14 (allowing for the MATURITY_NOTICE_PERIOD) at $25.00. Who knows? This issue has been discussed before and what I said then still goes! […]