CM.PR.T Holds Its Own on Modest Volume

The Canadian Imperial Bank of Commerce has announced:

that it has completed the offering of 13 million Non-cumulative Rate Reset Class A Preferred Shares Series 49 (Non-Viability Contingent Capital (NVCC)) (the “Series 49 Shares”) priced at $25.00 per share to raise gross proceeds of $325 million.

The offering was made through a syndicate of underwriters led by CIBC Capital Markets. The Series 49 Shares commence trading on the Toronto Stock Exchange today under the ticker symbol CM.PR.T.

The Series 49 Shares were issued under a prospectus supplement dated January 15, 2019, to CIBC’s short form base shelf prospectus dated July 11, 2018.

CIBC has designated the Series 49 Shares as eligible to participate in the CIBC Shareholder Investment Plan along with Series 41, 43, 45 and 47. Holders of eligible shares may elect to have dividends on those preferred shares reinvested in common shares if they reside in Canada, or may elect stock dividends if they reside in the U.S. See “CIBC Shareholder Investment Plan” at www.cibc.com for more information.

CM.PR.T is a FixedReset, 5.20%+331, NVCC-compliant, that was announced 2019-1-14. It will be tracked by HIMIPref™ and is assigned to the FixedReset (discount) subindex.

The issue traded 581,064 shares in a range of 24.65-91 before closing at 24.65-72. Vital statistics are:

CM.PR.T FixedReset Disc YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-01-22
Maturity Price : 23.02
Evaluated at bid price : 24.65
Bid-YTW : 5.27 %

The new issue is quite expensive according to Implied Volatility Analysis:

impvol_cm_190122
Click for Big

According to this analysis, the fair value of the new issue on January 22 is 23.55, down 0.30 from the announcement day level. This is in-line with the actual loss in price, so we can say it ‘held its own’! Note that CM.PR.R, a FixedReset, 4.40%+338, NVCC Compliant issue that commenced trading 2017-6-2 after being announced 2017-5-25, was quoted today at 22.98-15, after trading 27,600 shares in a range of 22.95-305. CM.PR.R resets 2022-7-31, so it has 14 dividend payments left to reset at 80bp less than the new issue, so 25 * 0.008 * 14 / 4 = 0.70, so it will receive $0.70 less total dividends than the new issue until it resets. I’m ignoring a ‘first-coupon effect’ for the new issue, but the currently payable dividend for CM.PR.R pays it up until 2019-1-30, so the effect is minimal.

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