BCE.PR.R To Reset To 3.018%

BCE Inc. has announced:

BCE Inc. will, on December 1, 2020, continue to have Cumulative Redeemable First Preferred Shares, Series R (“Series R Preferred Shares”) outstanding if, following the end of the conversion period on November 17, 2020, BCE Inc. determines that at least one million Series R Preferred Shares would remain outstanding. In such a case, as of December 1, 2020, the Series R Preferred Shares will pay, on a quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the following five years that will be based on a fixed rate equal to the product of: (a) the average of the yields to maturity compounded semiannually, determined on November 10, 2020 by two investment dealers selected by BCE
Inc., that would be carried by non-callable Government of Canada bonds with a 5-year maturity (the “Government of Canada Yield”), multiplied by (b) a percentage rate determined by BCE Inc. (the “Selected Percentage Rate”) for such period. The “Selected Percentage Rate” determined by BCE Inc. for such period is 600%. The “Government of Canada Yield” is 0.503%. Accordingly, the annual dividend rate applicable to the Series R Preferred Shares for the period of five years beginning on December 1, 2020 will be 3.018%.

This follows an earlier announcement (2020-10-15):

Holders of fixed-rate BCE Inc. Series R Preferred Shares have the right to convert all or part of their shares, effective on December 1, 2020, on a one-for-one basis into floating-rate Cumulative Redeemable First Preferred Shares, Series Q of BCE Inc. (the “Series Q Preferred Shares”). In order to convert their shares, holders must exercise their right of conversion during the conversion period which runs from October 17, 2020 until 5:00 p.m. (Eastern time) on November 17, 2020.

Should Series Q Preferred Shares be issued following the conversion on December 1, 2020 of Series R Preferred Shares, the Series Q Preferred Shares so issued will begin trading under the symbol BCE.PF.Q. This is not to be confused with BCE Inc.’s Cumulative Redeemable First Preferred Shares, Series AQ which currently trade under the symbol BCE.PR.Q. Should any Series R Preferred Shares remain outstanding after December 1, 2020, they will continue to trade under the symbol BCE.PR.R.

Series Q, if issued, will be a Ratchet Rate Preferred, which in current conditions may be expected to pay dividends at 100% of Canada Prime paid on par … although if the price should exceed $25, this percentage will be reduced, with a minimum of 50% of Canada Prime.

As explained in the article on such pairs (which are interconvertible on a set schedule) the expected prices of each element of the pair are related by the level of their expected dividends. Alternatively, the break-even dividend rate for the Ratchet Rate element of the pair can be determined given knowledge of the other three variables (price #1, price #2 and dividend #1). These break even dividend rates are plotted for each FixedFloater / RatchetRate pair in the following graph:

Click for Big

The average breakeven prime for the BCE issues (seven pairs) currently trading is 3.07% (the outlying point is BAM.PR.G / BAM.PR.E, both of which trade with miniscule volumes). If we assume that the new pair, if created, will trade with the same relative valuation, the current bid of 13.41 for BCE.PR.R will imply a bid of 13.46 for BCE.PF.Q.

Therefore, I make no recommendation regarding whether or not to convert; holders should determine their preference according to their own financial position and their own views regarding the probable level of Canada Prime over the next five years.

Those who wish to convert must act quickly! The deadline is 5pm on November 17 and brokers’ internal deadlines could well occur before then – although they will generally take instructions on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion.

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