YPG.PR.A & YPG.PR.B: Normal Course Issuer Bid

Yellow Pages Income Fund has announced:

that its subsidiary YPG Holdings Inc. has received approval from the Toronto Stock Exchange on its notice of intention to make a normal course issuer bid for its first preferred shares through the facilities of the Toronto Stock Exchange from June 11, 2009 to no later than June 10, 2010, in accordance with applicable regulations of the Toronto Stock Exchange.

Under its normal course issuer bid, YPG Holdings intends to purchase for cancellation up to but not more than 1,200,000 and 800,000 of its outstanding first preferred shares, series 1 and first preferred shares, series 2, respectively, representing 10% of the public float of each series of first preferred shares outstanding on June 9, 2009. YPG Holdings currently has 12,000,000 first preferred shares, series 1 and 8,000,000 first preferred shares, series 2 issued and outstanding. Within the past 12 months, YPG Holdings has not purchased any of its first preferred shares. The average daily trading volumes of YPG Holdings’ first preferred shares, series 1 and first preferred shares, series 2 for the period between December 1, 2008 and May 31, 2009 were 17,290 and 20,929, respectively. In accordance with the rules of the Toronto Stock Exchange, the maximum numbers of first preferred shares, series 1 and first preferred shares, series 2 that can be purchased on a daily basis by YPG Holdings are respectively 4,322 and 5,232, subject to the block purchase exception.

YPG Holdings believes that the trading price of the series 1 and series 2 first preferred shares may from time to time not reflect the fundamentals and future prospects for the business of YPG Holdings and the Fund. YPG Holdings’ directors have authorized this normal course issuer bid and, in their opinion, such purchases are in the best interest of YPG Holdings and its securityholders and constitute an appropriate use of YPG Holdings’ funds.

The yields of YPG.PR.A and YPG.PR.A were discussed on PrefBlog last March; while the junkier credits have surged in price since then, they closed last night at 22.50-73 (7.82-50%) and 17.46-69 (10.98-76%), giving interest equivalent yields well in excess of, for instance, the YPG 5.25 of 2016, currently quoted to yield 7.48%.

Not much has happened as yet on this news, although prices have moved up … YPG.PR.A is now 22.61-87 and YPG.PR.B is now 17.71-99. Note that today is the last cum-dividend date for the current coupon: it goes ex-Dividend tomorrow.

It is not my normal practice to comment on NCIB’s unless the company has a history of actually putting up a little actual cash to back up their press release … but in this case spreads are so extreme that a healthy company might well consider a buy-back attractive.

3 Responses to “YPG.PR.A & YPG.PR.B: Normal Course Issuer Bid”

  1. prefhound says:

    At these prices, only purchasing the pref B makes sense for the company.
    My arbitrage trade long 1.7B for every short 1.0A (equal dollars at initiation) has done exceptionally well — although, as you note, taking on the credit risk of direct ownership has done better.

    Even at Jun 11 closing prices, I calculate that Pref B is undervalued by $2 vs A if Pref B should yield 1% more (i.e. 8.5%) for its additional five years to maturity.

    If pref B could rise in price to yield 7.5% like the A, it should be $3.50 higher.

    Furthermore, these are yields to worst (retraction for $25 cash). I believe it is possible that either could be redeemed for trust units of YLO.UN at a 5% discount at maturity — making for a $26.30 effective redemption (for Pref A yellow pages can redeem for units between Mar-Dec 2012 on this basis). Since Yellow Pages is said to be trying to reduce leverage, this scenario is at least plausible for the 2012 maturity of Pref A.

  2. jiHymas says:

    Way to go with the arbitrage, prefhound! Who needs credit risk when you can arbitrage it away?

    7.5% on the Pref B would be interest-equivalent to 10.5% … about 300bp over bonds … I think they’d still be cheap to bonds at those levels.

  3. […] ability to issue on these terms provides credibility to their previously announced issuer bid for YPG.PR.A and YPG.PR.B. The former closed yesterday at 22.50-58 to yield 7.52%-7.40% to retraction 2012-12-31, while the […]

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