Boy, BCE and its credit problems is just taking over this blog, aren’t they?

With the confusion and losses, though, comes volatility. And volatility is your friend. I have previously noted the BCE.PR.Y / BCE.PR.Z pair … let’s make a list of all of them!

BCE Pairs | ||

Fixed | Ratchet | Exchange Date |

BCE.PR.Z | BCE.PR.Y | 2007-12-01 |

BCE.PR.F | BCE.PR.E | 2010-02-01 |

BCE.PR.G | BCE.PR.H | 2011-05-01 |

BCE.PR.T | BCE.PR.S | 2011-11-01 |

A number of BCE issues are not listed here because only one member of the pair is trading.

These pairs are interesting because, **in theory**, the prices of the elements of the pair should move in lockstep, given that they are exchangeable into each other on the Exchange Date. There will be some degree of uncertainty due to the fact that changes in prime – and changes in percentage of prime paid – will change … but it’s fun to watch.

There would be a fair amount of risk involved in putting on a long/short position to arbitrage the differences for the three longer-dated pairs, due to these uncertainties. If a debt-holder-unfriendly deal goes through, we can assume (or, at least, I will) that retail will panic and all the issues will trade not just below par, but below a reasonable valuation that takes account of the actual risk. This will imply that the Floating-Rate issues will quickly ratchet up to pay 100% of prime … a very different kettle of fish from the other major alternative, that nothing happens. So playing the arbitrage game on the three longer issues could just possibly be a little risky … at least until the uncertainty clears up a little.

But the BCE.PR.Y / BCE.PR.Z pair … that’s more interesting.

Comparison as of 4/17 | ||

Ticker | BCE.PR.Z | BCE.PR.Y |

Type | Fixed | Ratchet Floater |

Estimated Dividends to Exchange Date | $1.00 | $0.59 (@ 4% annual rate) |

4/17 Quote | 24.70-83 | 24.60-25.20 |

averageTradingValue | 89,605 | 3,280 |

So, based on this very brief analysis, it looks as if the BCE.PR.Z are very cheap compared to BCE.PR.Y. Of course, putting a position on could be a major exercise in frustration, given the volume-average of the BCE.PR.Y … but never-the-less, if I was the owner of some Y right now AND if I still liked the BCE name, I know what I’d be doing!

[…] Exchange/Reset date is 2011-05-1 (exchanges with BCE.PR.H); until then pays 4.35% of par. Another new low today, 21.01. Closed at 21.35-55, 10×2. The BCE.PR.H closed at 23.35-98, 50×3. Let’s see …BCE Pairs… say the “H” pay 6% (=100% of current prime), vs. the 4.35% on the “G”. Difference = 1.65% = $0.4125 p.a. Term to exchange is 4 years. I guess the market is betting that not only will the “H” pay 100% of prime until the exchange date, but that prime’s going to go up, too! […]

[…] Exchange/Reset date is 2011-05-1 (exchanges with BCE.PR.T, which pay 4.502% of par until then). A sale of 1,000 shares by Scotia took the price from 23.86 to 23.36; later, Nesbitt bought 10,000 from National Bank at 23.25. Closed at 23.15-25, 1×8, compared to their exchangers at 23.00-50, 15×1. The relative prices don’t make a lot of sense, unless you assume that the “S” will not pay 100% of Prime (a decline of prime to 4.5% works too) so this looks like a good pairs opportunity provided that, like Nesbitt, you can buy 1,000+ shares without moving the price fifty cents. […]

[…] Exchange/Reset Date is 2011-5-1 (Exchanges with BCE.PR.H); until then, pays 4.35% of par. Hit the 52-week low of 20.25, closed at 20.57-00, 5×10. The Hs closed at 23.21-49 on no volume. Nearly $3.00 spread on this BCE pair … somebody must be profitting! […]