YPG.PR.C, the 6.75%+417 FixedReset announced September 8 and promptly upsized to 7.5-million shares + greenshoe 1.125-million shares (I don’t know whether or not the greenshoe was exercised) has settled with results that many will find disappointing.
The issue traded 245,490 shares in a range of 24.50-75, before closing at 24.47-55, 6×83.
Vital statistics are:
| YPG.PR.C | FixedReset | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-23 Maturity Price : 24.42 Evaluated at bid price : 24.47 Bid-YTW : 6.90 % |
The issue is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.
[…] PrefBlog Canadian Preferred Shares – Data and Discussion « YPG.PR.C Listing a Wrong Number […]
With YPG.PR.A having a yield to certain 3-year redemption of 7.3% (8.8% to 3-year retraction for YLO.UN units at 95% of market) and YPG.PR.B having a yield to 8-year redemption of 10.4% (11% to retraction), I cannot, for the life of me figure out why anybody would want a 5-year (potentially perpetual) issue at 6.9%.
It makes no sense. I smell a nice arbitrage opportunity here!
The only way YPG.PR.C can earn the same 7.3% return as PR.A is if it is redeemed at par in 5 years. The risk that it won’t be redeemed should cause the price to be lower — $1.32 lower in my view — and the yield correspondingly higher.
The better long pairing is with YPG.PR.B — YPG.PR.C is $3.00 overvalued relative to PR.B if they both need to yield 10.4% (assuming PR.C is called in 5 years at $25). Without the call assumption, there is a price discrepancy of $8.25 (but I don’t consider a 10.4% YPG pref yield in 5 years to be a good assumption; rather it seems more evidence that PR.B is underpriced by $5.10.)
Place yer bets!
The reset feature of YPG.PR.C certainly looks highly overpriced!