The new issue of Royal Bank 4.5% perpetuals announced April 17 settled today and met a very poor reception, trading in a range of 24.48-60 and closing at 24.49-50, 20×12.
I’m at a bit of a loss to understand this and can only speculate that the continuing BCE debacle has caused a little nervousness amongst retail, while institutional buyers may be filled up on Royal after their string of new issues:
|RY Issues Tracked by HIMIPref™|
RY.PR.K is retractible – all the others are perps.
However, it might not matter a lot whether the market is fed up with the name or not! Examining the figures for Royal’s tier one capital limits, we see that they had room to issue preferred of $520-million on February 6 (after the issuances of RY.PR.C, RY.PR.D & RY.PR.E and redemption of RY.PR.O) and with the 18-million shares issued since then have used up $450-million of that. That leaves a mere $70-million in issuance room and they might not be willing to go to market for such a paltry amount.
Note I will admit that I am somewhat at a loss to reconcile their Preferred Share Tier One Capital of $1,345-million at year end with their list of issues outstanding. The figure of $1,345-million is referred to in the MD&A on page 66 of the Annual Report – this table contains no mention of any preferred shares in Tier Two Capital, which is where I would expect to find the retractible issue RY.PR.K. Note 18 on Page 130 of the Report shows $1,050-million perpetuals, and $298-million “Preferred Share Liabilities”, specifically including RY.PR.K (Series N). So I guess that, somehow or other, they were able to include RY.PR.K in Tier 1 Capital.
So, given that the RY.PR.O has been redeemed, their Tier One Capital preferred situation now looks like this:
|Tier 1 Capital / Preferreds / Royal Bank|
|Preferred Limit, as of Year-End 2006||2,415|
All in all, they’re very close to their limit now, unless they boost their equity capital in other ways, like hiking ATM fees. But fear not! The RY.PR.K becomes redeemable at par 2007-08-24 (although not retractible by holders until 2008-8-24) and eliminating this issue with open up another $300-million of issuance room.
|RY.PR.G & Comparatives|
|Price due to base-rate||22.47||22.49||23.29|
|Price due to short-term||-0.21||-0.21||-0.21|
|Price due to long-term||1.29||1.29||1.27|
|Price to to Cumulative Dividends||0.00||0.00||0.00|
|Price due to Credit Spread (2)||0.00||0.00||-0.62|
|Price due to Liquidity||1.53||1.53||1.48|
|Price due to error||-0.06||-0.06||0.08|
|Price due to Credit Spread (low)||0.00||0.00||-0.62|
|Curve Price (Taxable Curve)||25.02||25.04||24.68|
|Quote 4/26||24.49-50||24.89-92||25.00 Issue|
|YTW (at bid, after tax)||3.66%||3.61%||3.79%|
|YTW Date||Infinite||Infinite||2016-8-30 / Infinite|
|Credit Rating (DBRS)||Pfd-1||Pfd-1||Pfd-2(low)|
|YTW Modified Duration (Pre-Tax)||16.23||16.31||15.95|
|YTW Pseudo-Convexity (Pre-Tax)||1.15||-30.29||-55.80|
It is not my habit to include such an incomparable comparable as the BAM new issue, but I just couldn’t resist! BAM has a boatload of preferreds outstanding, and if we can blame overall market tone and angst for today’s RY.PR.G debacle, then the May 9 BAM settlement could prove interesting in the extreme.