As I predicted last week, EPP.PR.A crashed on opening today.
There were only six, count ’em, six trades in the entire day, for a whopping volume of 7,300 shares, closing at 23.75-99, 5×50. Even BAM.PR.N’s opening day was better, which is really saying a mouthful.
Five Million Shares. Somebody’s lost $5-million. Glad it’s not me!
On a cheerier note, the issue does appear to have found a fair level. The curve price is $23.94:
Price due to base-rate : 23.30
Price due to short-term : -0.44
Price due to long-term : 1.76
Price due to Interest Income : 0.00
Price to to Cumulative Dividends : 0.00
Price due to SplitShareCorp : 0.00
Price due to Retractibility : 0.00
Price due to Credit Spread (2) : 0.00
Price due to Liquidity : 0.83
Price due to Floating Rate : 0.00
Price due to Credit Spread (3) : -1.71
Price due to error : 0.17
Price due to Credit Spread (High) : 0.03
Price due to Credit Spread (Low) : 0.00
Although the price is now estimated to be fair, I won’t be rushing to buy this one. I suspect the underwriters are stuck with a big pile of these and there will be a blow-out sale before the end of June … and why would I buy something at a price I think is “fair”, anyway?
As a TD Waterhouse client I was invited to place an expression of interest at $25 for EPP.PR.A, which I declined. On May 23/07 a $105 million bought deal of EPCOR LP units (EP.un) at $26.15 yielding in excess of 9.5% was announced at TDW client website and this allotment rapidly sold out. Obviously EPCOR has a rather pressing need to refinance outstanding debt, whatever the cost. In context of all the merger/privatization frenzy currently, there are rumours that KKR is looking for Canuck power generation plays – at the right price. EPP.PR.A seems highly vulnerable to further downside and should a conservative investor steer clear at any price?
Well … that depends on what you mean by “conservative investor” and “any price”!
As noted earlier, the credit rating on this issue isn’t all that great. A DBRS rating of Pfd-3(high) isn’t too bad, especially when S&P rates it P-2(low), but it does take the issue into the realm of ‘Be Very Careful’. I wouldn’t recommend that it comprise more than 5% of a balanced preferred share portfolio of any description, which will remove it from consideration for most retail investors.
“Any Price”? It is my current belief that this issue sold very poorly and there is a lot left on the underwriters’ books which will have to be cleared. If they are unable to flog it over the next month, they’ll probably blast it out towards the end of June, perhaps in the $23.00 area. At that price, it could be an interesting play with the intent of flipping it after a hold period of a month or two … but only to the extent that it would be held as a long term investment!
[…] I mentioned this issue’s new low on July 23. It commenced trading May 25 … bang smack in the middle of the decline in the overall preferred share market. […]
[…] Opening day wasn’t very good, but was at least better than the EPP.PR.A, BAM.PR.N and CCS.PR.A opening days of late last spring. 84,620 shares traded in a range of 24.50-70, closing at 24.50-55, 10×32. […]
[…] EPP.PR.A was issued last spring and received an extremely hostile reception from the market, as by the time it commenced trading the market was way down. It is my understanding that the underwriters had a really hard time selling it and took a bath. Problems with such issues can persist for a long, long time, especially in the preferred market: many preferred share investors buy an issue when issued and never look at it again. Those issues that have trouble finding such a “real money” home at issue time find themselves perpetually in the hands of hot money. […]
[…] is a ticker change from the original EPP.PR.A. This issue had a rough underwriting, and is a Straight Perpetual with a 4.85% […]