The new Yellow Pages Group 10-year retractible, announced May 23, disfigured the market with their presence today, closing at 23.89-09, 10×16, on reasonable volume of 49,400 shares.
The volume implies the underwriters were able to sell a good whack of this issue prior to closing … the price implies that the purchasers wish they hadn’t.
On announcement date, I calculated the curvePrice to be 26.76 … what with changes in the curve and spreads in the intervening weeks, I now call it $25.62.
Price due to base-rate : 24.18
Price due to short-term : -0.75
Price due to long-term : 2.09
Price due to Interest Income : 0.00
Price to to Cumulative Dividends : 0.06
Price due to SplitShareCorp : 0.00
Price due to Retractibility : 0.81
Price due to Credit Spread (2) : 0.00
Price due to Liquidity : 0.02
Price due to Floating Rate : 0.00
Price due to Credit Spread (3) : -0.93
Price due to error : 0.10
Price due to Credit Spread (High) : 0.06
Price due to Credit Spread (Low) : 0.00
I don’t think it’s all that bad an issue, obviously – but remember! DBRS rates it Pfd-3(high), S&P rates it P-3. My rule of thumb for credits of this type is no more than 5% in such a name, no more than 10% in all such names … taken as a percentage of a diversified preferred share portfolio.
The issue is now in the HIMIPref™ universe with the securityCode A56001, replacing the preIssue code of P78000. Due to the relatively poor credit rating, it has not been assigned to the “OpRet” index, which where it would otherwise have been placed.
YPG.PR.B looks pretty attractive to me at these price levels. With a current yield on bid of 5.23% it strikes me that we are being well compensated for the aditional credit risk when you compare this issue to other Op. Ret. In this particular case, it strikes me that there is room for credit upgrades over time. It wasn’t all that long ago that BAM preferred shares were rated by DBRS at Pfd-3(high).