Category: Issue Comments

DBRS has announced that it:

downgraded the rating of the Preferred Shares issued by Brompton Oil Split Corp. (the Company) to Pfd-5 (low) from Pfd-5. As of March 5, 2020, the downside protection available to Preferred Shareholders was –18.3%. It has been gradually decreasing since the last review in December 2019 because of the depressed price of energy stocks as the oil market continues to suffer from lower demand and oversupply. Recent geopolitical developments, including negative impacts from the accelerated global spread of Coronavirus (COVID-19), have added further stress to stock prices.

On February 4, 2020, the Company announced a new term extension of three years on the Preferred Shares with the new maturity date of March 30, 2023. The distribution rate on the Preferred Shares increased to 6.5% per annum paid on the original price of $10.00. The targeted distributions to the Capital Shares remained unchanged at $1.20 per Capital Share per year, subject to a net asset value (NAV) test of 1.5 times (x). Because the NAV test is currently not being met, the Capital Share distributions have been suspended. The dividend coverage was 0x as the Portfolio is currently generating just enough income to cover expenses. Based on the value of the Company’s portfolio value as of March 5, 2020, the anticipated average grind is 8.62% per annum over the next three years.

On March 2, 2020, the Company announced that approximately 2.4 million Preferred Shares were tendered for a special retraction at the end of the current term (March 31, 2020). This amount will constitute approximately 75% of the currently outstanding Preferred Shares if they are not withdrawn from the retraction.

Considering the limited time remaining until maturity and the insufficient amount of downside protection, there is an increased likelihood that the original principal invested by Preferred Shareholders will not be fully repaid during the upcoming special retraction. As a result, DBRS Morningstar downgraded its rating of the Preferred Shares issued by the Company to Pfd-5 (low).

The Company invests in common shares of at least 15 large capitalization North American oil and gas issuers selected from the S&P 500 Index and the S&P/TSX Composite Index. The Company may also invest up to 25% of the Portfolio value in the common shares of issuers listed on the S&P 500 Index or the S&P/TSX Composite Index that satisfy its investment criteria (i.e., issuers that operate in energy subsectors including equipment, services, pipelines, transportation, and infrastructure). The Portfolio is approximately equally weighted, actively managed, and rebalanced at least semi-annually. A portion of the Portfolio’s investments are denominated in U.S. dollars; however, substantially all of this exposure is hedged back to Canadian dollars. The Company has the ability to write covered call options or engage in securities lending to generate additional income.

Extension details were announced in January following the March, 2019, notice of extension. In the former post, I strongly recommended retraction of the preferreds. As of 2020-2-28, the fund had only $8.38 in assets for every $10.00 of preferred share obligations. The company suffered a 75% retraction of its preferreds.

I reiterate my recommendation that preferred shares be retracted by their holders; as the notification deadline has passed, those who did not retract cannot follow this advice, but I want to emphasize that shares that have been tendered for retraction should not be “withdrawn from the retraction.” Those who hope that the underlying portfolio will recover and thereby return their par value of $10 are better advised to invest directly in a similar portfolio to that held by the company. The downside risk will be the same; but in the event of a strong recovery, those who hold the preferreds will be handing over their excess profits (if any, that exceed the $10 par value) to the Capital Unitholders.

Manulife Financial Corporation has announced (although not yet on their website):

that after having taken into account all election notices received by the March 4, 2020 deadline for conversion of its currently outstanding 10,000,000 Non-cumulative Rate Reset Class 1 Shares Series 19 (the “Series 19 Preferred Shares”) (TSX: MFC.PR.N) into Non-cumulative Floating Rate Class 1 Shares Series 20 of Manulife (the “Series 20 Preferred Shares”), the holders of Series 19 Preferred Shares are not entitled to convert their Series 19 Preferred Shares into Series 20 Preferred Shares. There were 110,669 Series 19 Preferred Shares elected for conversion, which is less than the minimum one million shares required to give effect to conversions into Series 20 Preferred Shares.

As announced by Manulife on February 19, 2020, after March 19, 2020, holders of Series 19 Preferred Shares will be entitled to receive fixed rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Manulife and subject to the provisions of the Insurance Companies Act (Canada). The dividend rate for the five-year period commencing on March 20, 2020, and ending on March 19, 2025, will be 3.675% per annum or $0.229688 per share per quarter, being equal to the sum of the five-year Government of Canada bond yield as at February 19, 2020, plus 2.30%, as determined in accordance with the terms of the Series 19 Preferred Shares.

Subject to certain conditions described in the prospectus supplement dated November 26, 2014 relating to the issuance of the Series 19 Preferred Shares, Manulife may redeem the Series 19 Preferred Shares, in whole or in part, on March 19, 2025 and on December 19 every five years thereafter.

MFC.PR.N is a FixedReset, 3.80%+230, that commenced trading 2014-12-3 after being announced 2014-11-26. The company provided notice of extension 2020-2-3. The issue will reset at 3.675% effective 2020-3-20. It is tracked by HIMIPref™ and is assigned to the FixedReset – Insurance non-NVCC subindex.

It is interesting to note that the recent declines in GOC-5 yields has actually resulted in an increase in the yield-spread between the notional non-callable MFC FixedReset and GOC-5 according to Implied Volatility Analysis:

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Partners Value Split Corp. has announced (on March 2, although not yet on their website):

the completion of its previously announced issue of 6,000,000 Class AA Preferred Shares, Series 10 (the “Series 10 Preferred Shares”) at an offering price of $25.00 per Series 10 Preferred Share, raising gross proceeds of $150,000,000. The Series 10 Preferred Shares carry quarterly fixed cumulative preferential dividends representing a 4.70% annualized yield on the offering price and have a final maturity of February 28, 2027. The Series 10 Preferred Shares have been listed and posted for trading on the Toronto Stock Exchange under the symbol PVS.PR.H. The net proceeds of the offering will be used to pay a special dividend on the Company’s capital shares.

Prior to the closing of the offering, the Company subdivided the existing capital shares held by Partners Value Investments Inc. so that there are an equal number of preferred shares and capital shares outstanding.

The Company owns a portfolio consisting of 79,740,966 Class A Limited Voting Shares of Brookfield Asset Management Inc. (the “Brookfield Shares”) which is expected to yield quarterly dividends that are sufficient to fund quarterly fixed cumulative preferential dividends for the holders of the Company’s preferred shares and to enable the holders of the Company’s capital shares to participate in any capital appreciation of the Brookfield Shares. Brookfield Asset Management Inc. (“BAM”) is a leading global alternative asset manager with over US$540 billion of assets under management across real estate, infrastructure, renewable power, private equity and credit. BAM owns and operates long-life assets and businesses, many of which form the backbone of the global economy. Utilizing its global reach, access to large-scale capital and operational expertise, BAM offers a range of alternative investment products to investors around the world—including public and private pension plans, endowments and foundations, sovereign wealth funds, financial institutions, insurance companies and private wealth investors. BAM is listed on the New York Stock Exchange and Toronto Stock Exchange under the symbol BAM and BAM.A respectively.

PVS.PR.H is a SplitShare, 4.70%, 7-Year, that was announced February 20. It will be tracked by HIMIPref™ and has been assigned to the SplitShares subindex.

DBRS rates it Pfd-2(low):

DBRS Limited (DBRS Morningstar) finalized its provisional rating of Pfd-2 (low) on the Class AA Preferred Shares, Series 10 (the Series 10 Preferred Shares) issued by Partners Value Split Corp. (the Company) that will rank pari passu with the existing Class AA Preferred Shares, Series 6; the Class AA Preferred Shares, Series 7; the Class AA Preferred Shares, Series 8; and the Class AA Preferred Shares, Series 9 (collectively, the Class AA Preferred Shares).

he Series 10 Preferred Shareholders will be entitled to receive a quarterly, fixed, cumulative dividend of $0.29375 per share to yield 4.70% per annum on the issue price of $25.00. The maturity date for the new series is February 28, 2027. Proceeds from the Series 10 Preferred Share offering will be used to pay a special dividend on Capital Shares (the Capital Shares).

The Company owns a portfolio (the Portfolio) of Brookfield Asset Management Inc. (BAM; rated A (low) with a Stable trend by DBRS Morningstar) Class A Limited Voting Shares (the BAM Shares). Dividends from the Portfolio are used to fund the payment of interest on the debentures to the extent that any have been issued and to fund the payment of dividends on the Class AA Preferred Shares. There are 700 Series 6 Debentures outstanding (as a result of the retraction of 700 Class AA Preferred Shares, Series 8) and 3,200 Series 7 Debentures (as a result of the retraction of 3,200 Class AA Preferred Shares, Series 9).

All series of Class AA Preferred Shares rank senior to the Capital Shares, the Class AAA Preferred Shares, and the Junior Preferred Shares, Series 1 and the Junior Preferred Shares, Series 2 (collectively, the Junior Preferred Shares) and rank pari passu with all other Class AA Preferred Shares with respect to the payment of dividends and repayment of principal.

he Junior Preferred Shareholders are entitled to receive quarterly noncumulative cash distributions at an annual rate of 5% when declared by the board of directors. There is $245 million worth of Junior Preferred Shares currently outstanding. The Company’s Capital Shareholders will only receive excess dividend income after interest on the debentures, Class AA Preferred Share distributions, Junior Preferred Share Distributions, and other Company expenses have been paid. Any capital appreciation of the BAM Shares will benefit the Capital Shareholders.

The Company has issued a limited number of Class A Voting Shares that rank senior to the Class AA Preferred Shares in respect of capital upon the Company’s dissolution, winding up, or insolvency. As of June 30, 2019, there was $100 worth of such shares outstanding.

Following the issuance of the Series 10 Preferred Shares, the downside protection available to the Class AA Preferred Shares is expected to be approximately 88.9% and the dividend coverage ratio is expected to be approximately 2.1 times (x; based on the Canadian dollar and U.S. dollar exchange rate as of February 26, 2020). BAM declares its dividends in U.S. dollars; consequently, there is risk that an appreciating Canadian dollar will cause the dividend coverage ratio to fall below 1.0x times. In the event of a shortfall, the Company may sell some BAM Shares, engage in security lending, or write covered call options to generate sufficient income to satisfy its obligations to pay the Class AA Preferred Shares dividends. If the Company chooses to lend its holdings, the Portfolio would be exposed to the potential losses if the borrower defaults on its obligations to return the borrowed securities.

The main constraints to the ratings are the following:

(1) The downside protection available to Class AA Preferred Shareholders depends solely on the market value of BAM Shares held in the Portfolio, which will fluctuate over time.

(2) There is a lack of diversification as the Portfolio is entirely made up of BAM Shares.

(3) Changes in BAM’s dividend policy may result in reductions in Class AA Preferred Shares dividend coverage.

(4) As BAM declares dividends in U.S. dollars, the Company is exposed to foreign currency risk relating to the Canadian-U.S. exchange rate, specifically the appreciation of the Canadian dollar versus the U.S. dollar. This may have a negative impact on the dividend coverage ratio of the Class AA Preferred Shares as these dividends are paid in Canadian dollars.

(5) Downside protection available to the Class AA Preferred Shares may be negatively affected by the retraction of the Junior Preferred Shares.

Opening day volume was 492,801. Vital statistics on 2020-3-2 are:

Fairfax Financial Holdings Limited has announced:

that it has determined the fixed dividend rate on its Cumulative 5-Year Rate Reset Preferred Shares, Series M (“Series M Shares”) (TSX: FFH.PR.M) for the five years commencing April 1, 2020 and ending March 31, 2025. The fixed quarterly dividends on the Series M Shares during that period, if and when declared, will be paid at an annual rate of 5.003% (C$0.312688 per share per quarter).

Holders of Series M Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on March 16, 2020, to convert all or part of their Series M Shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series N (the “Series N Shares”), effective March 31, 2020. The quarterly floating rate dividends on the Series N Shares will be paid at an annual rate, calculated for each quarter, of 3.98% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the April 1, 2020 to June 29, 2020 dividend period for the Series N Shares will be 1.38526% (5.61801% on an annualized basis) and the dividend for such dividend period, if and when declared, will be C$0.34632 per share, payable on June 29, 2020.

Holders of Series M Shares are not required to elect to convert all or any part of their Series M Shares into Series N Shares.

As provided in the share conditions of the Series M Shares: (i) if Fairfax determines that there would be fewer than 1,000,000 Series M Shares outstanding after March 31, 2020, all remaining Series M Shares will be automatically converted into Series N Shares on a one-for-one basis effective March 31, 2020; and (ii) if Fairfax determines that there would be fewer than 1,000,000 Series N Shares outstanding after March 31, 2020, no Series M Shares will be permitted to be converted into Series N Shares and Fairfax will cause the return of all Series M Shares tendered for conversion into Series N Shares. There are currently 9,200,000 Series M Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series N Shares effective upon conversion. Listing of the Series N Shares is subject to Fairfax fulfilling all the listing requirements of the TSX and, upon approval, the Series N Shares will be listed on the TSX under the trading symbol “FFH.PR.N”.

FFH.PR.M is a FixedReset, 4.75%+398, that commenced trading 2015-3-3 after being announced 2015-2-20. It is tracked by HIMIPref™ but has been relegated to the Scraps-FixedReset (Discount) subindex on credit concerns.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., FFH.PR.M and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated). Inspection of the graph and the overall average break-even rates for extant pairs will provide a guide for estimating the break-even rate for the pair now under consideration assuming, of course, that enough conversions occur so that the pair is in fact created.

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The market shows odd differences in its enthusiasm for floating rate product; the implied rates until the next interconversion are generally well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.70% and +1.78% (ignoring the outliers AIM.PR.A / AIM.PR.B, and FFH.PR.E / FFH.PR.F, both of which Exchange 2020-3-31; as well as FFH.PR.G / FFH.PR.H), respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

The breakeven rate for the junk pairs has been relatively high recently; I confess I’m not quite sure what to make of it.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the FFH.PR.M FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade at about the same price as their FixedReset counterparts, FFH.PR.M. Therefore, it seems likely that I will recommend that holders of FFH.PR.M make their own decision based on their own portfolios and financial circumstances, but I will wait until it’s closer to the March 16 notification deadline before making a final pronouncement. I will note that once the conversion period has passed it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Fairfax Financial Holdings Limited has announced:

that it has determined the fixed dividend rate on its Cumulative 5-Year Rate Reset Preferred Shares, Series E (the “Series E Shares”) (TSX: FFH.PR.E) for the five years commencing April 1, 2020 and ending March 31, 2025. The fixed quarterly dividends on the Series E Shares during that period, if and when declared, will be paid at an annual rate of 3.183% (C$0.198938 per share per quarter).

Holders of Series E Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on March 16, 2020, to convert all or part of their Series E Shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series F (the “Series F Shares”) (TSX: FFH.PR.F), effective March 31, 2020. The quarterly floating rate dividends on the Series F Shares will be paid at an annual rate, calculated for each quarter, of 2.16% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the March 31, 2020 to June 29, 2020 dividend period for the Series F Shares will be 0.94690% (3.79801% on an annualized basis) and the dividend for such dividend period, if and when declared, will be C$0.23673 per share, payable on June 29, 2020.

Holders of Series F Shares also have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on March 16, 2020, to convert all or part of their Series F Shares, on a one-for-one basis, into Series E Shares, effective March 31, 2020. Holders of the Series F Shares who elect to convert their shares by the conversion deadline will receive Series E Shares effective March 31, 2020 and will be entitled to receive, if and when declared, the fixed-rate dividend as described above.

Holders of Series E Shares are not required to elect to convert all or any part of their Series E Shares into Series F Shares and holders of Series F Shares are not required to elect to convert all or any part of their Series F Shares into Series E Shares. Holders of the Series E Shares who do not elect to convert their shares by the conversion deadline will retain their Series E Shares and will receive the fixed-rate dividend as described above (subject to the automatic conversion features described below). Holders of the Series F Shares who do not elect to convert their shares by the conversion deadline will retain their Series F Shares and will receive the floating-rate dividend as described above (subject to the automatic conversion features described below).

As provided in the share conditions of the Series E Shares and the Series F Shares: (i) if Fairfax determines that there would be fewer than 1,000,000 Series E Shares outstanding after March 31, 2020, all remaining Series E Shares will be automatically converted into Series F Shares on a one-for-one basis effective March 31, 2020 and Fairfax will cause the return of all Series F Shares tendered for conversion into Series E Shares; and (ii) if Fairfax determines that there would be fewer than 1,000,000 Series F Shares outstanding after March 31, 2020, all remaining Series F Shares will be automatically converted into Series E Shares on a one-for-one basis effective March 31, 2020 and Fairfax will cause the return of all Series E Shares tendered for conversion into Series F Shares.

There are currently 3,967,134 Series E Shares and 3,572,044 Series F Shares outstanding. The Series E Shares and the Series F Shares are listed on the Toronto Stock Exchange under the trading symbols “FFH.PR.E” and “FFH.PR.F”, respectively.

FFH.PR.E commenced trading 2010-2-1 as a FixedReset, 4.75%+216, after being announced 2010-1-21. It reset in 2015 to 2.91% and I recommended against conversion; there was a 31% conversion to the FloatingReset, FFH.PR.F, anyway.

FFH.PR.F commenced trading in 2015 as a result of the 31% conversion from FFH.PR.E noted above.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., FFH.PR.E and the FloatingReset FFH.PR.F). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated). Inspection of the graph and the overall average break-even rates for extant pairs will provide a guide for estimating the break-even rate for the pair now under consideration assuming, of course, that enough conversions occur so that the pair is in fact created.

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The market shows odd differences in its enthusiasm for floating rate product; the implied rates until the next interconversion are generally well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.70% and +1.78% (ignoring the outliers AIM.PR.A / AIM.PR.B, and FFH.PR.E / FFH.PR.F, both of which Exchange 2020-3-31; as well as FFH.PR.G / FFH.PR.H), respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

The breakeven rate for the junk pairs has been relatively high recently; I confess I’m not quite sure what to make of it.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the FFH.PR.E FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Before I get eviscerated in the comments, please note that I am well aware that FFH.PR.F is trading and is quoted with a bid of 12.70. Who cares? At the moment, the issues are interconvertible effective March 31 and are therefore exactly same thing (except for a minor difference in final dividend) from an investment perspective. We are interested in predicting what might happen after the potential for conversion has passed.

Based on current market conditions, I suggest that the FloatingResets FFH.PR.F that will result from conversion are likely to trade at about the same price as their FixedReset counterparts, FFH.PR.E. Therefore, it seems likely that I will recommend that holders of FFH.PR.E and FFH.PR.F make their own decision based on their own portfolios and financial circumstances, but I will wait until it’s closer to the March 16 notification deadline before making a final pronouncement. I will note that once the conversion period has passed it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Aimia has announced (on February 28):

the applicable dividend rates for its Cumulative Rate Reset Preferred Shares, Series 1 (the “Series 1 Preferred Shares”) and its Cumulative Floating Rate Preferred Shares, Series 2 (the “Series 2 Preferred Shares”), further to the February 25, 2020 notice and announcement that it will not exercise its right to redeem all or any part of the outstanding Series 1 Preferred Shares or Series 2 Preferred Shares and, as a result of which, subject to certain conditions, the holders of the Series 1 Preferred Shares will have the right to convert all or any number of their Series 1 Preferred Shares into Series 2 Preferred Shares and the holders of the Series 2 Preferred Shares will have the right to convert all or any number of their Series 2 Preferred Shares into Series 1 Preferred Shares, in each case on a one-for-one basis.

With respect to any Series 1 Preferred Shares that remain outstanding on or after March 31, 2020, holders of the Series 1 Preferred Shares will be entitled to receive quarterly fixed, cumulative, preferential cash dividends, as and when declared by the company’s Board of Directors, subject to compliance with the provisions of the Canada Business Corporations Act. The dividend rate for the five-year period from and including March 31, 2020 up to but excluding March 31, 2025 will be 4.802%, being 3.75% over the five-year Government of Canada bond yield, as determined in accordance with the rights, privileges, restrictions and conditions attaching to the Series 1 Preferred Shares.

With respect to any Series 2 Preferred Shares that remain outstanding on or after March 31, 2020, holders of the Series 2 Preferred Shares will be entitled to receive quarterly floating rate, cumulative, preferential cash dividends, calculated on the basis of the actual number of days elapsed in such quarterly period divided by 365, as and when declared by the Board of Directors of Aimia, subject to the provisions of the Canada Business Corporations Act. The dividend rate for the floating rate period from and including March 31, 2020 up to but excluding June 30, 2020 will be 5.392%, being 3.75% over the three-month Government of Canada Treasury Bill yield, as determined in accordance with the rights, privileges, restrictions and conditions attaching to the Series 2 Preferred Shares.

The Series 1 Preferred Shares and the Series 2 Preferred Shares are issued in “book entry only” form and must be purchased or transferred through a participant (a “CDS Participant”) in the depository service of CDS Clearing and Depository Services Inc. (“CDS”). All rights of holders of Series 1 Preferred Shares and Series 2 Preferred Shares must be exercised through CDS or the CDS Participant through which the Series 1 Preferred Shares or Series 2 Preferred Shares are held, as the case may be. As such, beneficial owners of Series 1 Preferred Shares or of Series 2 Preferred Shares who wish to exercise their conversion right should communicate as soon as possible with their broker or other nominee to obtain instructions for exercising such right through CDS on or prior to the deadline for exercise, which is 5:00 p.m. (Montreal time) on March 16, 2020 for CDS as sole registered holder of the Series 1 Preferred Shares and the Series 2 Preferred Shares but 1:00 p.m. (Montreal time) on March 16, 2020 for beneficial holders wishing to exercise their conversion right through CDS Participants.

Inquiries should be directed to Aimia’s Registrar and Transfer Agent, AST Trust Company (Canada), at 1-800-387-0825 (toll free in Canada and the United States).

AIM.PR.A is a FixedReset, 4.50%+375, assigned to the Scraps-FixedReset (Discount) subindex. It commenced trading as AER.PR.A with an initial dividend rate of 6.50% on 2010-1-20 after being announced 2010-1-12. AIM.PR.A changed its ticker from AER.PR.A in October, 2011. The first extension was reported on PrefBlog and the reset to 4.50% was announced 2015-3-2. I recommended against conversion. There was a 43% conversion to the FloatingReset, AIM.PR.B in 2015. The 2020 extension was announced 2020-2-25.

AIM.PR.B commenced trading 2015-3-31 as the result of the 43% conversion from AIM.PR.A noted above.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., AIM.PR.A and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated). Inspection of the graph and the overall average break-even rates for extant pairs will provide a guide for estimating the break-even rate for the pair now under consideration assuming, of course, that enough conversions occur so that the pair is in fact created.

Click for Big

The market shows odd differences in its enthusiasm for floating rate product; the implied rates until the next interconversion are generally well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.70% and +1.78% (ignoring the outliers AIM.PR.A / AIM.PR.B, and FFH.PR.E / FFH.PR.F, both of which Exchange 2020-3-31; as well as FFH.PR.G / FFH.PR.H), respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

The breakeven rate for the junk pairs has been relatively high recently; I confess I’m not quite sure what to make of it.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the AIM.PR.A FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Before I get eviscerated in the comments, please note that I am well aware that AIM.PR.B is trading and is quoted with a bid of 13.70. Who cares? At the moment, the issues are interconvertible effective March 31 and are therefore exactly same thing (except for a minor difference in final dividend) from an investment perspective. We are interested in predicting what might happen after the potential for conversion has passed.

Based on current market conditions, I suggest that the FloatingResets AIM.PR.B that will result from conversion are likely to trade at about the same price as their FixedReset counterparts, AIM.PR.A. Therefore, it seems likely that I will recommend that holders of AIM.PR.A and AIM.PR.B make their own decision based on their own portfolios and financial circumstances, but I will wait until it’s closer to the March 16 notification deadline before making a final pronouncement. I will note that once the conversion period has passed it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Husky Energy has announced that it:

is providing notice that the Company does not intend to exercise its right to redeem its Cumulative Redeemable Preferred Shares, Series 5 (Series 5 Shares) on March 31, 2020. As a result, subject to certain conditions, the holders of Series 5 Shares have the right to choose one of the following options with regard to their shares:

• retain any or all of their Series 5 Shares and continue to receive an annual fixed-rate dividend paid quarterly; or
• convert, on a one-for-one basis, any or all of their Series 5 Shares into Cumulative Redeemable Preferred Shares, Series 6 (Series 6 Shares) of Husky and receive a floating rate quarterly dividend.

Conversion to Series 6 Shares is subject to the conditions that: (i) if Husky determines that there would be less than one million Series 5 Shares outstanding after March 31, 2020, then all remaining Series 5 Shares will automatically be converted to Series 6 Shares on a one-for-one basis on March 31, 2020, and (ii) if Husky determines that there would be less than one million Series 6 Shares outstanding after March 31, 2020, no Series 5 Shares will be converted into Series 6 Shares. In either case, Husky will issue a news release to that effect no later than March 24, 2020.

Holders of Series 5 Shares who choose to retain any or all of their shares will receive the new fixed-rate quarterly dividend applicable to the Series 5 Shares for the five-year period commencing March 31, 2020, to, but excluding, March 31, 2025 of 4.591%, being equal to the sum of the Government of Canada five-year bond yield of 1.021% plus 3.57% in accordance with the terms of the Series 5 Shares, subject to the conditions described above.

Holders of Series 5 Shares who choose to convert their shares to Series 6 Shares will receive a new floating-rate quarterly dividend applicable to the Series 6 Shares. The dividend rate applicable to the Series 6 Shares for the three-month period commencing March 31, 2020 to, but excluding, June 30, 2020 will be 5.208%, being equal to the annual rate for the most recent auction of 90-day Government of Canada Treasury Bills of 1.638% plus 3.57%, in accordance with the terms of the Series 6 Shares (the Floating Quarterly Dividend Rate), subject to the conditions described above. The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial owners of Series 5 Shares who wish to exercise the right of conversion should communicate as soon as possible with their brokers or other nominees in order to meet the deadline for registered holders to exercise such right, which is 5 p.m. ET on March 16, 2020. It is recommended this communication be had well in advance of the deadline in order to provide the brokers or other intermediaries with time to complete the necessary steps. Holders of Series 5 Shares who do not exercise the right of conversion by this deadline will continue to hold Series 5 Shares with the new annual fixed-rate dividend, subject to the conditions described above.

Holders of the Series 5 Shares and the Series 6 Shares will have the opportunity to convert their shares again on March 31, 2025 and every five years thereafter as long as the shares remain outstanding.

For more information on the terms of, and risks associated with, an investment in the Series 5 Shares and the Series 6 Shares, please see the Company’s prospectus supplement dated March 5, 2015 on www.sedar.com

HSE.PR.E is a FixedReset, 4.50%+357, that commenced trading 2015-3-12 after being announced 2015-3-4. It is tracked by HIMIPref™ and has been assigned to the FixedReset (Discount) subindex.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., HSE.PR.E and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated). Inspection of the graph and the overall average break-even rates for extant pairs will provide a guide for estimating the break-even rate for the pair now under consideration assuming, of course, that enough conversions occur so that the pair is in fact created.

Click for Big

The market shows odd differences in its enthusiasm for floating rate product; the implied rates until the next interconversion are generally well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.70% and +1.78% (ignoring the outliers AIM.PR.A / AIM.PR.B, and FFH.PR.E / FFH.PR.F, both of which Exchange 2020-3-31; as well as FFH.PR.G / FFH.PR.H), respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

The breakeven rate for the junk pairs has been relatively high recently; I confess I’m not quite sure what to make of it.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the HSE.PR.E FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade at about the same price as their FixedReset counterparts, HSE.PR.E. Therefore, it seems likely that I will recommend that holders of HSE.PR.E make their own decision based on their own portfolios and financial circumstances, but I will wait until it’s closer to the March 16 notification deadline before making a final pronouncement. I will note that once the conversion period has passed it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Brookfield Asset Management Inc. has announced:

that it has determined the fixed dividend rate on its Cumulative Class A Preference Shares, Series 38 (“Series 38 Shares”) (TSX: BAM.PF.E) for the five years commencing April 1, 2020 and ending March 31, 2025, and also determined the quarterly dividend on its floating rate Cumulative Class A Preference Shares, Series 25 (“Series 25 Shares”) (TSX: BAM.PR.S).

Series 38 Shares and Series 39 Shares

If declared, the fixed quarterly dividends on the Series 38 Shares during the five years commencing April 1, 2020 will be $0.223 per share per quarter, which represents a yield of 5.685% on the most recent trading price, similar to the current yield. The new fixed dividend rate that will apply for the five years commencing April 1, 2020 represents a yield of 3.568% based on the redemption price of $25 per share.

Holders of Series 38 Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on March 16, 2020, to convert all or part of their Series 38 Shares, on a one-for-one basis, into Cumulative Class A Preference Shares, Series 39 (the “Series 39 Shares”), effective March 31, 2020.

The quarterly floating rate dividends on the Series 39 Shares will be paid at an annual rate, calculated for each quarter, of 2.55% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the April 1, 2020 to June 30, 2020 dividend period for the Series 39 Shares will be 1.04413% (4.188% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.2610325 per share, payable on June 30, 2020.

Holders of Series 38 Shares are not required to elect to convert all or any part of their Series 38 Shares into Series 39 Shares.

As provided in the share conditions of the Series 38 Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series 38 Shares outstanding after March 31, 2020, all remaining Series 38 Shares will be automatically converted into Series 39 Shares on a one-for-one basis effective March 31, 2020; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series 39 Shares outstanding after March 31, 2020, no Series 38 Shares will be permitted to be converted into Series 39 Shares. There are currently 7,906,132 Series 38 Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 39 Shares effective upon conversion. Listing of the Series 39 Shares is subject to Brookfield fulfilling all the listing requirements of the TSX and, upon approval, the Series 39 Shares will be listed on the TSX under the trading symbol “BAM.PF.K”.

BAM.PF.E is a FixedReset, 4.40%+255, that commenced trading 2014-3-13 after being announced 2014-3-6. It is tracked by HIMIPref™ and is assigned to the FixedReset (Discount) subindex.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., BAM.PF.E and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated). Inspection of the graph and the overall average break-even rates for extant pairs will provide a guide for estimating the break-even rate for the pair now under consideration assuming, of course, that enough conversions occur so that the pair is in fact created.

Click for Big

The market shows odd differences in its enthusiasm for floating rate product; the implied rates until the next interconversion are generally well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.70% and +1.78% (ignoring the outliers AIM.PR.A / AIM.PR.B, and FFH.PR.E / FFH.PR.F, both of which Exchange 2020-3-31; as well as FFH.PR.G / FFH.PR.H), respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

The breakeven rate for the junk pairs has been relatively high recently; I confess I’m not quite sure what to make of it.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the BAM.PF.E FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade at about the same price as their FixedReset counterparts, BAM.PF.E. Therefore, it seems likely that I will recommend that holders of BAM.PF.E make their own decision based on their own portfolios and financial circumstances, but I will wait until it’s closer to the March 16 notification deadline before making a final pronouncement. I will note that once the conversion period has passed it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Brompton Group has announced:

Brompton Oil Split Corp. (the “Fund”) announces a pro-rata redemption of class A shares will be required (the “Class A Shares”) to maintain an equal number of preferred shares (the “Preferred Shares”) and Class A Shares outstanding. In connection with the extension of the Fund’s term for an additional three years, holders of both Class A Shares and Preferred Shares had a special retraction right. Preferred shareholders retracted 2,416,132 more shares than Class A shareholders. As a result, unless Preferred Shares are withdrawn from the retraction, the Fund will be required to redeem 2,416,132 Class A Shares on a pro-rata basis pursuant to the Fund’s constating documents which is a reduction of approximately 75.269% of each Class A shareholders’ holdings. Each Class A shareholder of record on March 31, 2020 will receive a redemption price equal to the greater of: (i) the net asset value per unit (each unit consisting of 1 Class A Share and 1 Preferred Share) minus the sum of $10.00 plus any accrued and unpaid distributions on a Preferred Share, and (ii) nil. The redemption payment will be made on or before April 15, 2020.

The Fund invests in a portfolio of equity securities of large capitalization North American oil and gas issuers, primarily focused on those with significant exposure to oil.

Extension details were announced in January following the March, 2019, notice of extension. In the former post, I strongly recommended retraction of the preferreds. As of 2020-2-28, the fund had only $8.38 in assets for every $10.00 of preferred share obligations.

Manulife Financial Corporation has announced (on February 19):

the applicable dividend rates for its Non-cumulative Rate Reset Class 1 Shares Series 19 (the “Series 19 Preferred Shares”) (TSX: MFC.PR.N) and Non-cumulative Floating Rate Class 1 Shares Series 20 (the “Series 20 Preferred Shares”).

With respect to any Series 19 Preferred Shares that remain outstanding after March 19, 2020, holders thereof will be entitled to receive fixed rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Manulife and subject to the provisions of the Insurance Companies Act (Canada). The dividend rate for the five-year period commencing on March 20, 2020, and ending on March 19, 2025, will be 3.6750% per annum or $0.229688 per share per quarter, being equal to the sum of the five-year Government of Canada bond yield as at February 19, 2020, plus 2.30%, as determined in accordance with the terms of the Series 19 Preferred Shares.

With respect to any Series 20 Preferred Shares that may be issued on March 19, 2020 in connection with the conversion of the Series 19 Preferred Shares into the Series 20 Preferred Shares, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, calculated on the basis of actual number of days elapsed in each quarterly floating rate period divided by 365, as and when declared by the Board of Directors of Manulife and subject to the provisions of the Insurance Companies Act (Canada). The dividend rate for the three-month period commencing on March 20, 2020, and ending on June 19, 2020, will be 0.99259% (3.9380% on an annualized basis) or $0.248148 per share, being equal to the sum of the three-month Government of Canada Treasury bill yield as at February 19, 2020, plus 2.30%, as determined in accordance with the terms of the Series 20 Preferred Shares.

Beneficial owners of Series 19 Preferred Shares who wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right before 5:00 p.m. (Toronto time) on March 4, 2020. The news release announcing such conversion right was issued on February 3, 2020 and can be viewed on SEDAR or Manulife’s website. Conversion inquiries should be directed to Manulife’s Registrar and Transfer Agent, AST Trust Company (Canada), at 1‑800‑783‑9495.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 20 Preferred Shares effective upon conversion. Listing of the Series 20 Preferred Shares is subject to Manulife fulfilling all the listing requirements of the TSX and, upon approval, the Series 20 Preferred Shares will be listed on the TSX under the trading symbol “MFC.PR.S”.

MFC.PR.N is a FixedReset, 3.80%+230, that commenced trading 2014-12-3 after being announced 2014-11-26. The company provided notice of extension 2020-2-3. It is tracked by HIMIPref™ and is assigned to the FixedReset – Insurance non-NVCC subindex.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., MFC.PR.N and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated). Inspection of the graph and the overall average break-even rates for extant pairs will provide a guide for estimating the break-even rate for the pair now under consideration assuming, of course, that enough conversions occur so that the pair is in fact created.

Click for Big

The market has little enthusiasm for floating rate product; the implied rates until the next interconversion are generally well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.84% and +1.71% (ignoring the outlier AIM.PR.A / AIM.PR.B, which Exchanges 2020-3-31), respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

The breakeven rate for the junk pairs has been relatively high recently; I confess I’m not quite sure what to make of it.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the MFC.PR.N FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade below the price of their FixedReset counterparts, MFC.PR.N. Therefore, it seems likely that I will recommend that holders of MFC.PR.N continue to hold the issue and not to convert, but I will wait until it’s closer to the March 4 notification deadline before making a final pronouncement. I will note that once the conversion period has passed it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.