PrefBlog

Readers will remember that when the recent new issues were announced, I liked both of them: the BNS 5.25% was worth $25.93 according to the prior day’s closing prices, although by the time the BMO 5.25% was announced both issues were worth more like $25.33.

Which was still good enough to buy!

Following the debacle of Friday September 28, in which the market just kept on falling, both issues are now fairly valued below their issue price: fair value is about 24.88 to 24.90.

Something like this leads me to suspect that there just isn’t too much opportunistic money on the sidelines; that while the new issues were recognized as attractive, all the money required to buy them has come out of other preferred issues, rather than from other asset classes.

This is a funny market. 5.25% dividends, multiplied by an equivalency factor of 1.4 implies that interest of 7.35% must be received to provide the same after-tax income. There are unique risks in the preferred share market, of course. Investors must be aware of these risks and ensure they’re not overly exposed to any of them (or to any other single risk!) … but 7.35%? From a major bank? We haven’t seen that kind of interest rate lately.

Update, 2007-10-2: As of the close today, fair value for both issues is within a few pennies of $24.85.

Update, 2007-10-4: As of the close today, fair value is $24.72 for the BMO issue, $24.74 for BNS.

This is an interesting one.

GlobalBanc Advantaged 8 Split Corp. announced today (via CCN Matthews) that:

it has filed and has received a receipt dated May 30, 2007 from the securities regulators of all the Canadian provinces and territories for the final prospectus for its offering of Preferred Shares and Class A Shares, for a total maximum offering size of up to $150 million. The Preferred Securities have been provisionally rated Pfd-2 by DBRS Limited. The offering is scheduled to close on or about June 26, 2007.  The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the shares, subject to fulfillment by the Company of the requirements of the TSX (Class A Shares – GBA; and Preferred Shares – GBA.PR.A).

….
The investment objectives with respect to the Preferred Shares are: (i) to provide holders with fixed cumulative preferential quarterly cash distributions that are expected to consist of non-taxable returns of capital and capital gains in the amount of $0.1125 per Preferred Share, representing a yield on the issue price of the Preferred Shares of 4.5% per annum; and (ii) to return $10.00 per Preferred Share at the time of redemption of such Preferred Shares on December 15, 2012. The Preferred Shares have been provisionally rated Pfd-2 by DBRS Limited.

I have not yet decided whether this issue will be included in the HIMIPref™ universe.

Update, 2007-08-12: This issue will not be tracked by HIMIPref™. The TSX reports that there are only 2.7-million shares outstanding, for a total par value of $27-million.

In order to pay for the redemption of CCS.PR.A, Co-operators General Insurance is issuing a 5% Perp.

They announced via CCN Matthews:

today announced that it has entered into an agreement with Scotia Capital Inc. on behalf of a syndicate of underwriters pursuant to which the underwriters have agreed to buy and offer for sale by way of a public offering of $100 million of Non-Cumulative Redeemable Class E Preference Shares, Series C (“Series C Preference Shares”) on a bought deal basis.

Co-operators General will issue 4 million Series C Preference Shares priced at $25.00 per share and holders will be entitled to receive fixed non-cumulative preferential quarterly cash dividends in the amount of $0.3125 per Series C Preference Share, to yield 5.00 per cent per annum. The offering is underwritten by a syndicate of investment dealers led by Scotia Capital Inc. The expected closing date for the offering is June 12, 2007.

The issue is rated P-2(low) by S&P and Pfd-3 by DBRS.

I will provide more information as it becomes available.

Update, 2007-05-29: The Preliminary Short Form Prospectus is now available on SEDAR, dated May 28, 2007. The redemption terms are:

Subject to the prior consent of the Superintendent of Financial Institutions (Canada) (the “Superintendent”) , and subject to the provisions of the Insurance Companies Act (Canada), on and after June 30, 2012, Co-operators General may redeem at any time all or from time to time any part of the outstanding Series C Preference Shares, at Co-operators General’s option, by the payment of an amount in cash (the “Redemption Price”) for each Series C Preference Share of $26.00 if redeemed during the 12 months commencing June 30, 2012, $25.75 if redeemed during the 12 months commencing June 20, 2013, $25.50 if redeemed during the 12 months commencing June 30, 2014, $25.25 if redeemed during the 12 months commencing June 30, 2015, and $25.00 if redeemed on or after June 30, 2016, together in each case with an amount equal to all declared and unpaid preferential dividends up to but excluding the date fixed for redemption. See “Details of the Offering”.

Update, 2007-05-29, #2 : Forgot the dividend information!

The initial dividend, if declared, will be payable on September 30, 2007 and will amount to $0.3767 per Series C Preference Share, based on an anticipated closing date of June 12, 2007. See “Details of the Offering”.

Update, 2007-05-29, #3: Look out below! When priced on the taxable-in-Ontario curve, the curvePrice is $23.86:

Price due to base-rate :  23.52
Price due to short-term :  -0.49
Price due to long-term :   1.80
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 :   0.63
Price due to Floating Rate :   0.00
Price due to Credit Spread (3) :  -1.78
Price due to error :   0.18
Price due to Credit Spread (High) :   0.00
Price due to Credit Spread (Low) :   0.00

Update, 2007-5-31: It’s getting worse! The curve price is now $23.54!

Update, 2007-06-01: Curve Price now $23.45

Update, 2007-06-04: Curve Price now $23.36

Update, 2007-06-05: Curve Price now $23.18

Update, 2007-06-06: Curve Price now $23.11

Update, 2007-06-07: Whoosh! Curve Price now $22.67

Update, 2007-06-08: Will the bleeding never stop? $22.57

Update, 2007-06-11: Scheduled to close tomorrow. $22.47

A new issue from this credit following up their 4.25% 5-Year issue from earlier this year.

They are issuing 8-million shares at 25.00, paying 5.00% p.a. quarterly. The first dividend will be for $0.37671, payable Sept. 26, based on an anticipated closing date of June 8.

Another relatively complex redemption table:

The shares are retractible by the holder on and after June 30, 2017, at $25.00.

This is a “Bought underwritten public issue”, with various escape clauses.

The S&P rating is P-3; DBRS rates it Pfd-3(high).

Update: This issue has been added to the HIMIPref™ database with the preIssue securityCode P78000.

Ah, the joys of being an “Operating Retractible”! The curvePrice on this one is $26.76:

Price due to base-rate :  24.65
Price due to short-term :  -0.80
Price due to long-term :   2.04
Price due to Interest Income :   0.00
Price to to Cumulative Dividends :   0.00
Price due to SplitShareCorp :   0.00
Price due to Retractibility :   1.10
Price due to Credit Spread (2) :   0.00
Price due to Liquidity :   0.55
Price due to Floating Rate :   0.00
Price due to Credit Spread (3) :  -0.86
Price due to error :   0.05
Price due to Credit Spread (High) :   0.02
Price due to Credit Spread (Low) :   0.00

However, before anybody starts mortgaging the farm here, I’d better note that:

• Pfd-3 issues are very hard to value – they don’t always act as much like fixed income instruments as one might like.
• Which is one reason why I don’t recommend such issues to be held other than as a small (less than 5% in a single name; less than 10% total) component of a well diversified portfolio.
• The 5-year is trading about $1 below its curve Price

I have been advised of a new issue from EPCOR Power Equity Ltd, 4.85% Perpetuals.

Issue size is 5-million shares = $125-million.

Ratings are P-2(low) by S&P, Pfd-3(high) by DBRS

Settlement is May 25.

As yet I do not have the redemption schedule, so I’ll have to update this later.

Update: The press release states:

The Issuer has also granted the underwriters an over-allotment option, exercisable at any time up to 30 days following closing of the Offering, to acquire an additional 750,000 Series 1 Shares at the issue price of $25.00 per Series 1 Share. If the option is fully exercised, it would increase the total gross proceeds of the Offering to $143.75 million….

The Series 1 Shares will pay cumulative dividends of $1.2125 per share per annum, yielding 4.85% per annum, payable quarterly on the last business day of March, June, September and December of each year. The first quarterly dividend of $0.42305 per share is expected to be paid on September 28, 2007.

The Series 1 Shares will not be redeemable by the Issuer before June 30, 2012. On or after this date, the Series 1 Shares will be redeemable by the Issuer in whole or in part, at the Issuer’s option, on at least 30 and not more than 60 days prior notice.

… but nothing about the schedule of redemption prices.

Update: I am advised that:

The Series 1 Shares are not redeemable by the Corporation before June 30, 2012. On or after June 30, 2012, the Series 1 Shares will be redeemable by the Corporation in whole or in part, at the Corporation’s option, on at least 30 and not more than 60 days prior notice by the payment of the amount in cash per Series 1 share. Such redemption may be made upon payment in cash of the amount of $26.00 per Preferred Share if redeemed during the 12 months commencing June 30, 2012; $25.75 per Preferred Share if redeemed during the 12 months commencing June 30, 2013; $25.50 per Preferred Share if redeemed during the 12 months commencing June 30, 2014; $25.25 per Preferred Share if redeemed during the 12 months commencing June 30, 2015; and, if redeemed on or after June 30, 2016 at a Redemption Price of $25.00 per Series 1 Share plus, in each case, all accrued and unpaid dividends up to but excluding the date fixed for redemption.

There are two new split-share corporations in the distribution pipelines:

S Split Corp has been announced by Mulvihill. These will be backed by shares of BNS – the Bank of Nova Scotia. The news release says that DBRS has assigned a preliminary rating of Pfd-2(low) and that the final prospectus has been filed with SEDAR – but it’s not available there right now. They may have it on-line Monday. Mulvihill has an impressive distribution pipeline and all the usual suspects are in the underwriting syndicate for this one. Depending on the terms of the issue, I may be adding this one to the HIMIPref™ universe.

ML Split Corp has been announced by Quadravest. These will be backed by shares of Merrill Lynch. A Preliminary Prospectus is available – I will not be adding these to the HIMIPref™ universe as the company is not having the “Priority Equity Shares”, as they call the preferred-sort-of-equivalent components of the split, rated by any agency.

Brookfield has announced a new Cumulative Perpetual Preferred issue, Series 18.

Size : $200-million ( = 8-million shares @ $25.00) prior to over-allotment)

Closing : May 9, 2007

Dividends : 4.75%, first dividend payable July 31 (short first coupon)

Redemption Schedule :

Brookfield Asset Management is rated Pfd-2(low) by DBRS and P-2 (stable) by S&P.

More Later