PrefBlog

Sun Life Financial has announced that they will be issuing a new series of perpetual preferreds, Series 5.

The dividend rate is 4.50% and the expected closing date is February 2. The redemption schedule is:

It seems rather odd that the dividend rate is the same as on the recent bank issues despite the slightly lower credit on Sunlife: it’s rated P-1(Low) by S&P, Pfd-1(low) by DBRS.

An interesting feature of the terms is that there is a Mandatory Non-Payment of Dividends in the event that the Minimum Continuing Capital and Surplus Requirements (“MCCSR”) ratio of Sun Life Assurance Company of Canada was less than 120% at the end of the preceding quarterly financial reporting period. Another measure of financial strength to attempt to understand and worry about! According to their 2005 Annual Report, this ratio was:

According to the same document:

Sun Life Assurance continues to be subject to the MCCSR required capital for a life insurance company in Canada. OSFI generally expects life insurance companies to maintain a minimum MCCSR of 150% or greater, based on the risk profile of the relevant insurance company. Sun Life Assurance’s MCCSR ratio as at December 31, 2005 well exceeded the levels that would require any regulatory or corrective action. Additional details concerning the calculation of available capital and MCCSR are included in the 2005 AIF of SLF Inc. under the heading “Regulatory Matters”.

So it would seem that long before there was a Mandatory Non-Payment of Dividends the company’s name would be all over the front page anyway. But it is another thing that has to be reviewed!

Update: Forgot to give the size! Ten million shares @ $25.

Update & Bump: Here’s a comparison of some curve prices:

This is an otherwise unremarkable split share issue investing in international financial companies.

One of the great headaches for those who invest in the Capital Units of Split-share companies is the immediate drop in NAV on issue – all issue costs come out of their part of the investors, while the preferred shareholders sit back and grin. This, I believe, is one reason why the terms on the Preferred Share portion of these offerings is both so good and restricted to those who also buy capital units … if there’s a fat coupon on the preferred, it should rise in price instantly on issue day and therefore give the investors something, at least, to smile about.

In this issue – Copernican filed a prospectus today – the situation is a little different. Issue expenses estimated to be $750,000 as well as the selling commission of 4.25% of the total raised will be paid by the manager.

They’re not doing this just for their health, of course. The manager will be getting a fee of 1.95% and will be compensated by the company for the service fee of 0.40% of the Capital Unit Value that they will pass on to the agents. And – just to make sure that everybody’s good and locked in – there’s a redemption fee payable to the MANAGER (not the company!) that starts a $1.05 per $20 unit (over 5%!) and declines until it is $0.55 per unit (still 2.75% of original investment!) in June 2013. Then it’s zero for the last six months of the fund’s life.

Deferred Sales Charges come to the split share world!

Still – there won’t be that instant drop in NAV as soon as the Capital Units start trading! That will be meaningful to some.

Unless hounded by vast crowds of importunate clients, I won’t be adding this particular split-share corporation preferred issue to the HIMIPref™ database. The fact that pref holders will only get their original $10 back on any redemptions means that even a small increase in price will lead to a negative YTW and the YTW scenario will always be sufficiently short-term that the system won’t want to trade it.

It would certainly be possible to improve the programme so that the disincentive for early redemptions was recognized … somehow … but until there are a lot of issues like this it hardly seems worth the effort. I will be watching this issue with great, if informal, interest.

The Royal Bank decided to join BMO and Scotia in issuing a new 4.5% Perpetual this week.

This one is for 10-million shares ($250-million), with an anticipated settlement date of January 19. It’s designated “Non-Cumulative First Preferred Shares, Series AE” and is a bought deal.

The redemption schedule is:

More later.

The first week of the new year has started with a bang!
The Bank of Nova Scotia has announced a bought deal for 12-million shares @ $25: these will be designated “Non-Cumulative Preferred Shares, Series 14”. The anticipated closing date is January 24, 2007.
The redemption schedule is:

More later.

Later, more:

So … the new issue looks like a good, but not great, purchase at the issue price.

The first week of the new year has started with a bang!

BMO has announced a bought deal for 14-million shares @ $25: these will be designated “Non-Cumulative Perpetual Class B Preferred Shares, Series 13”.

The anticipated closing date is January 17, 2007.

The redemption schedule is:

More later.

Later, more:

So … the new issue looks like a good, but not great, purchase at the issue price.

Sentry Select has just filed a prospectus for a new fund with some interesting twists.

The fund is based on Income Trusts and will turn into an open-ended mutual fund in two years. The preferred securities are non-callable and will mature in two years – or, to be precise, December 1, 2008 – from the expected closing date of January 5, 2007 … which is just in time to mop up some RRSP money!

The prefs will pay 5.25% and are provisionally rated Pfd-2(low) by DBRS. There will be no distribution to the capital units if this would leave the prefs with asset coverage of less than 1.5:1.

Not the worst issue I’ve ever seen in my life, but 5.25% sounds pretty skimpy compared with what’s already out there – see the current ‘Interest Bearing’ Index for comparisons. Trouble is, of course, there just plain ain’t that many preferred securities around any more, and somebody who wants to buy a hatful … through a full-service brokerage and paying commissions through the nose … might well be pleased to get a big fill.

Due to the short term-to-maturity on these things, I will not be adding them to the HIMIPref™ database – unless forced to do so by outraged hue-and-cry!