PrefBlog

New Issues

Power Financial Series L

I got word of another new issue today – “Power Financial Corporation Non-Cumulative First Preferred Shares Series L”

Dividend rate of 5.1%.

Callable commencing October 31, 2011 @ $26, declining by $0.25 annually until October 31, 2015 – callable afterwards at $25.00. It’s a perpetual issue – no retractions!

The issuer can purchase shares for cancellation (i) at any price prior to 2011-10-31, and (ii) for less than the contemporary redemption price afterwards.

Rated Pfd-1(low) by DBRS – same as the big banks (other than CIBC!).

8-million shares worth $200-million.

Payment and delivery is “on or about August 4, 2006”.

This one looks pretty good, based on the information at hand. I’ll be preparing a press release as soon as the prospectus is available and I’m sure of my ground.

Update & Bump : So the press release has been issued. I like this issue … I think it will go to an immediate premium over issue price.

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Market Action

July 20, 2006

Index	Current Yield (at bid)	YTW	Average Trading Value	Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	4.10%	4.11%	108,185	17.23	2	0.2405%	998.4
Fixed-Floater	5.21%	4.12%	96,213	13.48	5	-0.0707%	996.5
Floater	4.55%	-14.26%	61,650	6.44	5	-0.1351%	1000.3
Op. Retract	4.75%	3.58%	81,962	3.18	18	-0.0766%	992.1
Split-Share	5.17%	2.74%	53,109	2.78	14	0.0045%	998.9
Interest Bearing	6.87%	5.29%	67,915	2.23	7	+0.0033%	1,008.08
Perpetual	5.20%	4.71%	197,997	7.01	54	-0.0897%	1,001.0

Major Price Changes
Issue	Index	Change	Notes
W.PR.J	Perpetual	-1.07%	Gaps lower on higher than normal volume and trades at 52-week low
RY.PR.B	Perpetual	-2.80%	New issue not well received at all! See new issue posting

Volume Highlights
Issue	Index	Volume	Notes
RY.PR.B	Perpetual	41,040	Down a lot from new issue price! See new issue posting
BCE.PR.C	FixedFloater	29,650	RBC crossed 26,800 @ 25.40 (=bid). This issue becomes a ratchet rate in Mar/08
MFC.PR.B	Perpetual	21,333	TD sold total 10,900 shortly prior to close, almost all at $24.36 (was 24.55-65 yesterday)
POW.PR.D	Perpetual	19,800
SLF.PR.A	Perpetual	12,615	Traded in range 24.80-89

An active day! There were 12 issues trading in excess of 10,000, with the real driver, it appears, being the horrible reception of the RY.PR.B, which commenced trading at a disasterous discount to their issue price.

Let’s see … the bid is now $24.30 … the issue price was $25.00 … 12-million shares were issued … carry one and move the decimal … that a loss of $8.4-million! Some of this seems to be an over-reaction (see Crazy Pricing!, but never-the-less, $8.4-million is a lot of money to drop in my neighborhood. See what happens when you don’t subscribe to HIMIPref?

Issue Comments

Crazy pricing! RY.PR.A vs. RY.PR.B on 2006-07-20

OK, so the new issue was very badly received and the underwriters didn’t try to catch the falling knife and support the issue during the distribution phase.

But these relative prices are crazy! RY.PR.A started trading just a few months ago (and I didn’t like them either) and the terms of these two issues are virtually identical: the redemption schedule is simply shifted three months along, the ‘A’ issue pays a dividend of $1.1125 annually and the ‘B’ issue pays $1.1750.

So basically, you get 6.25-cents more per share in annual dividend with the B.

Closing Quotation of A : 24.40-45

Closing Quotation of B : 24.30-45

Let’s not ever call the pref market efficient!

New Issues

Royal Bank 4.7% Perpetual, Series AB

I’ve just issued a press release on this issue … and it’s negative, although not horribly so.

There’s a huge premium being placed on liquidity nowadays and it would seem that Royal Bank is exploiting it for all it’s worth (and why not?). I’m amazed that they can find enough purchasers to cover all $300-million worth … but the dividend funds are sitting on all kinds of cash and are desperate to put it to work, as far as I can tell.

My fearless prediction is that this issue will, like RY.PR.A did on April 4, open at about $24.75 – no need to rush to subscribe for this issue! I will then fearlessly predict that the issue will underperform its peers over the next year, as the liquidity premium fades away and the thing starts to be priced in accordance with the overall curve.

Update And Bump, 2006-7-20 : Well that was a great opening, wasn’t it? They started trading today and closed at 24.30-45 on volume of 41,040 shares. Even worse than I thought … it may have been that the Power Financial new issue with an extra 40bp of coupon got everybody wondering just how much this stuff was worth.

Or it may have been my press release!

Index Construction / Reporting

Index Construction

The indices reported in the Market Action category are experimental.

While the definition of the indices and their composition is expected to be fairly stable, the index levels will change once I have the programming in place to compile historical figures.

There are two requirements for inclusion in a reported index,

The Average Trading Value as defined by HIMIPref must exceed $25,000 (a daily moving average, with some adjustments to prevent over-estimation), and
The DBRS rating must be Pfd-2(low) or better

The indices have been defined as:

Ratchet : All Ratchet Rate preferred during the period in which they are paying a floating rate
FixedFloater : All Fixed-Floaters during their fixed rate period
Floating : all Floating Rate issues paying a set percentage of Canadian Prime, during their floating-rate period
Operating Retractible : all Retractible issues that have been issued by operating companies and pay dividends
SplitShare : All splitShare issues that pay dividends
Interest Bearing : All issues that pay interest, regardless of the type of issuer (note that most are currently split shares and all are considered retractible, but “Interest Bearing” trumps)
Perpetual : All perpetual issues

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