PrefBlog

Brompton Group has announced (on February 28):

Brompton Lifeco Split Corp. (the “Fund”) announces that the distribution rate for the preferred shares (the “Preferred Shares”) for the 5-year term from April 30, 2019 to April 29, 2024 will be $0.625 per preferred share per annum (6.25% on the original issue price of $10) payable quarterly. The Preferred Share distribution rate is based on current market rates for preferred shares with similar terms. The Fund previously announced the extension of the term of the class A shares (the “Class A Shares”) and the Preferred Shares from April 30, 2019 to April 29, 2024. The term extension offers preferred shareholders the opportunity to enjoy preferential cash dividends until April 29, 2024. Since inception in April 2007 to January 31, 2019, the Preferred Share has delivered a 5.6% per annum return. In addition, the Fund intends to maintain the targeted monthly Class A Share distribution rate at $0.075 per Class A Share when the net asset value per unit (consisting of one Class A Share and one Preferred Share) is greater than $15.00, after taking in consideration the payment of the Class A Share distribution.

Over the past 10-year period to January 31, 2019, the Class A share has outperformed the S&P/TSX Composite Index (the “TSX Composite”) by 5.7% per annum (LCS 14.8% per annum, TSX Composite 9.1% per annum). The Preferred share has delivered consistent returns with less volatility and has outperformed the S&P/TSX Preferred Share Index over the past 10-year period by 1.8% per annum. Since inception on April 18, 2007 to January 31, 2019, Class A shareholders have received cash distributions of $5.73 per share. Class A shareholders have the option to benefit by reinvesting their cash distributions in a distribution reinvestment plan (“DRIP”) which is commission free to participants. Class A shareholders can enroll in the DRIP program by contacting their investment advisor.

The Fund invests in a portfolio of common shares of Canada’s four largest publicly-listed life insurance companies, on an approximately equal weight basis: Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc.

In connection with the extension, shareholders who do not wish to continue their investment in the Fund, may retract their Preferred Shares or Class A Shares on April 29, 2019 pursuant to a special retraction right and receive a retraction price that is calculated in the same way that such price would be calculated if the Fund were to terminate on April 29, 2019. Pursuant to this option, the retraction price may be less than the market price if the security is trading at a premium to net asset value. Notice must be provided to your investment dealer by March 29, 2019 at 5:00 p.m. (Toronto time) in order to exercise this right; however, investment dealers may have earlier deadlines.

LCS.PR.A was added to the HIMIPref™ database in October, 2014, backdated to 2014-5-1, following its term extension and treasury offering earlier in the year. Capital Units dividends were suspended in January 2015, but reinstated in November, 2016. The company announced the five year extension in Marcy, 2018. The issue is tracked by HIMIPref™ but relegated to the Scraps – Splitshares subindex on credit concerns.

Bank of Montreal has announced:

the applicable dividend rates for its Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 27 (the “Preferred Shares Series 27”) and Non-Cumulative Floating Rate Class B Preferred Shares, Series 28 (the “Preferred Shares Series 28”).

With respect to any Preferred Shares Series 27 that remain outstanding after May 25, 2019, commencing as of such date, 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 the Bank and subject to the provisions of the Bank Act (Canada). The dividend rate for the five-year period commencing on May 25, 2019, and ending on May 24, 2024, will be 3.852 per cent, being equal to the sum of the five-year Government of Canada bond yield as at April 25, 2019, plus 2.33 per cent, as determined in accordance with the terms of the Preferred Shares Series 27.

With respect to any Preferred Shares Series 28 that may be issued on May 27, 2019, being the first business day following the conversion date of May 25, 2019, identified in the Preferred Shares Series 27 prospectus, which falls on a Saturday, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, calculated on the basis of the actual number of days elapsed in each quarterly floating rate period divided by 365, as and when declared by the Board of Directors of the Bank and subject to the provisions of the Bank Act (Canada). The dividend rate for the three-month period commencing on May 25, 2019, and ending on August 24, 2019, will be 4.002 per cent, being equal to the sum of the three-month Government of Canada Treasury bill yield as at April 25, 2019, plus 2.33 per cent, as determined in accordance with the terms of the Preferred Shares Series 28.

Beneficial owners of Preferred Shares Series 27 who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to ensure that they meet the deadline to exercise such right, which is 5:00 p.m. (EDT) on May 10, 2019.

Conversion enquiries should be directed to BMO’s Registrar and Transfer Agent, Computershare Trust Company of Canada, at 1-800-340-5021.

They previously announced:

that it does not intend to exercise its right to redeem the currently outstanding Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 27 of the Bank (the “Preferred Shares Series 27”) on May 25, 2019. As a result, subject to certain conditions, the holders of Preferred Shares Series 27 have the right, at their option, to convert all or part of their Preferred Shares Series 27 on a one-for-one basis into Non-Cumulative Floating Rate Class B Preferred Shares, Series 28 of the Bank (the “Preferred Shares Series 28”) on May 27, 2019. This date is the first business day following the conversion date of May 25, 2019, identified in the Preferred Shares Series 27 prospectus, which falls on a Saturday. Holders who do not exercise their right to convert their Preferred Shares Series 27 into Preferred Shares Series 28 on such date will retain their Preferred Shares Series 27, unless automatically converted in accordance with the conditions below.

The foregoing conversions are subject to the conditions that: (i) if, after May 10, 2019, the Bank determines that there would be less than 1,000,000 Preferred Shares Series 27 outstanding on May 25, 2019, then all remaining Preferred Shares Series 27 will automatically be converted into an equal number of Preferred Shares Series 28 on May 25, 2019; and (ii) alternatively, if the Bank determines that there would be less than 1,000,000 Preferred Shares Series 28 outstanding on May 25, 2019, no Preferred Shares Series 27 will be converted into Preferred Shares Series 28. In either case, the Bank will give written notice to that effect to any registered holders of Preferred Shares Series 27 affected by the preceding minimums on or before May 17, 2019.

The dividend rate applicable to the Preferred Shares Series 27 for the 5-year period commencing on May 25, 2019, and ending on May 24, 2024, and the dividend rate applicable to the Preferred Shares Series 28 for the 3-month period commencing on May 25, 2019, and ending on August 24, 2019, will be determined and announced by way of a news release on April 25, 2019. The Bank will also give written notice of these dividend rates to the registered holders of Preferred Shares Series 27.

Beneficial owners of Preferred Shares Series 27 who, on or after April 25, 2019, wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right before 5:00 p.m. (EDT) on May 10, 2019.

Conversion inquiries should be directed to BMO’s Registrar and Transfer Agent, Computershare Trust Company of Canada, at 1-800-340-5021.

BMO.PR.S is a FixedReset, 4.00%+233, NVCC-compliant issue that commenced trading 2014-4-23 after being announced 2014-4-14. It is tracked by HIMIPref™ and is assigned to the FixedReset-Discount Sub-Index.

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., BMO.PR.S 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).

Click for Big

The market has lost its fleeting enthusiasm for floating rate product; the implied rates until the next interconversion are below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.69% and +1.39%, 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.

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 BMO.PR.S 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, BMO.PR.S. Therefore, it seems likely that I will recommend that holders of BMO.PR.S continue to hold the issue and not to convert, but I will wait until it’s closer to the May 10 notification deadline before making a final pronouncement. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – 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.

Royal Bank of Canada has announced:

the applicable dividend rates for its Non-Viability Contingent Capital (NVCC) Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series AZ (the “Series AZ shares”) and NVCC Non-Cumulative Floating Rate First Preferred Shares, Series BA (the “Series BA shares”).

With respect to any Series AZ shares that remain outstanding after May 24, 2019, holders of the Series AZ shares will be entitled to receive quarterly fixed rate non-cumulative preferential cash dividends, as and when declared by the Board of Directors of Royal Bank of Canada, subject to the provisions of the Bank Act (Canada).

The dividend rate for the 5-year period from and including May 24, 2019 to, but excluding, May 24, 2024 will be 3.70%for Series AZ shares, being equal to the 5-Year Government of Canada bond yield determined as of April 24, 2019 plus 2.21%, as determined in accordance with the terms of the Series AZ shares.
…
Beneficial owners of Series AZ shares who wish to exercise their conversion rights should instruct their broker or other nominee to exercise such rights on or prior to the deadline for notice of intention to convert, which is 5:00 p.m. (EST) on May 9, 2019.

Inquiries should be directed to Shareholder Relations Officer, Shirley Boudreau, at 416-955-7806.

RY.PR.Z is a NVCC-compliant FixedReset, 4.00%+221, that commenced trading 2014-1-30 after being announced 2014-1-21. The extension was announced 2019-4-12. This issue 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., RY.PR.Z 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).

Click for Big

The market has lost its fleeting enthusiasm for floating rate product; the implied rates until the next interconversion are below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.70% and +1.48%, 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.

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 RY.PR.Z 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, RY.PR.Z. Therefore, it seems likely that I will recommend that holders of RY.PR.Z continue to hold the issue and not to convert, but I will wait until it’s closer to the May 9 notification deadline before making a final pronouncement. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – 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.

It will be recalled that NA.PR.S will reset At 4.025% effective May 16, 2019.

NA.PR.S is a NVCC-compliant FixedReset, 4.10%+240, that commenced trading 2014-2-7 after being announced 2014-1-29. It is tracked by HIMIPref™ and assigned to the FixedResets-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., NA.PR.S 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).

Click for Big

The market appears to have lost its fleeting interest in floating rate product; the implied rates until the next interconversion are above the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.70% and +1.48%, 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.

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 NA.PR.S 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 be cheap and trading below the price of their FixedReset counterparts, NA.PR.S. Therefore I recommend that holders of NA.PR.S continue to hold the issue and not to convert. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – 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.

Those who wish to convert anyway are advised that the deadline for notifying the company of such a desire is April 30, 2019 at 5:00 p.m. (EST). Brokers and other intermediaries generally set their internal deadlines a day or two in advance of this date, so if you wish to convert there’s no time to waste! Note that brokers will, in general, try to execute the instruction on a ‘best efforts’ basis if received between the two deadlines, provided that the procrastinating shareholder grovels entertainingly enough.

TransCanada Corporation has announced (on April 23):

that 725,094 of its 24,000,000 fixed rate Cumulative Redeemable First Preferred Shares, Series 7 (Series 7 Shares) were deposited for conversion on April 30, 2019 on a one-for-one basis into floating rate Cumulative Redeemable First Preferred Shares, Series 8 (Series 8 Shares).

As previously announced in the Company’s news release dated March 15, 2019, the conversions are subject to the conditions that: (i) if TransCanada determines that there would be less than one million Series 7 Shares outstanding after April 30, 2019, then all remaining Series 7 Shares will automatically be converted into Series 8 Shares on a one-for-one basis on April 30, 2019, and (ii) alternatively, if TransCanada determines that there would be less than one million Series 8 Shares outstanding after April 30, 2019, no Series 7 Shares will be converted into Series 8 Shares.

As the total number of Series 7 Shares tendered for conversion did not meet the threshold set out above, no Series 7 Shares will be converted into Series 8 Shares on April 30, 2019.

For more information on the terms of and risks associated with an investment in the Series 7 Shares and the Series 8 Shares, please see the prospectus supplement dated February 25, 2013 which is available on sedar.com or on the TransCanada website.

TRP.PR.D is a FixedReset, 4.00%+238, that commenced trading 2013-3-4 after being announced 2013-2-25. The extension was announced 2019-3-15. The issue will reset at 3.903% effective April 30, 2019. I recommended against conversion. TRP.PR.D is tracked by HIMIPref™ and assigned to the FixedReset (Discount) subindex.