PrefBlog

It will be recalled that the FTS.PR.K reset rate will be reset due to a calculation error by the company.

I had expected to see a correction published “in early April”, but I have now been advised via eMail that:

I am following-up on [REDACTED] email below to advise you that based on our board meetings a release will not be going out in early April as the email below originally stated. It has been decided that a press release will be issued with our Q1 2019 earnings release on May 1st. Furthermore, the issue has been reported to the TSX.

Thank you for bringing the issue to our attention and please let us know if you have any further questions.

Canadian Western Bank has announced:

the applicable dividend rates for its non-cumulative 5-year rate reset First Preferred Shares Series 5 (the “Series 5 Preferred Shares”) (TSX: CWB.PR.B) and non-cumulative floating rate First Preferred Shares Series 6 (the “Series 6 Preferred Shares”).

With respect to any Series 5 Preferred Shares that remain outstanding after April 30, 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 CWB and subject to the provisions of the Bank Act (Canada). The dividend rate for the five-year period commencing on May 1, 2019, and ending on April 30, 2024, will be 4.301% per annum or $0.2688125 per share per quarter, being equal to the sum of the five-year Government of Canada bond yield as at April 1, 2019, plus 2.76%, as determined in accordance with the terms of the Series 5 Preferred Shares.

With respect to any Series 6 Preferred Shares that may be issued on May 1, 2019 in connection with the conversion of the Series 5 Preferred Shares into the Series 6 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 CWB and subject to the provisions of the Bank Act (Canada). The dividend rate for the three-month period commencing on May 1, 2019, and ending on July 31, 2019, will be 1.103% (4.412% on an annualized basis) or $0.27575 per share, being equal to the sum of the three-month Government of Canada Treasury bill yield as at April 1, 2019, plus 2.76%, as determined in accordance with the terms of the Series 6 Preferred Shares.

Beneficial owners of Series 5 Preferred Shares who wish to retain their Series 5 Preferred Shares do not need to take any further action. Beneficial owners of Series 5 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. (EDT) on April 15, 2019. The news release announcing such conversion right was issued on March 11, 2019 and can be viewed on SEDAR or CWB’s website. Conversion inquiries should be directed to CWB’s Registrar and Transfer Agent, Computershare Trust Company of Canada, at 1-800-564-6253.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 6 Preferred Shares effective upon conversion. Listing of the Series 6 Preferred Shares is subject to CWB fulfilling all the listing requirements of the TSX and, upon approval, the Series 6 Preferred Shares will be listed on the TSX under the trading symbol “CWB.PR.E”.

CWB.PR.B is a FixedReset, 4.40%+276, that commenced trading 2014-2-10 after being announced 2014-1-31. The extension was announced 2019-3-11. The issue is tracked by HIMIPref™ but relegated to the Scraps – FixedReset (Discount) index on credit concerns.

Note that the reset rate for CWB.PR.B implies a GOC-5 yield of 1.541%, whereas the TRP.PR.D reset implies 1.523%. This is not necessarily a problem. The prospectus for CWB.PR.B (available at SEDAR, search for “Canadian Western Bank Feb 3 2014 19:39:17 ET Prospectus supplement – English PDF 242 K”; sorry I can’t link directly but the Canadian Securities Administrators do not believe that investor scum should have easy access to public ha-ha documents) states:

“Initial Fixed Rate Period” means the period commencing on the Closing Date and ending on and including April 30, 2019.

…while the TRP.PR.D prospectus (kudos to TransCanada for posting the prospectus on their website!) states:

‘‘Initial Fixed Rate Period’’ means the period from and including the date of issue of the Series 7 Shares to but excluding April 30, 2019.

What a difference a day makes!

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., CWB.PR.B 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 +0.78% and +1.11%, 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 CWB.PR.B 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, CWB.PR.B. Therefore, it seems likely that I will recommend that holders of CWB.PR.B continue to hold the issue and not to convert, but I will wait until it’s closer to the April 15 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.

TransCanada Corporation has announced:

that it has notified the registered shareholder of the applicable dividend rates for Cumulative Redeemable First Preferred Shares, Series 7 (Series 7 Shares) and the Cumulative Redeemable First Preferred Shares, Series 8 (Series 8 Shares).

As previously announced in our news release dated March 15, 2019, holders of the Series 7 Shares have the right on April 30, 2019 to convert, on a one-for-one basis, any or all of their Series 7 Shares into Series 8 Shares and receive a floating rate quarterly dividend, or retain any or all of their Series 7 Shares and receive a new fixed rate quarterly dividend.

Should a holder of Series 7 Shares choose to retain their shares, such shareholders will receive the new annual fixed dividend rate applicable to the Series 7 Shares of 3.903% for the five-year period commencing April 30, 2019 to, but excluding, April 30, 2024.

Should a holder of Series 7 Shares choose to convert their shares to Series 8 Shares, holders of Series 8 Shares will receive the floating quarterly dividend rate applicable to the Series 8 Shares of 4.032% for the first quarterly floating rate period commencing effective April 30, 2019 to, but excluding, July 30, 2019. The floating quarterly dividend rate will be reset every quarter.

Beneficial owners of Series 7 Shares who do not provide notice or communicate with their broker or other nominee by 5 p.m. (EDT) on April 15, 2019 will retain their Series 7 Shares and receive the new annual fixed dividend rate applicable to the Series 7 Shares stated above.

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 our 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 is tracked by HIMIPref™ and assigned to the FixedReset (Discount) subindex.

Note that the reset rate for CWB.PR.B announced today implies a GOC-5 yield of 1.541%, whereas the TRP.PR.D reset implies 1.523%. This is not necessarily a problem. The prospectus for CWB.PR.B (available at SEDAR, search for “Canadian Western Bank Feb 3 2014 19:39:17 ET Prospectus supplement – English PDF 242 K”; sorry I can’t link directly but the Canadian Securities Administrators do not believe that investor scum should have easy access to public ha-ha documents) states:

“Initial Fixed Rate Period” means the period commencing on the Closing Date and ending on and including April 30, 2019.

…while the TRP.PR.D prospectus (kudos to TransCanada for posting the prospectus on their website!) states:

‘‘Initial Fixed Rate Period’’ means the period from and including the date of issue of the Series 7 Shares to but excluding April 30, 2019.

What a difference a day makes!

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., TRP.PR.D 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 +0.78% and +1.11%, 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 TRP.PR.D 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, TRP.PR.D. Therefore, it seems likely that I will recommend that holders of TRP.PR.D continue to hold the issue and not to convert, but I will wait until it’s closer to the April 15 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.

Quadravest has announced:

Dividend 15 Split Corp. (the “Company”) is pleased to announce it will undertake an offering of Preferred Shares and Class A Shares of the Company.

The offering will be co-led by National Bank Financial Inc., CIBC World Markets Inc., Scotia Capital Inc. and RBC Capital Markets, and will also include TD Securities Inc., BMO Capital Markets, Canaccord Genuity Corp., Industrial Alliance Securities Inc., Echelon Wealth Partners, GMP Securities L.P., Raymond James Ltd., Desjardins Securities Inc., Mackie Research Capital Corporation, and Manulife Securities Incorporated.

The Preferred Shares will be offered at a price of $9.90 per Preferred Share to yield 5.3% and the Class A Shares will be offered at a price of $9.05 per Class A Share to yield 13.3%. The closing price on the TSX of each of the Preferred Shares and the Class A Shares on March 29, 2019 was $10.15 and $9.10, respectively.

Since inception of the Company, 180 consecutive dividends have been declared for both classes of shares. The aggregate dividends declared on the Preferred Shares have been $7.90 per share and the aggregate dividends declared on the Class A Shares have been $21.50 per share (including five special distributions of $0.25 per share, one special distribution of $0.50 per share and one special stock dividend of $1.75 per share), for a combined total of $29.40 per unit. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.

The net proceeds of the offering will be used by the Company to invest in an actively managed, high quality portfolio
consisting of 15 dividend yielding Canadian companies as follows:

Bank of Montreal	Enbridge Inc.	TELUS Corporation
The Bank of Nova Scotia	Manulife Financial Corp.	Thomson-Reuters Corporation
BCE Inc.	National Bank of Canada	The Toronto-Dominion Bank
Canadian Imperial Bank of Commerce	Royal Bank of Canada	TransAlta Corporation
CI Financial Corp.	Sun Life Financial Inc.	TransCanada Corporation

The Company’s investment objectives are:

Preferred Shares:
i. to provide holders of the Preferred Shares with fixed, cumulative preferential monthly cash dividends in the
amount of 5.25% annually; and
ii. on or about the termination date, currently December 1, 2024 (subject to further 5 year extensions thereafter), to pay the holders of the Preferred Shares $10.00 per Preferred Share.

Class A Shares:
i. to provide holders of the Class A Shares with regular monthly cash dividends currently targeted to be $0.10 per
share; and
ii. on or about the termination date, currently December 1, 2024 (subject to further 5 year extensions thereafter) to pay holders of Class A Shares at least the original issue price of those shares.

The sales period of this overnight offering will end at 9:00 a.m. EST on April 2, 2019. The offering is expected to close on or about April 9, 2019 and is subject to certain closing conditions including approval by the TSX.

So they’re offering Whole Units at 18.95 and the NAVPU is 17.80 as of March 15 for a premium of about 6.5%. What a lovely little business it is!

Update, 2019-4-2: They raised over 555-million:

Dividend 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 2,981,000 Preferred Shares and up to 2,981,000 Class A Shares of the Company. Total proceeds of the offering are expected to be approximately $56.5 million.