Here’s an interesting issue.

 You can get quick overview of it at BCE’s website or go through all the detail in the prospectus (which BCE has published on their site! Good for them!).

There are a few major points:

  • BCE.PR.S is a “ratchet-rate” preferred, that is, its dividend is based on a variable proportion of Canadian prime.
  • This variable proportion will be increased upwards when the Calculated Trading Price (as defined in the prospectus) is less than $24.875, and downwards when the CTP is greater than $25.125.
  • They are about to become convertable into reset-rate preferreds. BCE has not yet announced the rate (applicable for five years) on the reset-rate issue, but they have issued a reminder notice to BCE.PR.S holders.
  • BCE.PR.S is currently paying monthly dividends of $0.08, which is $0.96 annually, which is 3.84% of face value, which is 64% of Canadian Prime.
  • The limits on the variable-proportion of Canadian Prime are 50% and 100%.
  • Bell can force conversion (from the less popular series) if voluntary holders of either series amount to less than 1,000,000 shares.
  • BCE.PR.S closed today at $24.35-61 5×5

Looking at all the above information, we can draw some interesting conclusions: like, f’rinstance, for people who actually want to own floating-rate prefs, this seems like a reasonable deal (PROVIDED, of course, that you can trade cheaply! Full-Service brokerage charges of $0.25/share bugger up ALL the calculations!).

Say we can buy this issue in the size we want at $24.50. There are two things that can happen:

  • The price remains below $24.875 … maybe even lower than our purchase price. In this case, the dividend rate will increase to 100% of Canadian Prime on Face Value … pretty good for a floater!
  • The price increases above $24.875. Then we can’t depend on the variable proportion of Prime increasing … but we make a pretty good capital gain … and can flip the thing for something else.

BCE Inc. was recently confirmed at Pfd-2(low) by DBRS. Short of default, the only* risk I can see to this strategy is that BCE might announce a really lousy rate on the Series T shares, but practically all holders of the Series S converts anyway.

It is interesting! I wonder who’s selling and forcing the price down? People may be comparing to BC.PR.C and assuming that there will be a forced-conversion into an issue with a 4.65% coupon that will trade below par … but BC.PR.C is holding its own, quoted at 25.05-23 today on heavy volume.


*I mean, “only risk” OTHER THAN that of actually holding a floater, of course. I don’t like floaters, not in this environment at these prices, I don’t. But they can make sense for people who are offsetting a specific liability.

4 Responses to “BCE.PR.S”

  1. Drew says:

    Why don’t you like floaters, in this environment and at these prices?

  2. jiHymas says:

    Mainly because they’re trading above $25! How’s that for a well defined and well-supported answer?

    I’m in the process of writing another article in my mini-series on Floating Rate issues (The first one was A Call, too, Harms; the second, titled “Are Floating Prefs Money Market Vehicles” was published in the August issue of Advisor’s Edge Report and will be on-line, at both their site and mine, once the black-out period is over and they’ve sold enough papers). The next article is really the reason why all the indices reported on this site are in development in the first place: In the course of writing it, I realized that I need historical rates of return in an electronic format accessible via HIMIPref™ that I understood, agreed with and could rip apart to reconcile every last decimal place.

    Essentially: floating rate prefs paying a fixed proportion of prime fluctuate in price from about $20 to about $25. These cycles take a few years to play out and are only marginally related to anything that’s going on with interest rates. Right now, they’re not only at the top of their price cycle, short rates are more likely to go down than up at this point (according to me!). So, I don’t like floaters.

  3. […] The BCE.PR.T do not currently exist, but can be issued in exchange for BCE.PR.S at the option of the holder. The BCE.PR.S were quoted at the close 2006-09-19 at 24.71-80, which is below the price at which – subject to the Official Calculation of Trading Price – the percentage of prime paid will increase. Given that Prime is currently 6.00% and the last monthly dividend paid on these shares was $0.08, the rate paid on the shares is now 3.84%, or … hmm, carry 1 …. 64% of prime. […]

  4. […] And I just don’t like floaters, anyway, especially ratchet rates. Hard to analyze, hard to plan for, really, really hard to make any capital gains from. Given the current trading price, the percentage of prime will be declining in the near future … perhaps, eventually, to the same level as BCE.PR.S (which have the same credit rating, after all) and then be paying only 64% of prime. […]

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