BBD.PR.B / BBD.PR.D Arbitrage Closes

As fanatical devotees of the preferred share market will know, the two captioned issues are exchangeable into each other every five years … which gives rise to opportunities for arbitrage.

There are tax and liquidity headaches associated with this arbitrage, but it can be profitable – I have, for instance, received the following communication:

I can finally report that the BBD Pref B/D Arbitrage trades have finally closed.  I received the Pref B floating rate shares yesterday and swapped them into my shorting accounts to close out the positions today.  For 8-9 months, these trades returned a little over 10% annualized after costs — exactly as expected.  I see there are still 2.4M Pref D shares still outstanding, so we might get other arbitrage chances in the future.  Unlike my previous arbitrage trades of a couple of years ago when a $2.00 price difference evaporated in 2-3 months, this trade took the full period.  Indeed, the Aug 2 closing price difference of $1.60 is basically the same as when I started, so you could say the market is a wonderful forecaster!

So which pension fund wants to be first to give me a $50-million hedge fund mandate?

Update, 2007-08-10: The dividend going forward on the BBD.PR.D has been previously reported as 5.267%.

Update, 2007-08-12: I note from the Bombardier website that:

Following the conversion privilege of August 1, 2007, 82,736 Series 2 preferred shares were converted into 82,736 Series 3 preferred shares and 6,949,749 Series 3 preferred shares were converted into 6,949,749 Series 2 preferred shares.

Series 3 is BBD.PR.D, the Fixed-Rate element of the pair.

One Response to “BBD.PR.B / BBD.PR.D Arbitrage Closes”

  1. […] last arbitrage opportunity was, of course, five years ago. Both BBD.PR.B and BBD.PR.D are tracked by HIMIPref™; both issues are relegated to the Scraps […]

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