W.PR.J's Big Price Move

An Assiduous Reader has sent me the following question:

I noticed that this preferred has dropped in price relative to its peers. Would you know whether there is any material change that has happened with it (has it stopped paying its dividend)?

The question was presumably prompted by the 5%+ decline in W.PR.J yesterday.

Information on these issues is harder to come by than it really needs to be, something I have complained about in the past.

DBRS rates the issues as Pfd-2(low). Both issues are cumulative.

As non-financial perpetuals without a particularly large float, these issues can be somewhat volatile – they both made the January 08 Best Performers’ List, while W.PR.H made December 07’s Worst. W.PR.H was transfered to the PerpetualDiscount index in the October 07 Rebalancing.

There’s something odd about the notes for these issues in Duke Energy’s 10-K:

In connection with the Westcoast acquisition in 2002, Spectra Energy assumed preferred and preference shares at Westcoast and Union Gas. These preferred and preference shares at Westcoast and Union Gas totaled $225 million at both December 31, 2007 and 2006. Since these preferred and preference shares are redeemable at the option of holder, as well as Westcoast and Union Gas, these preferred and preference shares do not meet the definition of a mandatorily redeemable instrument under SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. As such, these preferred and preference shares are considered contingently redeemable shares and are included in Minority Interests on the Consolidated Balance Sheets.

According to me, W.PR.H and W.PR.J are issues of 6-million shares each, total $300-million, and are perpetual – this is confirmed by the Westcoast Energy Annual Report available on SEDAR. I have sent the following message to Spectra’s Investor Relations Department:

I write regarding the preferred shares trading as W.PR.H and W.PR.J on the Toronto Stock Exchange. It is my understanding that Spectra pays the dividends on these shares via Westcoast.

(i) You do not appear to be publishing dividend information for these shares on your website – publication of record and payment dates would be very useful. Do you intend to publish this information in the future?

(ii) In your financials, I can find reference only to some preferred shares held to be “redeemable at the option of holder” to the amount of $225-million, whereas these two issues are perpetual and have a total book value of CAD 300-million. How are these obligations reported in your financials?

I have uploaded a couple of charts:

Yesterday’s price action appears to be within normal bounds. I had considered W.PR.J to be quite expensive … I now consider it to be a little bit cheap.

3 Responses to “W.PR.J's Big Price Move”

  1. madequota says:

    W.PR.H & W.PR.J are very unique in a number of ways. The item most applicable to your reader’s concerns is probably the behaviour of the market maker.

    The main stream, higher volume prefs (banks, insurance issuers, etc.) have market makers that utilize computer buy/sell programs to ensure that anytime there’s a reasonably large spread, it is the marker maker who is front on the buy and the sell sides of the bid and ask. Westcoast, and Union, I believe use National Bank, and this market maker does not have a computer program on these three issues. Beyond that, this market maker is not the least bit aggressive, allowing the market most of the time to take the lead bid and ask positions (like it should be with all stocks, Mr. H!).

    Combine that with the rather light volume, and sometimes spotty floor markets for these issues, and odd things can happen. W.PR.H was the example yesterday, where all it took was one seller of not much more than a yard or so at market to take the stock down $1.20 on one trade, primarily because at that moment in time, there were just no bidders present to pick up the order.

    The dividends are regularly declared (about 6 weeks prior to ex), and reported in the mainstream Reuters and Bloomberg streaming systems.

    These prefs have maintained a relatively high price when all around have been falling, and if available at yesterday’s levels, would represent fair pricing now as Mr. Hymas has also suggested. Unfortunately for those interested in buying, the market has caught wind of the rogue trade yesterday, and this attention has translated into an uptick (for W.PR.H).

    hope this helps


  2. jiHymas says:

    It should be noted that market makers are assigned by the TSX – the issuer does not (officially, anyway) have any influence over the choice.

    I am aware that the dividends are available on Bloomberg & via the TSX; when I complain about non-publicization of dividends, I am complaining about non-free-publicization of dividends. I’m not too fussy about a formal press release – those cost money and can create clutter – but every issuer should be posting this information on their website.

  3. […] Westcoast issues are quite volatile. Now with a pre-tax bid-YTW of 6.15% based on a bid of 22.50 and a […]

Leave a Reply

You must be logged in to post a comment.