RON.PR.A Hammered In Wake Of Downgrade

Yesterday RON.PR.A closed at 25.61-71, with a YTW of 4.01%-3.98% to perpetuity.

After the close it was downgraded to Pfd-4(high) by DBRS.

Today it closed at 21.85-25, with a YTW of 4.77%-4.65% to perpetuity. It went ex-dividend for 0.328125, but this still represents a decline of 13.40%.

It is interesting to speculate as to whether this is all due to the normal reaction of retail to a downgrade, or whether it might reflect institutional players positioning themselves for the removal of this issue from the indices at the next rebalancing. There’s going to be an awful lot of forced selling – and for an issue rated Pfd-4(high) by DBRS, the field of potential buyers will be more restricted than is usually the case when issues are removed from the indices on grounds of volume.

ZPR is comprised 0.51% of RON.PR.A and is a $345.3-million fund, so that’s $1.76-million worth, or about 68,800 shares (at yesterday’s prices).

CPD is comprised 0.33% of RON.PR.A which the fund helpfully points out is worth $5,075,673, or 198,200 shares. (CPD is worth $1,453-million now. Wow!)

So that’s a total of 267,000 shares in these two funds alone and there are 6-million shares outstanding, so that’s about 4.5% of the entire issue. To put it another way, HIMIPref™ calculates that the Average Trading Value (which deprecates isolated block trades) is about $164,000 per day, or about 6,400 shares. In other words, over forty days worth of trading will hit the market on the next index rebalancing. Now, that’s what I call a flood!

It will be recalled that the Quebec government thinks RONA is a superb investment:

Pity the long-suffering Rona shareholder.

It’s been a rough descent for the stock from its $25 high nearly five years ago. And now the company’s board and the Quebec government have blocked investors’ quickest way out — a $14.50 per share non-binding bid by U.S.-based Lowe’s Companies Inc. [nb: RON closed today, 2013-3-13, at $11.04]

“It’s important that we build wealth in Quebec, that we reverse our poor standing in Canada,” CAQ leader François Legault said Tuesday, adding his party would support the PQ government agenda on a case by case basis.

During the campaign, [Parti Québécois leader] Ms. [Pauline] Marois proposed making the Caisse create a special $10-billion fund it would use to add to its existing stable of Quebec-based investments, which are worth some $43-billion. The PQ is taking as inspiration France’s Fonds stratégique d’investissement, a state sovereign fund created by former President Nicolas Sarkozy in 2008.

Mr. Legault wants the Caisse to invest $20-billion in 25 strategic Quebec companies with the goal of giving the pension fund a “blocking minority” stake sufficient to help counter any hostile takeover attempt.

Maybe the Caisse will buy the shares! Investing in declining companies sounds like a wonderful way to build wealth!

3 Responses to “RON.PR.A Hammered In Wake Of Downgrade”

  1. mclachlan8 says:

    It makes a great deal of sense to see a poorly run government, supporting a poorly run business.

  2. […] will be most interesting to see what happens tomorrow for these issues, given that RON.PR.A was hammered after its downgrade (although it has since recovered about half of the losses sustained on that tumultuous day). One […]

  3. […] was last mentioned in PrefBlog when it got hammered in the wake of the DBRS downgrade to Pfd-4(high), Trend […]

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