BCE Trust Conversion and Preferred Offer Now Dubious?

It has just been announced that there will be a tax on trusts. Any trusts created after today will be subject to the tax in 2007; existing trusts will be taxed in 2011.

 This makes execution of the BCE offer to buy their preferreds rather dubious, since it was conditional on their conversion taking place.

Of course, the pref market never fully believed the conversion would take place anyway: see the attached graph of the flatBidPrice of the most active affected issue, BC.PR.C, for this issue’s reaction to the offer. The putative offer price was $26.25, announced October 11.

The market could be very active tomorrow, and not just in the issues affected by the offer! There may well be a stampede of income investors into prefs out of trusts – well overdue, since they should never have been in those things in the first place.


Leave a Reply

You must be logged in to post a comment.