Royal Bank of Canada has announced:
its intention to redeem all of its issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series AN (the “Series AN shares”), AP (the “Series AP shares”) and AR (the “Series AR shares”) on February 24, 2014, for cash at a redemption price of $25.00 per share.
There are 9,000,000 Series AN shares outstanding, representing $225 million of capital; 11,000,000 Series AP shares outstanding, representing $275 million of capital; and 14,000,000 Series AR shares outstanding, representing $350 million of capital. The redemption of the Series AN, AP and AR shares will be financed out of the general corporate funds of Royal Bank of Canada.
Separately from the redemption price, the final quarterly dividend of $0.390625, for each of the Series AN, AP and AR shares will be paid in the usual manner on February 24, 2014 to shareholders of record on January 27, 2014.
Not bad! $850-million being redeemed all on the same day … that’s pretty close to 1.5% of the entire Canadian preferred share market! The question remains as to whether all this cash will be recycled out of the market, back into extant issues or into new issues … we will see!
How can I start to wrap my head around RBC preferred shares? The price that traders are willing to pay and sell for is related to the yield and how close they are to the redemption date – which may or may not be exercised. So does risk play into that? Your charts look brilliant but I don’t know how to even start! I hold RY.PR.Y which has been steadily declining in share price as the optional redemption date approaches, which is fine because it has a fairly high yield. But does all that really balance out to 4.5% yield on my original investment if you factor in the capital loss?
Your charts look brilliant but I don’t know how to even start!
Perhaps one place to start is the section titled ‘Calculators’ in the right-hand navigation panel of this blog. There are two calculators supplied for yield – the standard one and one specifically for FixedResets that are expected to be reset rather than being called. See the posts http://prefblog.com/?p=1227 and http://prefblog.com/?p=83 for the regular one and http://prefblog.com/?p=6693 for the FixedReset one.
But does all that really balance out to 4.5% yield on my original investment if you factor in the capital loss?
Well … that will depend on the size of the capital loss and how long it took to accumulate it. If you provide me with the date you bought the issue and the price you paid, I’ll calculate the yield for you – and, as a bonus, the after-tax yield – as a way of walking you through the calculator.
What position should one take now re-RY.PR.Y? Any thoughts?
With an Issue Reset Spread of 413bp, RY.PR.Y is virtually certain to be redeemed on November 24, but until there’s an announcement that word “virtually” has to remain in the sentence.
They waited almost to the last minute to announce the redemption of RY.PR.T and RY.PR.X, so one might expect an announcement after the middle of October.
RY.PR.Y pays a dividend of 0.38125 and is quoted at 25.32-39, so there’s not much profit left in the position (assuming it’s called). At the bid, it’s now yielding a little over 1.5% – better than money market, but not by much!
So what it comes down to is: your RY.PR.Y position is basically cash and therefore your question as to what you should do with it comes down to a question of market timing. I have no special insight into market movements – your guess is as good as mine with respect to the question of whether you should sell now or be redeemed later.
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