RY.PR.J Firm On Excellent Volume

Royal Bank of Canada has announced:

it has closed its domestic public offering of Non-Cumulative, 5-Year Rate Reset Preferred Shares Series BD. Royal Bank of Canada issued 24 million Preferred Shares Series BD at a price of $25 per share to raise gross proceeds of $600 million.

The offering was underwritten by a syndicate led by RBC Capital Markets. The Preferred Shares Series BD will commence trading on the Toronto Stock Exchange today under the ticker symbol RY.PR.J.

The Preferred Shares Series BD were issued under a prospectus supplement dated January 27, 2015 to the bank’s short form base shelf prospectus dated December 20, 2013.

RY.PR.J is a FixedReset, 3.60%+274, NVCC-compliant, announced January 26. The issue will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

Note that since this issue is NVCC-compliant, there is no Deemed Maturity entry in the call schedule analyzed by HIMIPref™. It is, and is analyzed by HIMIPref™ as, a true perpetual … at least until the morons at OSFI change the rules again, since the ‘legitimate expectations of investors’ now include early redemption.

The issue traded 1,383,496 shares today (consolidated exchanges) in a range of 24.82-98 before closing at 24.95-96. Vital statistics are:

Maturity Type : Limit Maturity
Maturity Date : 2045-01-30
Maturity Price : 23.12
Evaluated at bid price : 24.95
Bid-YTW : 3.42 %

Implied Volatility theory shows the issue should be considered cheap against its peers – not only is the issue’s Expected Future Current Yield well over the ‘best fit’ theoretical estimates (in which implied volatility is capped at 40%) but the fit of 40% should decline as the market realizes that RY issues are no more immune from the laws of economics than any other series, which will result in underperformance of lower-spread issues.

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