BCE Inc. has announced:
that 5,884,470 of its 10,841,056 fixed-rate Cumulative Redeemable First Preferred Shares, Series AG (“Series AG Preferred Shares”) have been tendered for conversion on May 1, 2016, on a one-for-one basis, into floating-rate Cumulative Redeemable First Preferred Shares, Series AH (“Series AH Preferred Shares”). In addition, 28,765 of its 3,158,944 Series AH Preferred Shares have been tendered for conversion on May 1, 2016, on a one-for-one basis, into Series AG Preferred Shares. Consequently, on May 1, 2016, BCE will have 4,985,351 Series AG Preferred Shares and 9,014,649 Series AH Preferred Shares issued and outstanding. The Series AG Preferred Shares and the Series AH Preferred Shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.G and BCE.PR.H, respectively.
The Series AG Preferred Shares will pay on a quarterly basis, for the five-year period beginning on May 1, 2016, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual fixed dividend rate of 2.80%.
The Series AH Preferred Shares will continue to pay a monthly floating adjustable cash dividend for the five-year period beginning on May 1, 2016, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated based on the prime rate for such month and using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the Series AH Preferred Shares in the preceding month) and the Designated Percentage for the preceding month.
Readers will remember that BCE.PR.G reset to 2.80%, a cut of about 38% in the dividend. BCE.PR.H, the RatchetRate preferred that currently pays 100% of Prime (which can be reduced as low as 50%, but this is dependent upon the issue trading above par for an extended period, which seems unlikely in the current environment), has suffered much less over the past five years, as Prime was 3.00% on May 1, 2011 and is now 2.70%.
As for the future:
Today’s bid prices of 13.52 for BCE.PR.G and 14.20 for BCE.PR.H imply that Prime must average 3.48% over the next five years for the two issues to realize equal total returns, which is not unreasonable and is in line with other pairs.
I always struggle to make sense of the selected fixed rate for these. BCE.PR.R seemed too high at 4.13%, this seems too low at 2.8%.
Using the past BCE.PR.R explanation (copied below) with a 1.2% swap rate and 0.55% three month BA rate ends with: “they would be paying 1.28% at current yields”.
A lower swap or higher BA rate increase the 1.28%, so I tried a 1.0% swap and 0.6% BA rate. Still just 1.68% and seems really low.
Past BCE.PR.R explanation: “According to RBC the current CAD 5-Year Swap Rate is 1.202%. So in order to offset a fixed rate of 4.13% they would have to sell 3.44 contracts, and thereby have to pay 3.44 times the three month BA rate. The three month BA rate is now 0.79, so they would be paying 2.72% at current yields based on par. They are now paying prime, which is 2.70% … so it works!”
a cut of about 38% in the dividend
deflation an unexpected consequence of a progrowth stance
Woop