CIU.PR.C To Reset At 2.24%

CU Inc. has announced:

that it has notified the registered shareholder of its Cumulative Redeemable Preferred Shares Series 4 (“Series 4 Preferred Shares”) of a conversion privilege and applicable dividend rates. As a result, subject to certain conditions, the holders of Series 4 Preferred Shares will have the right to choose one of the following options with regard to their shares:
1. To retain any or all of their Series 4 Preferred Shares and continue to receive a fixed rate quarterly dividend; or
2. To convert, on a one-for-one basis, any or all of their Series 4 Preferred Shares into Cumulative Redeemable Preferred Shares Series 5 (“Series 5 Preferred Shares”) of CU Inc. and receive a floating rate quarterly dividend.

Effective June 1, 2016, the annual dividend rate for the Series 4 Preferred Shares is set at 2.24% for the next five-year period and the dividend rate for the Series 5 Preferred Shares is set at an annual rate of 1.90% for the three-month period commencing June 1, 2016 to but excluding September 1, 2016. The dividend rate for the Series 5 Preferred Shares will be reset each quarter. Both rates were calculated according to the terms described in the short form prospectus of CU Inc. dated November 24, 2010.

Beneficial owners of Series 4 Preferred Shares who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to meet the deadline to exercise such right, which is 3 p.m. (Calgary time) / 5 p.m. (Toronto time) on May 17, 2016. Any notices received after this deadline will not be valid. As such, it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps. The foregoing conversions are subject to the conditions that: (i) if CU Inc. determines that there would be less than 1,000,000 Series 4 Preferred Shares outstanding on June 1, 2016, then all remaining Series 4 Preferred Shares will automatically be converted into Series 5 Preferred Shares on June 1, 2016, and (ii) alternatively, if CU Inc. determines that there would be less than 1,000,000 Series 5 Preferred Shares outstanding on June 1, 2016 after giving effect to conversion notices received, no Series 4 Preferred Shares will be converted into Series 5 Preferred Shares. If either of these scenarios occurs, CU Inc. will issue a news release to that effect on or before May 24, 2016.

Holders of the Series 4 Preferred Shares and the Series 5 Preferred Shares will have the opportunity to convert their shares again on June 1, 2021, and every five years thereafter as long as the shares remain outstanding.

For more information on the terms of, and risks associated with an investment in, the Series 4 Preferred Shares and the Series 5 Preferred Shares, please see CU Inc.’s short form prospectus dated November 24, 2010, which can be found under CU Inc.’s profile on SEDAR at www.sedar.com.

CIU.PR.C is a FixedReset, 3.80%+136, that commenced trading 2010-12-2 after being announced 2010-11-16.

The new rate therefore represents a 41% cut in dividends. Ouch!

As noted, the deadline to notify the company is 5 p.m. (Toronto time) on May 17, 2016.; brokers will have internal deadlines a day or two in advance.

I will post a recommendation regarding whether or not to convert closer to the deadline.

4 Responses to “CIU.PR.C To Reset At 2.24%”

  1. like_to_retire says:

    I received my letter on the conversion this week.

    I wonder what your recommendation is with this dog after taking a 41% dividend hit. It’s actually not as bad a hit as my last two resets.

    Remind me again why I bought all these low spread resets?

  2. like_to_retire says:

    Since the deadline has come and gone without a recommendation, I assumed it was better to hold on (consistent with other low resets lately) and didn’t convert. Hopefully I made the best decision.

  3. AltaRed says:

    I think the theme has been to hold* on. The floaters are brutal simply because few people see a rise in interest rates any time soon. Better to leverage a swap later if you become a believer in jumps in short term interest rates.

    * I am with my partial holding. It will be a swap candidate later though along with MFC.PR.F after it resets. Might as well crystallize some losses for 2016.

  4. like_to_retire says:

    Alta,
    Yeah, for sure all these low spread, post reset prefs are great for crystallizing loses when needed. I too have MFC.PR.F, FTS.PR.H, CIU.PR.C, etc, etc. Each of them with at least $10K loss that I could use when required.

    I don’t mind having loses in the bank, but previously when I had loses with perpetuals, I could justify it against a constant, unchanging dividend revenue stream. But with these resets, I now have a large loss in the bank along with a pitiful new dividend.

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