Canaccord Genuity Group Inc. has announced:
the applicable dividend rates for its Cumulative 5-Year Rate Reset First Preferred Shares, Series C (the “Series C Preferred Shares”) and its Cumulative Floating Rate First Preferred Shares, Series D (the “Series D Preferred Shares”), further to its press release dated May 24, 2017 announcing that it does not intend to exercise its right to redeem all or any part of the currently outstanding Series C Preferred Shares and, as a result of which, subject to certain conditions, the holders of the Series C Preferred Shares have the right to convert all or any part of their Series C Preferred Shares into Series D Preferred Shares on a one-for-one basis.
With respect to any Series C Preferred Shares that remain outstanding after June 30, 2017, holders thereof will be entitled to receive quarterly fixed, cumulative, preferential cash dividends, if, as and when declared by the Board of Directors of the Company, subject to the provisions of the Business Corporations Act (British Columbia). The dividend rate for the five-year period commencing on July 1, 2017 and ending on and including June 30, 2022 will be 4.993% per annum, being equal to the sum of the five year Government of Canada bond yield determined as of today, plus 4.03%, in accordance with the terms of the Series C Preferred Shares.
With respect to any Series D Preferred Shares that may be issued on June 30, 2017, holders thereof will be entitled to receive quarterly floating rate, cumulative, preferential cash dividends, if, as and when declared by the Board of Directors of the Company, subject to the provisions of the Business Corporations Act (British Columbia). The dividend rate for the three-month period commencing on July 1, 2017 and ending on and including September 30, 2017 will be 4.559% per annum, being equal to the sum of the three-month Government of Canada Treasury Bill yield determined as of today, plus 4.03% (calculated on the basis of the actual number of days elapsed during such quarterly period divided by 365), in accordance with the terms of the Series D Preferred Shares. The quarterly floating dividend rate will be reset every quarter.
Beneficial owners of Series C Preferred Shares who wish to exercise their conversion right should communicate as soon as possible with their broker or other nominee to ensure their instructions are followed for exercising such right on or prior to the deadline for exercise, which is 5:00 p.m. (Toronto time) on June 15, 2017.
CF.PR.C is a FixedReset, 5.75%+403 that commenced trading 2012-4-10 after being announced 2012-3-22. It has been relegated to the Scraps subindex since inception on credit concerns.
The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., IAG.PR.G and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.
We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).
Click for BigThe market appears to have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both well below current market rates, at +0.07% and -0.33%, respectively! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.
Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.
If we plug in the current bid price of the CF.PR.C FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:
| Estimate of FloatingReset CF.PR.? (received in exchange for CF.PR.C) Trading Price In Current Conditions |
| |
Assumed FloatingReset
Price if Implied Bill
is equal to |
| FixedReset |
Bid Price |
Spread |
0.50% |
0.00% |
-0.50% |
| CF.PR.C |
16.90 |
403bp |
16.48 |
16.02 |
15.56 |
Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, it seems likely that I will recommend that holders of CF.PR.C continue to hold the issue and not to convert, but I will wait until it’s closer to the June 15 notification deadline before making a final pronouncement. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions
This entry was posted on Thursday, June 1st, 2017 at 9:32 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
CF.PR.C To Reset At 4.993%
Canaccord Genuity Group Inc. has announced:
CF.PR.C is a FixedReset, 5.75%+403 that commenced trading 2012-4-10 after being announced 2012-3-22. It has been relegated to the Scraps subindex since inception on credit concerns.
The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., IAG.PR.G and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.
We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).
Click for Big
The market appears to have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both well below current market rates, at +0.07% and -0.33%, respectively! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.
Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.
If we plug in the current bid price of the CF.PR.C FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:
Price if Implied Bill
is equal to
Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, it seems likely that I will recommend that holders of CF.PR.C continue to hold the issue and not to convert, but I will wait until it’s closer to the June 15 notification deadline before making a final pronouncement. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions
This entry was posted on Thursday, June 1st, 2017 at 9:32 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.