PrefBlog

I will admit to being fascinated at the prospect of client retractions of income-trust-based split share corporations over the next few months.

Energy Split II Corporation has announced that only about 1.547% of the preferred shares outstanding will be redeemed in order to match Capital Units tendered separately.

This is much less than I would have expected; as shown on the company’s website, the NAV got hammered in the aftermath of the Hallowe’en Massacre, with the Capital Units losing almost 28% of their NAV from the October 26 valuation to November 30. They mature next December anyway; it is interesting to note that the only prior redemption possibility, in 2005 after a year on the market, called only about 5.4% of the shares outstanding.

However, they somehow managed to continue trading at a premium to NAV – as much as 33% as measured on November 2 – and so it was in the interest of Capital Unitholders to sell in the marketplace rather than retract – to the tune of almost 5% on November 30.

The prefs don’t trade much (averageTradingValue of just over $5,000) and are not eligible for recommendation by HIMIPref™ since pseudoModifiedDuration (Cost) of buy side less than minimum setting : the pseudoModifiedDurationCost is 0.886 and the minimum setting in the current parameterization is 1.020.

Still, y’know: These things have a pre-tax bid-YTW of 5.22% based on their hard-maturity on 2007-12-16 at $25 (because those who buy prior to the ex-date of 2006-12-12 will be getting five dividend payments in a year-and-a-few-days) so some hopeful souls may wish to put in a bid at $25.01, given that the current quotation is $25.00-$26.00, 54×1.

This entry was posted on Monday, December 4th, 2006 at 10:35 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.