FTU.PR.B : Retract

As previously discussed, FTU.PR.B is extending term for “a further six year period from December 1, 2018 to December 1, 2024.” It is also boosting its dividend to 10%.

Don’t be confused by the dividend boost – that’s all just a bit of flim-flam. According to the company the NAVPU of the corporation was 8.53 on October 15, which is all there is to meet its preferred share obligations of $10.00 per unit. It seems likely that this value will have declined since then, given recent market downdrafts.

The implication is that the entire value of the company belongs – or should belong – to the preferred shareholders. Many will realize a loss when retracting, but consider this: if the preferred shareholders take their money and invest it in a similar underlying portfolio of stocks, they will get every single penny of gains that that portfolio can conceivably generate. If they leave their money with the company, then the best they can possibly hope for is their highly touted 10% dividend and a maximum of $10.00 per share … any excess will accrue to the capital unitholders.

I will agree that it is not likely that the company will be able to pay the 10% preferred dividend and increase its unit value above 10.00 prior to the extended maturity date of 2024-12-1. But it’s not impossible. And to the extent that it’s possible, that is an absolutely free, no-risk call option that has been granted to Capital Unitholders by preferred shareholders who choose to extend.

In addition to this statement of facts, I will remind preferred shareholders of my view that:

they are now invested in an expensive mutual fund (MER = 1.53% according to the 18H1 Semi-annual report) with cruddy returns (-1.09% since inception, vs. +3.62% for the S&P 500 Financial Index, according to the 2017 Annual Report).

Holders of FTU.PR.B should retract them.

Remember November 1 is the deadline for notifying the company of retraction, so preferred shareholders who have not yet instructed their brokers to retract should not waste any time. Brokers and other intermediaries will normally have internal deadlines a day or two in advance of the company’s deadline, but will usually pass along instructions received after this date (but before the company’s date!) provided you grovel in a sufficiently entertaining fashion.

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