Intact Financial Corporation has announced:
that it has entered into an agreement with a syndicate of underwriters led by TD Securities Inc. together with BMO Capital Markets, CIBC Capital Markets, National Bank Financial, RBC Capital Markets and Scotiabank pursuant to which the underwriters have agreed to purchase, on a bought deal basis, 5,000,000 Non-Cumulative Class A Shares, Series 9 (the “Series 9 Shares”) from Intact for sale to the public at a price of $25.00 per Series 9 Share, representing aggregate gross proceeds of $125 million.
Intact has granted the underwriters an underwriters’ option to purchase up to an additional 1,000,000 Series 9 Shares at the same offering price exercisable at any time up to 48 hours before closing. Should the underwriters’ option be fully exercised, the total gross proceeds of the Series 9 Shares offering will be $150 million.
The Series 9 Shares will yield 5.40% per annum, payable quarterly, as and when declared by the Board of Directors of the Company. The Series 9 Shares will not be redeemable prior to March 31, 2025. On and after March 31, 2025, Intact may, on not less than 30 nor more than 60 days’ notice, redeem for cash the Series 9 Shares in whole or in part, at the Company’s option, at $26.00 per share if redeemed on or after March 31, 2025 and prior to March 31, 2026; $25.75 per share if redeemed on or after March 31, 2026 and prior to March 31, 2027; $25.50 per share if redeemed on or after March 31, 2027 and prior to March 31, 2028; $25.25 per share if redeemed on or after March 31, 2028 and prior to March 31, 2029; and $25.00 per share if redeemed on or after March 31, 2029, in each case together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series 9 Share offering is expected to close on February 18, 2020. The net proceeds will be used for general corporate purposes.
Stop the presses! This is the first new issue announcement since CM.PR.Y in May, 2019, and the first Straight since … since … for a long time!
This issue joins IFC.PR.E and IFC.PR.F as Intact Straight Perpetuals – sadly, no Implied Volatility analysis is possible since there are now only three of them.
This is close to double the rate at which their long term debt trades. Doesn’t seem like a brilliant move to me.
I think they want to keep their debt equity numbers reasonable while boosting their ROE numbers. To please both the parties, they create the mule category- the preferred shareholders. They carry the burden of both the debt holders and equity holders while enjoy neither the gains of equity holders nor the security of bond holders.
Funny comment, skeptical!
the preferred shareholders. They carry the burden of both the debt holders and equity holders while enjoy neither the gains of equity holders nor the security of bond holders.
The preferred shareholder still have plenty of first-loss protection granted to them by the equity shareholders. My best estimate is that the degree of actual additional credit risk borne by the preferred shareholders relative to bondholders (for an investment-grade company) can be compensated by 20bp of additional yield – the rest is gravy. Naturally, the thinner the slice of equity providing first-loss protection, the fatter the additional yield must be.
Yes sir James. I was just being facetious.
Your useful, thoughtful and insightful commentary has played a huge rule in getting me to appreciate this asset class.
Yes sir James. I was just being facetious.
Oh, I know that. And you know that. It’s just that sometimes I worry about novice investors – at least as far as this asset class is concerned – not knowing that, so sometimes I feel I have to clarify.
Canoe has a video on the website entitled Preferred Shares – Value or Value Trap. http://www.canoefinancial.com/news/video-insights/
This is from March 2019.
The presenter makes arguments against preferred shares.
I would be interested in any rebuttal to his arguments.
I believe that James’ post “Email to a client” http://prefblog.com/?p=29994 still applies today and maybe it should be pinned somewhere. It makes a good read specially when the preferred shares market goes down
At the end of the day for me it depends what you are expecting from your portfolio. If you are looking for yield and stability you are in the wrong place and should look at GICs. If you want a little more yield (more than double of a GICs), accept some or more volatility, possible capital gains someday welcome the preferred shares.
http://www.canoefinancial.com/news/video-insights/
…
I would be interested in any rebuttal to his arguments.
He has six points:
i) Late part of economic cycle : This is just market timing. I am not a big fan of market timing. He also says that preferred shares are ‘highly correlated with risk assets’, which is sometimes, but not always true. In any event, such correlation has very little to do with the investment merits of the position, although correlations that are not well founded in fundamentals can often lead to securities being rich or cheap for silly reasons; this is not discussed. He says the ideal is to ‘protect investors on the downside with high duration’ and I’m more than a little confused as to what he’s getting at with this.
ii) Expectations of rates have come down: More market timing, with a dose of behavioural investing.
iii) New Supply Overhang : As we found in the event, issuers are not so dumb that they sell huge quantities into a severely depressed market. I won’t criticize him for the actual call he made, since it’s too easy to criticize such things after the fact, but this is really just more market timing
iv) No new marginal buyers: More market timing with another dose of behavioural investing.
v) Quick sell-off, slow to recover: More market timing with another dose of behavioural investing. Geez, this is getting repetitive.
vi) Emergence of ETF market: More market timing with another dose of behavioural investing. In this case, though, he doesn’t look at the flip side of the coin: when ETF selling results in disproportionate losses to the underlying securities, this should logically mean that the liquidity premium on the underlying securities has increased above normal. At some point – and I won’t say at what point, because that’s a matter of opinion – this should, logically, make the underlying securities a screaming buy.
So basically, the whole video presented a stock-broker’s mentality. The purpose of investing is to buy stuff that will go up, hurray! And I am the guy with the uncanny ability to help you do it, hurrah!
There is nothing in this video that really addresses the fundamental characteristics of preferred shares and how they can be used (and very often misused) to accomplish the portfolio objectives of individual investors.
so, this Canoe guy wants us to buy his bond fund that yields 1.3% and is fully taxable. correct?
there are plenty of preferred shares out there. what about the perpetuals that were yielding close to 6% at the end of 2018? and have rallied substantially?
if i’m thinking fixed income, why would i not buy a good credit pref even today yielding over 5% dividend? vs a 30 year Canada bond at 1.30% interest?
Here’s a very relevant passage from the Intelligent Investor(emphasis mine):
If the reason people invest is to make money, then in seeking
advice they are asking others to tell them how to make money. That
idea has some element of naïveté. Businessmen seek professional
advice on various elements of their business, but they do not
expect to be told how to make a profit. That is their own bailiwick.
When they, or nonbusiness people, rely on others to make investment
profits for them, they are expecting a kind of result for which
there is no true counterpart in ordinary business affairs.
Everyone seeking investment advice should reflect on this very hard. There’s tonne of wisdom in this paragraph and those coming from the business side will marvel at what it conveys.