Quadravest has announced:
Financial 15 Split Corp. (the “Company”) is pleased to announce it will extend the termination date of the Company a further five year period from December 1, 2020 to December 1, 2025.
The term extension allows holders of FTN Class A Shares (“Class A Shares”) to continue to receive ongoing leveraged exposure to a portfolio consisting of high-quality financial services companies made up of Canadian and U.S. issuers, as well as receiving targeted monthly distributions. Since inception of the Company Class A shareholders have received monthly distributions totaling $20.28 per share.
Holders of the FTN.PR.A Preferred Shares (“Preferred Shares”) are expected to continue to benefit from cumulative preferential monthly distributions. The Preferred shareholders have received a total of $8.56 per share since inception.
The extension of the term of the Company is not expected to be a taxable event and should enable shareholders to defer potential capital gains tax liability that would have otherwise been realized on the redemption of the Class A Shares or Preferred Shares at the end of the term, until such time as such shares are disposed of by shareholders.
In connection with the extension, the Company will have the right to amend the minimum rate of cumulative preferential monthly dividends to be paid to the Preferred Shares for the five year renewal period, commencing December 1, 2020. Any change to the Preferred Share minimum dividend rate for the extended term will be based on market yields for preferred shares with similar terms at such time and will be announced no later than September 30, 2020. The Company has the right to establish the rate of cumulative preferential monthly dividends to be paid to the Preferred Shares on an annual basis.
The Company invests in a high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows: Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Toronto-Dominion Bank, National Bank of Canada, Manulife Financial Corporation, Sun Life Financial, Great-West Lifeco, CI Financial Corp, Bank of America, Citigroup Inc., Goldman Sachs Group, JP Morgan Chase & Co. and Wells Fargo & Co.
So we’ll see what dividend rate they’re offering next September! The NAVPU was 11.49 as of 2020-4-15, so unless equities do well over the next five months it will have to be pretty good!
Hat tip to Assiduous Reader JD for bringing this to my attention!
The rates on these split-share resets have all been good, most pay around 4.5% to 5.5%.
For several reasons I prefer these. Biggest reason is because they can be redeemed (for a price) !
They are not the same as other rate-resets of individual companies. However, they have retained their values better than rate-resets. OSP is the only one that I know of (although there probably are others) that have lost a lot of their value. Since they do trade within 80%-90% of their NAV, the “rate of return on current-purchase” is currently lower.
Is there any way to list the preferreds as a discount to book? I am a deep discount guy and only want to purchase securities below book. This gives me the potential for capital gains in an area that has seen primarily only losses for many years?
Is there any way to list the preferreds as a discount to book?
I’m not sure what you mean. Can you show an example of such a Split Preferred and show calculations that show the discount to book?
There always seems to be a focus on yield on preferreds but with most trading at substantial discounts to issuance price I would like to see them listed on price as well. For example Husky A preferreds trade at a substantial discount; their gain from the lows of $4 to current at $6 is in the neighbourhood of 50%. This makes yield pale in comparison.
“There always seems to be a focus on yield on preferreds but with most trading at substantial discounts to issuance price I would like to see them listed on price as well.”
Then create yourself a list using a spreadsheet. What’s difficult here? At the $6.12 close on Friday and the GOC5 at 0.39%, HSE.PR.A would reset at 8.6% in March 2021. This is a spread of 8.21%. They were issued to reset at a spread of 1.73%. Quite a difference. To understand if they will go higher than $6.12, you need to understand the spread they will trade at in the future. Who is going to do this for you for free?
IMO all of the Husky preferreds will have a higher market price (spreads will fall) in 12 months. Quite a bit higher.
with most trading at substantial discounts to issuance price I would like to see them listed on price as well.
I don’t want to put any words in your mouth or make any assumptions, so I’ll just ask: do you consider price to be a predictor of future performance or risk? In either case, why?
For example Husky A preferreds trade at a substantial discount; their gain from the lows of $4 to current at $6 is in the neighbourhood of 50%.
As far as I can make out, HSE.PR.A has posted returns comparable to the other three HSE FixedReset issues. Do you assert otherwise? Based on what data?
I am a deep discount value guy. So I focus on margin of safety. Buying a dollar bill for 50 cents or less. Similar to what Peter Cundill did successfully for many years. Liquidation analysis stuff. For example Dundee preferreds are fully backed by shares of Dundee Precious Metals. At $10.00 for a $25 preferred they were 40 cents on the dollar. Now they have a deal to sell off their DPM shares so they will likely do a substantial issuer bid by next week. So yes I believe buying shares at a deep discount provides me with above average returns with a high margin of safety as well. Husky is only an example. I don’t own them but I do own both Dundee issues. I can show you the performance of a closed investment like my RRSP over many years if you want to see data.
“I am a deep discount value guy. So I focus on margin of safety. Buying a dollar bill for 50 cents or less.”
They are perpetual instruments so the only way HSE.PR.A ever gets back to $25 is if Husky can one day somehow issue new preferreds at a spread of 1.73% or if Husky calls them. Either is possible, of course, but you better be prepared to hold them for decades.
If you want to understand how they are discounted relative to the other Husky issues or to comparable issuers, then you need to do some math and make some assumptions.
” …with most trading at substantial discounts to issuance price I would like to see them listed on price as well.”
James has made the relevant point: how can market price per se be a predictor of risk or future performance? Dan Good hasn’t addressed that, but replies by invoking Peter Cundill and that
“I am a deep discount value guy. So I focus on margin of safety … Liquidation analysis stuff”
The above comment moves the goalposts and, other than with respect to Split shares, also strikes me as more or less irrelevant to my investment decision. As Stuclues points out, you have to assume, absent more, that prefs are perpetual instruments. So don’t you want to value the investment on a going-concern basis? Even a “comfortable” liquidation value doesn’t exactly become a ringing endorsement to commit to a perpetual instrument.
I am a deep discount value guy. So I focus on margin of safety. Buying a dollar bill for 50 cents or less. Similar to what Peter Cundill did successfully for many years. Liquidation analysis stuff. For example Dundee preferreds are fully backed by shares of Dundee Precious Metals. At $10.00 for a $25 preferred they were 40 cents on the dollar.
If you’re looking for high Asset Coverage ratios that’s one thing – but a straight listing of preferred shares by price will give you zero information in that regard because such a bare listing will have zero information about the assets covering the obligations.
BBD.PR.B was quoted at 4.92-95 at the close today, less than twenty cents on the dollar, and it’s still got pretty awful credit quality. RY.PR.R was quoted at 25.00-08, a dollar on the dollar, and it’s got superb credit quality. What’s more, RY.PR.M, quoted at 15.10-50 or a little over sixty cents on the dollar, has credit quality every bit as good as that of RY.PR.R.
I do not believe your statement that “Dundee preferreds are fully backed by shares of Dundee Precious Metals” has any basis in fact. It is true that they’ve just sold a big stake in DPM and it is true that they do have a Normal Course Issuer Bid for their preferreds, on which they spent a little under $1-million in 2019 and it is true that the DC preferreds have popped quite handsomely in the past week … but to go from there to “fully backed”, implying a contractual obligation, is simply speculation.
Following the link to DanGood’s prefblog handle leads me to his webpage which reveals that he heads a small wealth management enterprise for folks who clearly have a problem identifying a knowledgeable manager. While prefblog replies obviously should be wide open for honest questions from people of all abilities, and deserving of polite replies, DanGood needs to be held to a higher standard (since he is likely peddling his deep discount drivel to our friends and family).
He dropped in here with a poorly articulated claim that somehow the discount (from par!) of preferred shares implies deep value. Then he disappears after some well meaning attempts – especially by James and Peet (mine was more irritable) – to respond. What could have been an interesting discussion ends in frustration. C’mon DanGood, is this all you’ve got?
I could go on for days but running a mutual fund dealer is irrelevant to my passion for deep discount investing except that it led me Peter Cundill’s way of thinking many years ago. I had my eureka moment with preferred shares when I bought a small oil producers shares at under $5 and they bought me out at $11 or so a few months later. In 1988 I actually gave the Cundill funds shit during their annual meeting as they held Canada Nortwest Energy shares and preferreds at the same time. When the company got bought out they lost just as much on the commons as they made of the preferreds. I simply asked them why you would buy commons when the preferreds were 25 cents on the dollar? Their next meeting in Vancouver in 1990 I had to promise them I wouldn’t ask anymore questions but could meet Peter for an hour one on one. I have owned various cheep shares over the years including Northwest Trust shares I probably bought for $1 or less and did well when they got bought out by Canadian Western Bank. I recently attended a meeting put on by a CI mutual fund manager and brought up Royal Trust preferred shares (Gentra) that held the real estate spun off from the trust company that RBC did not want. The rest of the story is the preferreds eventually attained full value of $25 when they were trading at less than $10. The manager was arguing that Royal Trust never went under. So I don’t want to date myself.
As for price being irrelevant this is true unless you do follow up work. It is the starting point for me as I obviously only want highly discounted shares. I am looking for not just asset coverage but liquid cash assets. So I would argue EL preferreds are safer than Royals since they have a portfolio of securities that can be sold quickly. Bombardier or even Husky I would not touch obviously due to risk. For example I had a substantial investment in Transglobe Energy debentures a few years ago because their debentures were fully backed by cash on their balance sheet, you could buy cash at 80 cents on the dollar with a $1 payout in just over a year. Anderson was 40 cents on the dollar and went to zero.
As for Dundee having a $25 contractual obligation I defer to management discourse in November which is available as text (online) where they actually state the $25 as an obligation. We will see in a day or too what they do. I’m betting on a substantial issuer bid. That is also mentioned in the discourse,
I’m not looking for “converts” or attention I just would like to see a list of preferred share prices like Globe Investor used to do on convertible debentures. Most mutual mangers such as Dan DuPont cringe when they see me when I ask them why they hold CI shares at 5 times book when I am shorting them. And I have had a few fair value legal battles with TSX listed firms – look at Morgan Financial’s last financial statements on SEDAR – but want a quieter life now.
I agree with your assessment of the Dundee prefs – wish I had bought more of them.
DanGood this was your original question … “Is there any way to list the preferreds as a discount to book?”. Some of us tried to uncover what you meant, which in the end still looks like a list based on discount to par … which I maintain (and now so do you) “is irrelevant unless you do follow up work”.
So why not just run a screen of preferreds for price or yield?
I also own Dundee’s B/D series. Their low price did first interest me. When I did follow up work, I realized there were two key bets there. One was on the gold price and the second was that DPM could execute. Both bets clicked and I made a lot of money here but I never thought for a moment of them as trading below 50 cents on the dollar. My thought process was that if both bets came true, then the market would demand a much lower spread and re-price them possibly as high as $20, especially in the case of an SIB and reasonable re-allocation of the dollars from the sale of DPM (which has not been DC.A’s strong suit during the last decade).
HSE.PR.A (another of your examples) is indeed cheap by my calculations but not because it is trading below 25 cents on the dollar. I think it is trading about 33-50% of where it may go once the market decides that spreads above 8% are way too high to demand. I own HSE.PR.G though because I ignore the discount to par and instead focus on relative value. Perhaps your “follow up work” would lead to the same conclusion.
So now that you have dialed back your comment to just looking for opportunities based on low price in the market. Fine. I think most readers here do the same. Still unclear why you want a table.
Correction. HSE.PR.A is by my calculations 50% to 2/3 of where it may land within a reasonable time frame. Not 1/3. I was too speedy and spoke upside down 🙂
As for Dundee having a $25 contractual obligation I defer to management discourse in November which is available as text (online) where they actually state the $25 as an obligation. We will see in a day or too what they do. I’m betting on a substantial issuer bid. That is also mentioned in the discourse,
Well, of course they have a $25 contractual obligation. That is reiterated every time they publish a balance sheet, which lists the outstanding par value of their preferreds.
What they do not have is any obligation at all to use the proceeds of the DPM sale to buy back the preferreds.
They have that option, certainly. And you can do an analysis and come up with any probability you like of them using any proportion you like to buy back the shares. But that will be an analytical projection, not a contractual obligation.
In their 19Q3 Earnings Release (available via http://dundeecorp.com/news.php ) it was stated:
I’m not sure whether that is the “discourse” to which you refer.
Well, there are always a lot more NCIB announcements than there are actual dollars spent, and as I noted above they only spent about $1-million on preferred buy-backs in fiscal 2019. Now that the DPM deal has been signed, maybe they’ll spend a little bit more; or maybe they’ll just use the cash in other ways. I don’t know; but there will always be speculators willing to make a bet.
I just would like to see a list of preferred share prices like Globe Investor used to do on convertible debentures.
I’m not familiar with such a list but, as discussed, I’m not sure how useful such a list would be without a great deal of additional work on my part from which I can’t see much opportunity for profit.
And I have had a few fair value legal battles with TSX listed firms – look at Morgan Financial’s last financial statements on SEDAR – but want a quieter life now.
I can’t find any items for “Morgan Financial” on SEDAR and the only listing that comes up with a search for “Morgan” is “PKM Canada Limited (formerly, Kinder Morgan Canada Limited)”. Can you be more specific?
I was thinking the discourse more like this, talking about the buy backs:
Like it’s compelling to buy the As if you believe that the accretive value for net asset value is going to cause the stock price to move, and there’s debate around that. And the benefit to the preferreds is that we take – the ones we bought, we bought at around $15 per – and take – get rid of a $25 liability and we save the dividend. So we’re going to look at both sides and work, and then we’ll make a decision once we raise more cash and we have the ability to fund some of these acquisitions.
Andrew Hood
Right. And that cash raising is as of now mainly from dispositions? And then you said you’re looking at potential financings maybe?
Robert Sellars
We haven’t really hit the bid on either. We’ve got a couple auctions that we could do if we needed to raise some cash. We’re trying to manage our cash without incurring any debt because other than having an interest rate swap to get rid of the debt like the 2s and 3s and incur debt, I’m not certain now that puts us that much further ahead.
This is from Morgan Financials last annual report – sorry it was in 1997.
We have advised you for some time that Morgan’s dissolution depended on its ability to satisfactorily resolve
the dissent and appraisal action brought by a small number of shareholders following the shareholder vote to sell
Westbury. We settled with one of the dissenting shareholders in 1996 at eight cents a share and, in December 1997, we
settled with the two remaining shareholders for a total payment for their shares of approximately 10.5 cents a share,
$80,000 in total above Morgan’s original offer.
It is management’s belief that Morgan and its shareholders benefited significantly from the settlement of the
lawsuit. Firstly, settlement saved Morgan the time, expense and uncertainty of a trial. Secondly, with the receipt of the
federal income tax clearance (see below) Morgan is now able to distribute its assets. Had the lawsuit not been settled,
the distribution to you would have been further delayed.
Ì appreciate all the work you do and obviously enjoy the site. I am not familiar with how you obtain the information you do so if it is additional work I`m good with what you provide. Thanks.
Thank you James and Stusclues for all of your detailed [ and, I might add, very patient] comments :-).
I was thinking the discourse more like this, talking about the buy backs:
Oh, OK, that was the 19Q3 earnings call transcript (free registration required, with extra spam).
In the latest earnings call today they literally stated `they are thinking about it`with respect to a substantial issuer bid on the preferreds. Timeline `maybe a month to a month and a half`.I have never seen a more poorly run company as Dundee as all of their investments are heading south except Dundee Precious Metals which they are selling off. Akin to Detroit Tigers trading away Verlander and then going something like 0 for 21 straight losses at home. If you were a manager of a baseball team that was the worst in baseball – Detroit – you would likely became aware of the possibility that baseball is just not your sport and move on. With Dundee they actually believe they can invest in other companies and have then turn a profit when their batting average is less than .100. Seriously what is there to think about. Get rid of the Preferreds.
Mr. Good, I don’t want to go down the rabbit hole again, but now my patience is gone.
You have not been shy in using Prefblog to advertise what you feel are your talents as an investment advisor. Nor have you been shy about using this blog to basically tout Dundee as an investment. You have indicated that being a “deep discount value guy”you have skin in the game, being a pref shareholder of Dundee. You have also gone on to assert that the prefs are “fully backed” by the shares of DPM, and that Dundee is likely to use its cash to buy back its prefs, very soon.
You didn’t persuade me but you must have impressed at least one reader of Prefblog who felt compelled to post that he “agreed with your assessment if the Dundee prefs — wish I had bought more of them”.
Now you post that you “have never seen a more poorly run company as Dundee” , with a dismal investing history to boot, and conclude “What is there to think about. Get rid of the Preferreds.”
I am too polite to post what I think of this sort of behaviour!
What is also important in these preferred is the ability to get the principle back. It was assumed that a high credit quality would mean you will get your $25 (and vice versa).
However, with some of these preferreds (ie RY.PR.M), it is also important to know when you will get your principle back. In the case of the “Ms”, its most like in the 20-100 of years (if at all)… but the “Rs” might get called back in 5-10yrs.
Clipping the coupon is one thing, but the ability to get the principle back is equally as important . Because its unlikely any of these companies will ever redeem these shares (even AAA). This is why I won’t buy any more of the “perpetual preferreds” any more. These low interest preferreds will likely never be bought out at par, so all your really buying is the “income stream”.
If you don’t believe me, just look at how few of these perpetual preferreds were redeemed at “par” !!!
Just for the record, I have no problem at all with Mr. Good using his business site as the link for his user-name on PrefBlog.
I would like it if more people did this – either with their business site, if their identity is bound up in that, or their Linked-In profile, or their Facebook page or whatever they think might be useful to people wondering ‘who is this guy?’
I have five websites listed on my Financial Wisdom Forum posts. There’s been some grumbling about this in the past, but nothing that ever came to anything. I am HIMI. HIMI is me. As long as I don’t turn every post into a lengthy advertisement for my firm and services, I can’t see it as being a big issue.
Mr. Good asked for a table – presumably published regularly – ordering preferred shares by price. He did so politely, answered all my questions about why he wanted such a table and, when turned down, accepted my decision with good grace. I only wish all my interactions with strangers went so well!
He didn’t get his table, but I got information about how others approach the preferred share market. That information is now tucked away and may get used someday. I think I’m ahead on the deal!
Mr. Good also stated his investment thesis favouring the Dundee Preferreds. Regardless of what one thinks of that thesis, there was certainly enough power in it to move the preferreds up nearly four bucks, over 30%, over the course of a not particularly enthralling week for preferred share investors. And, most impressively, now that new information has come in via the Dundee 20Q1 earnings call, that chips away a little bit at the probability of that thesis being realized, he has volunteered that information and revised his opinion … before the market has moved.
That’s integrity. That’s intellectual honesty. I only wish all other investors on public forums were as willing to change their opinions publicly when new information came in.
So by all means, disagree with Mr. Good, poke whatever holes you can into his arguments, refuse to act on his recommendations, whatever you like … but let’s just argue about ideas here. If any of us understood the market perfectly, none of us would be on PrefBlog anyway; we’d all be on a Caribbean island trying to set a world record for ‘amount spent on hookers and blow’.
A quick look through my spreadsheet of fixed preferred shows as per today:
HSE.PR.A 5.79
BBD.PR.D 5.85
TRP.PR.B 7.9
TA.PR.D 7.92
I was skeptical too about the utility of such list but since Dan Good proved us otherwise the list required by him can be obtained quite easily. Google “list of preferred shares”. I used the list provided by TDDI, but in this case you have to have the president account status (over 1 mil invested per family with them). It does not have to be up to date, but it helps to be quite recently. Once you find a list, import it in a google spreadsheet(copy and paste all cells from the pdf or through an excel spreadsheet) and replace the columns you are interested in with this google finance formula:
=GOOGLEFINANCE(substitute(A123, “.PR.”,”-“), “name”)
=GOOGLEFINANCE(substitute(A123, “.PR.”,”-“), “price”)
A123 is the column that contains the preferred share symbol (e.g. HSE.PR.A).
If you are interested in only the price, the list is easy to maintain (only to add the new issued fixed preferred shares), but if you want to calculate YTW you will have to maintain it and modify the reset yield and the date. I use the prefblog for this.
Such lists can be quite useful. At the end of March I used a list of perpetual preferred shares to identify and buy, with some luck too, GWO.PR.G at over 8% and SLF.PR.A at 7.59%.
Good luck,
PS:-If you have other tips please let us know. Next time I will pay more attention to it.
-If you do not find a list with preferred shares let me know and will email you the last list available from TD.
Further to my previous post here is a list of (almost) all fixed preferred shares. Paste it in a google spreadsheet, use the google formulas, sort it by price and you will have your list:
Symbol
AIM.PR.C
AIM.PR.A
AQN.PR.A
AQN.PR.D
ALA.PR.G
ALA.PR.A
ALA.PR.E
ALA.PR.K
AX.PR.A
AX.PR.E
AX.PR.I
AZP.PR.B
BCE.PR.Z
BCE.PR.T
BCE.PR.A
BCE.PR.C
BCE.PR.K
BCE.PR.I
BCE.PR.Q
BCE.PR.R
BCE.PR.G
BCE.PR.F
BCE.PR.O
BCE.PR.M
BIR.PR.A
BBD.PR.D
BAM.PR.G
BAM.PF.B
BAM.PF.E
BAM.PR.T
BAM.PF.A
BAM.PF.F
BAM.PR.X
BAM.PR.Z
BAM.PR.R
BAM.PF.G
BAM.PF.H
BIP.PR.A
BIP.PR.B
BIP.PR.C
BIP.PR.D
BIP.PR.E
BIP.PR.F
BIK.PR.A
BPO.PR.A
BPO.PR.T
BPO.PR.C
BPO.PR.R
BPO.PR.P
BPO.PR.N
BPO.PR.E
BPO.PR.G
BPO.PR.I
BRF.PR.C
BRF.PR.A
BEP.PR.G
BEP.PR.I
BEP.PR.K
BEP.PR.M
BEP.PR.O
CF.PR.A
CF.PR.C
CU.PR.C
CU.PR.I
CPX.PR.E
CPX.PR.A
CPX.PR.C
CPX.PR.G
CPX.PR.I
CPX.PR.K
CSE.PR.A
CIU.PR.C
DC.PR.B
EFN.PR.E
EFN.PR.C
EFN.PR.A
EFN.PR.G
EFN.PR.I
EMA.PR.C
EMA.PR.F
EMA.PR.A
EMA.PR.H
ENB.PR.Y
ENB.PR.B
ENB.PR.D
ENB.PR.F
ENB.PF.K
ENB.PR.H
ENB.PR.N
ENB.PR.P
ENB.PR.T
ENB.PF.C
ENB.PF.E
ENB.PF.G
ENB.PR.J
ENB.PF.A
FFH.PR.E
FFH.PR.G
FFH.PR.I
FFH.PR.K
FFH.PR.C
FFH.PR.M
FN.PR.A
FTS.PR.G
FTS.PR.K
FTS.PR.M
FTS.PR.H
GMP.PR.B
HSE.PR.A
HSE.PR.C
HSE.PR.E
HSE.PR.G
INE.PR.A
NPI.PR.C
NPI.PR.A
PPL.PF.A
PPL.PF.C
PPL.PF.E
PPL.PR.A
PPL.PR.G
PPL.PR.C
PPL.PR.E
PPL.PR.I
PPL.PR.K
PPL.PR.M
PPL.PR.Q
SJR.PR.A
TA.PR.D
TA.PR.F
TA.PR.H
TA.PR.J
TRP.PR.B
TRP.PR.D
TRP.PR.E
TRP.PR.C
TRP.PR.A
TRP.PR.G
TRP.PR.J
W.PR.K
BMO.PR.C
BMO.PR.Q
BMO.PR.S
BMO.PR.T
BMO.PR.W
BMO.PR.Y
BNS.PR.Z
CM.PR.O
CM.PR.P
CM.PR.R
CM.PR.Q
CWB.PR.B
CWB.PR.C
CWB.PR.D
EML.PR.A
EQB.PR.C
GWO.PR.N
IAF.PR.G
IFC.PR.A
IFC.PR.C
IFC.PR.G
LB.PR.H
MFC.PR.F
MFC.PR.G
MFC.PR.H
MFC.PR.I
MFC.PR.J
MFC.PR.K
MFC.PR.L
MFC.PR.M
MFC.PR.N
MFC.PR.O
MFC.PR.Q
NA.PR.A
NA.PR.S
NA.PR.W
PWF.PR.P
PWF.PR.T
RY.PR.H
RY.PR.Z
RY.PR.J
RY.PR.M
RY.PR.Q
SLF.PR.G
SLF.PR.H
SLF.PR.I
TD.PF.A
TD.PF.B
TD.PF.C
TD.PF.G
TD.PF.D
TD.PF.E
TD.PF.H
TD.PF.L
Excellent. I will give it a whirl. This is all “theory” based on the book Security Analysis by Benjamin Graham who was Warren Buffets teacher. My spider senses go off when I read about the seniority spread being at or near historical highs and $25 preferreds trading below $10. Cheap debentures are where you want to be since they give you the most security and have a maturity date then preferreds and lastly commons. Perpetual yields above 6% are just too hard to pass up when Governments pay close to zero. So I think investors will be greatly rewarded with preferred share investing and this is the area I want to be in. I also short high price/book stock like BRP which have a negative book value but this is not an area I would ever recommend if you want to keep your sanity. I tried Husky common at $10 and got handed my head so investing in the preferreds would likely have been better. As for me linking my name to my website believe me I am not that astute. I have no control over this site.
Dealing with your May 13 post, James, it’s always good to have your perspective and you’re right to call out excessive criticism if that is what it is.
That being said, rightly or wrongly, I hold the posts of someone who promotes himself as an investment professional to a higher standard than the rest of us, and I am with Stusclues on that one. The reality is that words matter and it is not always helpful to point out the obvious, that there is no contractual relationship and no legal duty of care, nor is the professional required to “justify” his or her viewpoint.
However, once Mr. Good chose to go public with an investment thesis that Dundee was a good investment, that he does “liquidation analysis stuff” to come up with a “deep value” opportunity in this case fully backed by the DPM investment and now its partial monetization, with the added bonus of a likely share buyback coming soon, he owned that post.
So, dealing with the May 13 post which provoked my reaction, while you write that the conference call chipped away a bit on this investment thesis, Mr. Good never said that. What he now wrote is that that he has never seen a more poorly run company and that Dundee had a dismal history of investing. None of that happened overnight, nor did COVID. The DPM investment / monetization is still there and according to Mr.Good a buy-back of the prefs in the market is still an option, albeit pushed back at least month or so, and of course it’s as tentative or even speculative as it has always been. So if Mr. Good had good reason to change his views from one day to the next I would applaud him for his insight and apologize for my earlier tone, but that sort of beg the question.
James: “Just for the record, I have no problem at all with Mr. Good using his business site as the link for his user-name on PrefBlog. ..I would like it if more people did this ”
Mr. Good: “As for me linking my name to my website believe me I am not that astute. I have no control over this site.”
???
Dodoi – doesn’t your broker have a screener tool? Most do and it is a whiz to generate a sorted table based on price, yield or various other metrics.
DanGood – I remain highly skeptical of your thesis that big discounts to par are meaningful to an investment decision but generating a list and methodically going through it can definitely yield some interesting investment candidates.
I agree with James, understanding how others think is very valuable. The more people who ignore relative value (inter- and intra-issuer) in pursuit of (meaningless) absolute value, the better for me and others who don’t.
Also, in support of peet’s open question, I too wonder how DanGood can on the one hand be pretty darn certain about the “obligation” of Dundee pay out $25 on the preferred shares, then to openly speculate about the value of those same shares due to what he inferred from a conference call. As a holder of those preferred shares (including presumably on behalf of clients), he would stand to benefit by others liquidating their positions.
I do agree though that Dundee’s assertion that they have something special to offer in the way of accumulating equity in mining interests with the proceeds from DPM is far from confidence inspiring and forces me to consider calling it here and deploying my proceeds elsewhere. Or does it? 🙂
Dodoi – doesn’t your broker have a screener tool? Most do and it is a whiz to generate a sorted table based on price, yield or various other metrics.
it does not have other metrics that am interested in like type of preferred, reset date, term of reset (GoC5y+), YTW, rating
My thesis has not changed on Dundee preferreds just the frustration on management in not being able to look at themselves and admit what they are good at and not good at. They are not good at investing so they should return the cash from the DPM shares back to the preferreds to extinguish their dividend obligation since they really have no operating company giving them ongoing cash. And yes they still might do this. Will they ever pay me $25 to get rid of me? Not likely. I was a shareholder of Dundee Realty shares in the past – I bought them in the aftermath of 9/11 and they took them private a few years later. 50 cents on the dollar stuff. Liquidation stuff. Legally they were required to pay fair value but an independent valuation priced their shares higher than the offer price. So I dissented my shares legally and demanded they pay me fair value when all other shareholders accepted the original offer. I had been to pre-trial previously with Folger Rubinoff representing me in 1996 demanding fair value for my Morgan Financial shares which were bought out by RBC to get into the insurance business. What I learned is that you do not “win” in situations like this you “settle”. So I settled with Dundee on my Realty shares at the same price as everyone plus legal fees. Since Dundee was using the same legal firm against me as Morgan had I simply asked for for the same amount of legal fee reimbursement as previously with Morgan. They paid. Everyone maintained face. My legal fees were zero since I knew more about the dissent process than Dundee so I came out ahead.
If you are looking for data to back up deep discount vale investing just pick up a copy of The Intelligent Investor by Benjamin Graham and go to the back pages where it shows you the track record of investors using this method. I can attest to its success as I have been practicing it for 30 plus years. And yes I am a professional but not because of my affiliation with the mutual fund firm I founded. You need less than a high school degree to get a mutual fund license.
Mr. Good: “My thesis has not changed on Dundee preferreds, just the frustration on management in not being able to look at themselves and admit what they are good at and not good at. They are not good at investing so they should return the cash from the DPM shares back to the preferreds … And yes they still might do this. Will they ever pay me $25 to get rid of me? Not likely. ”
So does this mean that the entire investment thesis was premised on a “return” of the cash from DPM? Was that premise any more certain before May 13 than after? How is that “deep value” investing?
“If you are looking for data to back up deep discount vale investing just pick up a copy of The Intelligent Investor by Benjamin Graham and go to the back pages where it shows you the track record of investors using this method.”
Developing investment theses based on the ideas of Benjamin Graham is pretty solid stuff. Just ask Warren Buffett and Prem Watsa.
Buying Dundee’s preferred shares because they are deeply discounted to a logical terminal value is not the same as buying them because they are discounted deeply to par value. But go ahead DanGood and continue to think so.
???
When you fill in the “website” field of your user information, your username is automatically hyperlinked to the website specified.
24 hours after posting here that it’s a no-brainer, get rid of the prefs, Mr. Good is now plugging Dundee prefs on Stockhouse:
“Dundee can do a substantial issuer bid on the preferreds but will likely wait until DPM gets pushed above $8 so the warrents will become exercised and then they can really get some cash. This can make a substantial difference to them of just under $100 million in cash within 12 months. Dundee cannot buyout all the preferreds at under $25. As a shareholder upon takeout you are legally entitled to fair value with a fair value calculation done by an independent third party. … It would be difficult if not impossible to argue the preferreds were not worth $25.”
He sure doesn’t give up, does he! I could comment on the above in more detail, given a background in corporate law, but what’s the point.
Mr. Good is now plugging Dundee prefs on Stockhouse: … “Dundee cannot buyout all the preferreds at under $25.”
Wow.
Suggesting that the Normal Course Issuer Bid could be significant is one thing … as noted above, they spent about $1-million in 2019 and according to the 20Q1 earnings call they bought about 58,000 shares in 20Q1, a little under $100,000-worth.
And suggesting that they might do a Substantial Issuer Bid (e.g, a tender for anywhere up to X-Million shares at $Y per share) is within the realm of possibility. They could probably soak up a lot of shares if they bid $17 for them and made it clear that that was the limit. In the earnings call they did mention the possibility, while carefully avoiding any dollar figures.
But suggesting that $25 is a serious potential target sounds to me like something of a pipe-dream. Why would they bother? It’s not like the ludicrous RON.PR.A tender, where Lowe’s was willing to pay a premium so that RON would no longer be a reporting issuer and could be fully integrated into Lowe’s without any paperwork. If Dundee buys back all its preferreds, it will still be a reporting issuer and won’t realize any advantages beyond the merely financial. I don’t see it, I just don’t see it at all.
I very rarely look at Stockhouse (the quality of the discourse is … um … well, you know what I mean), but the thread of interest is here.
Why pay a crazy premium when you can buy more next year ? The price probably won’t go anywhere if one keeps quiet. That is what Brookfield is doing.
Yes, RON.PR.A was a different story. There was money to be saved by not having it on the exchange, etc as you mentioned.
However, sometimes you never know……
Quadravest has announced:
“Toronto, Ontario – May 11, 2020 / Globe NewsWire: Financial 15 Split Corp. (the “Company”) announced today that the Toronto Stock Exchange (the “TSX”) has accepted its notice of intention to make a Normal Course Issuer Bid (the “NCIB”) to purchase its Preferred Shares and Class A Shares through the facilities of the TSX. The NCIB will commence on May 13, 2020 and terminate on May 12, 2021.
Pursuant to the NCIB, the Company proposes to purchase, from time to time, if it is considered advisable, up to 4,380,754 Preferred Shares and 4,408,758 Class A Shares of the Company, representing 10% of the public float of 43,807,547 Preferred Shares and 44,087,585 Class A Shares. As of May 1, 2020, there were 43,830,474 Preferred Shares and 44,094,874 Class A Shares issued and outstanding. Subject to TSX temporary blanket relief, the Company will not purchase, in any given 30-day period, in the aggregate, more than 876,609 Preferred Shares or more than 881,897 Class A Shares, being 2% of the issued and outstanding Preferred Shares and Class A Shares as of May 1, 2020.
The Board of Directors of the Company, on the advice of Quadravest Capital Management Inc., the Company’s investment manager, believes that such purchases are in the best interests of the Company and are a desirable use of its funds. All purchases will be made through the facilities and in accordance with the rules and policies of the TSX. All Preferred Shares or Class A Shares purchased by the Company pursuant to the NCIB will be cancelled.”
Wow, the second post related to “FTN.PR.A to be extended” — the other 39 posts related to Dundee 🙂
LCS/SBC/DGS/LBS (Brompton funds) split preferred shares trade at 5-15% discount to NAV ( all the Nav’s are over $10.xx).
PIC/WFS (Strathbridge) split preferred shares trade at 20%-25% discount to NAV (Thurs nav were $14.67/$10)
It would probably safe to assume the above companies are buying back some of their shares as well, or will be shortly. This may then force some Class A shares to be called at NAV (as in OSP recently) because of the mismatch of shares.
(NOTE: I hold WFS currently. I have held LBS/PIC/DGS in the past)
Sorry Pete for posting not 100% directly related to FTN. However it was related to their Normal Course Issuer Bid.
Good grief, don’t apologize … you were in the right thread. What I should have added earlier is my query to James– if I go into your search function on Prefblog, this mass of posts does not show up under “Dundee”. James put quite a bit of effort into his posts and there is value overall in any exchange of opinions … so, just wondering, is there an easy way for James to “reclassify” or relocate a lengthy exchange on another topic? I know nothing about web management and have no idea if this is even possible, let alone NOT more work for James.
“But suggesting that $25 is a serious potential target sounds to me like something of a pipe-dream. Why would they bother? … If Dundee buys back all its preferreds, it will still be a reporting issuer and won’t realize any advantages beyond the merely financial …”
Right! DanGood’s stated strategy related to Dundee is BS and the idea that he peddles it to clients is sad. Is Dundee more likely than Husky or Canaccord or Bank of Nova Scotia to wipe out preferreds in their capital structure (takeover or otherwise), who knows? Not DanGood that’s for sure and certainly not when, the latter bit which is highly relevant to the annualized rate of return on the investment.
There is a misinterpretation here in an earlier post where I said get rid of the preferreds in relation to Dundee. I was appealing to Dundee to do so not the general holders of the preferreds. As it should be a no brainer decision for management. Deep value investing means only purchasing securities when they trade at a substantial discount to underlying value. This gives you a margin of safety. Cash is easy to value. Other assets such as real estate not as much. It is also a humble approach meaning you don’t try to predict the future. You literally just buy cheap stuff and see how it goes. Husky preferreds will be interesting. Bombardier is worth a negative amount so this is a no go zone. And I don’t need to peddle investment ideas to mutual fund clients. In fact I want the opposite. Most really cheap stuff is highly illiquid. I want the price to stay low so I can buy as much of it as possible. It is a different way of thinking. I have had theoretical discussions with Peter Cundill on Stelco preferred shares versus the common. I have had discussions with Berkshire on buying Westbury Canadian which was owned by Morgan Financial in the 1990s. Cool stuff. No egos. I only opened up because someone mentioned “is that all you’ve got”.
So now it’s obvious that Mr. Good’s “investment thesis” is premised on Dundee “getting rid” of the prefs through a SIB.
So let’s look at that thesis.
If Dundee wants to “get rid” of the prefs, they will do the SIB … or maybe not. How they apply the DPM monetization is essentially up to them. The same for any bid price. It too will be at determined by whatever Dundee thinks it can get away with to get the number of prefs it wants.
Right now the prefs are trading in the mid-teens. The $25 that kept being mentioned by you is irrelevant if most pref holders think they are lucky to be offered, say, $ 17.
If you don’t agree with what is being offered, you don’t have to accept. Your refusal to accept provides you with no “leverage” over Dundee. The one, entirely speculative, scenario is where for some reason that I can’t think of they really really want to cancel 100% of the prefs. If they already own 90%, they can do a compulsory acquisition under Part XV of the Business Corporations Act; if not, they have to sweeten the pot for everyone and not just you.
Contrary to what you have claimed on Stockhouse, Dundee is not “legally required” to get a third party valuation to support its bid price under the SIB. Typically a formal valuation may be provided by management if it supports their offer price. And in a compulsory follow-up acquisition under Part XV, dissident shareholders have to apply to court and the Court will fix the value, and often each side will have “their” evaluator or the Court can appoint its own expert.
No investment professional should claim that “Dundee cannot buyout all the preferreds at under $25.”
I was looking at Quadravest’s website and I see that they have announced NCIB for split share corporations DF, DFN, FFN and LFE as well as the one for FTN posted above. I initially thought the announcement for FTN was good news for my holdings of FTN.PR.A, but by looking at a few days of prices I now see the market price of FTN+FTN.PR.A is normally a goodly amount above the NAV. The NCIB will likely only being acted upon when the market price is lower than the NAV, which could be in the time of a panic.
Rav4Guy… “I now see the market price of FTN+FTN.PR.A is normally a goodly amount above the NAV”
Check out WFS… the pref+capital is trading at slightly below NAV. Hence why I only hold that one right now.
Thank you mbarbon. I was not aware of WFS or the other Strathbridge split share offerings.
SNC did new issuance of shares…. Of course, why not !! Premium to NAV of the Capital+Preferred was very high !!
According to my calculations, the NAV of the combined is up 27c today.,, Yet the Capital shares down 20c and the preferreds down 4c. Very non-typical if it wasn’t for the issue !!
Note NAV is still below the current market price of the shares (and thats a 58c swing).
Woops, that was SBC … typo….
fyi
SBC/SBC.pr.a are now trading at a discount of approx 20c.
WFS (which I hold) is trading for roughly a 40c discount (which is less than it was a week ago). Note it is a thin trading stock.
I’m adding this comment on July 22 2020 given the lively discussion in May about the Dundee preferred, Dan Good’s investment hypothesis, and the supposed benefits of buying prefs trading at a deep discount to par.
Dundee has just announced [ http://dundeecorp.com/news.php ] a Dutch action for the DC.PR.B. The range is between $ 16 and $18.50. They last traded around $ 16.50.
James’ comment May 15 with respect to Dundee [ that “They could probably soak up a lot of shares if they bid $17 for them” ] seems even more appropriate now.
Thanks, peet!
See DC.PR.B : Dutch Auction Issuer Bid for discussion … and please, everybody, let’s continue this thread on the new post!