OSP.PR.A No Longer Rated by DBRS

DBRS has announced (on May 15):

DBRS Limited (DBRS Morningstar) discontinued and withdrew its rating on the Preferred Shares issued by Brompton Oil Split Corp. following the downgrade of the Preferred Shares rating to D on April 9, 2020.

About 70% of the fund disappeared following the preferred shareholders exercise of their special retraction rights. There was widespread confusion over the calculated redemption price on this retraction, but it’s because they have two ways of determining security value for NAV calculation purposes, depending on the purpose of the calculation:

the value of any security, that is listed or traded upon a stock exchange (or if more than one, on the principal stock exchange for the security, as determined by the Manager) shall be determined by taking the latest available sale price of recent date, or lacking any recent sales or any record thereof, the simple average of the latest available offer price and the latest available bid price (unless in the opinion of the Manager such value does not reflect the value thereof and in which case the latest offer price or bid price shall be used), as at the NAV Valuation Date on which the NAV of the Company is being determined, all as reported by any means in common use. For a retraction or redemption of the Company’s shares, the value of the common shares will be equal to the weighted average trading price of such shares over the last three business days of the relevant month;

At one point, long ago, I discussed “gating” of mutual fund redemptions in times of serious illiquidity and suggested that the approaches being discussed were wrong; it wasn’t enough to delay the redemption, I argued, one also had to take an average of the daily prices over the delay period to calculate the final redemption price, because a simple delay simply moved the problem from “You are assumed to be selling all your securities at this particular price” to “You are assumed to be selling all your securities at that particular price.” For gating to be fair and effective, you have to calculate the price in a manner similar to that in which you expect the manager to accomplish the liquidation.

Unfortunately, I can’t find the posts where I discussed this. It has me very upset.

2 Responses to “OSP.PR.A No Longer Rated by DBRS”

  1. Szeven says:

    June 5, 2013 post?

  2. jiHymas says:

    A very good try, Szeven, but I’m sure that at some point I specifically discussed redeeming at the average price over the gating/waiting period.

    The June 5, 2013 post is close (and may trigger some kind of association for me), but was more about the need for capital to ensure Money Market Funds don’t break the buck.

Leave a Reply

You must be logged in to post a comment.