3 Responses to “May 27, 2020”

1. stusclues says:

   May 28, 2020 at 10:01 am

   “but an indication nevertheless of why issuers aren’t coming out with new issues!”

   Only two new issues since May 2019! These being PVS SplitShare, 4.70% in 7-Year and IFC Straight Preferred, 5.40%, both in February.

   I’ve been waiting for this lack of new issuance to self-correct as demand builds (yield seekers) and supply falls (through NCIBs and SIBs). This ought to increase prices across the board, thereby reducing the seniority spread and allowing new issues again. No such luck! Its hard to discern any impact at all so far.

   I’m either early or wrong about this but I’ll clip my coupons in the meantime.

2. peet says:

   May 29, 2020 at 2:19 pm

   You can add Fairfax to those who see better value in accessing the debt market rather than issuing more prefs: see their senior $ 650,000,000 10-year note issued April 24 at 4.625%.

   I note your comment that “I’ve been waiting for this lack of new issuance to self-correct as demand builds (yield seekers) and supply falls (through NCIBs and SIBs). This ought to increase prices across the board …”

   Interesting hypothesis, and I note it has been the subject of some commentary here in August 2019 and again in January 2020.

   As far as I can ascertain on-line, however, there are actually very few companies that have NCIBs for their prefs: BAM, Brookfield Office, Brookfield Properties, Atlantic Power, Dundee, Fairfax and most recently Innergex, and, finally, many split share companies. The Banks don’t seem to do them and neither do the regulated utilities, presumably because prefs are built into their capital structure and equity thickness calculations. In any event not all of these pref NCIBs actually get exercised, and the annual stipulated limits are quite modest, with BAM being the relative outlier.

   I am left with the impression that even if pref NCIBs result in some reduction in the supply, such reduction is so small that it would end up being immaterial in the overall pref market.

3. stusclues says:

   May 30, 2020 at 9:16 am

   “I am left with the impression that even if pref NCIBs result in some reduction in the supply, such reduction is so small that it would end up being immaterial in the overall pref market.”

   I generally agree with this statement to this point. However, as the Fairfax’s, banks and other entities continue to preferentially tap debt markets, the lack of growth of the supply of preferred shares still ought to run into a resurgence of demand from yield seekers once they stop worrying about capital loss (even if it is just mark to market loss, unrealized loss).

   So I think we at least have a force in motion to lean against increases in the seniority spread and to, ultimately, bring it back to something more normal.