Brookfield Infrastructure Partners L.P. has announced:
that it has determined the fixed distribution rate on its Cumulative Class A Preferred Limited Partnership Units, Series 1 (“Series 1 Units”) (TSX: BIP.PR.A) for the five years commencing July 1, 2020 and ending June 30, 2025.
Series 1 Units and Series 2 Units
If declared, the fixed quarterly distributions on the Series 1 Units during the five years commencing July 1, 2020 will be paid at an annual rate of 3.974% ($0.248375 per unit per quarter).
Holders of Series 1 Units have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on June 15, 2020, to reclassify all or part of their Series 1 Units, on a one-for-one basis, into Cumulative Class A Preferred Limited Partnership Units, Series 2 (the “Series 2 Units”), effective June 30, 2020.
The quarterly floating rate distributions on the Series 2 Units will be paid at an annual rate, calculated for each quarter, of 3.56% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly distribution rate in respect of the July 1, 2020 to September 30, 2020 distribution period for the Series 2 Units will be 0.96159% (3.815% on an annualized basis) and the distribution, if declared, for such distribution period will be $0.2403975 per unit, payable on September 30, 2020.
Holders of Series 1 Units are not required to elect to reclassify all or any part of their Series 1 Units into Series 2 Units.
As provided in the unit conditions of the Series 1 Units, (i) if Brookfield Infrastructure determines that there would be fewer than 1,000,000 Series 1 Units outstanding after June 30, 2020, all remaining Series 1 Units will be automatically reclassified into Series 2 Units on a one-for-one basis effective June 30, 2020; or (ii) if Brookfield Infrastructure determines that there would be fewer than 1,000,000 Series 2 Units outstanding after June 30, 2020, no Series 1 Units will be permitted to be reclassified into Series 2 Units. There are currently 4,989,265 Series 1 Units outstanding.
The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 2 Units effective upon reclassification. Listing of the Series 2 Units is subject to Brookfield Infrastructure fulfilling all the listing requirements of the TSX and, upon approval, the Series 2 Units will be listed on the TSX under the trading symbol “BIP.PR.G”.
BIP.PR.A is a FixedReset, 4.50%+356, that commenced trading 2015-3-12 after being announced 2015-3-4. It is tracked by HIMIPref™ and is assigned to the FixedResets (Discount) subindex.
Note that the tax treatment of distributions on BIP.PR.A are complex and change annually.
Hello. I follow closely this preferred issue of BIP because I own quite a lot of it. It’s been on a tear. It went up 50% since its low of October.
The average volume is about 4400 shares per day. Today, Friday July 19th, at 4pm, there was 150 000 shares exchanged. I was wondering how this works? Is this a pre-agreed deal between two big players (big in the sense that it is about $3.5M)?
Could it be possible that Brookfield Infrastructure was the buyer because they get a better price at $23 than at $25 if they decide to retire the shares next year?
Hi – it was added to the TXPR index as of today’s close which led to a large trade in the market on close. Presumably the CPD ETF buying.
Hi sacdechips.
BIP could be the buyer under its NCIB. I believe issuers are allowed to buy through block trades that exceed the daily limit. Once executed, the issuer is not allowed to buy under the NCIB for the rest of the week. Presumably the issuer prefers to block trade on a Friday!
https://bip.brookfield.com/press-releases/bipc/brookfield-infrastructure-renews-its-normal-course-issuer-bids-3
Hi IrateAR.
How do you get the info on index changes? Is there any benefit to trading ahead of it? Thx.
i would like to formally launch a petition to reinstate IrateAR as AstuteAR.
james, feel free to downgrade me if need be
DR, I will sign this petition conditional on backstory.
I am used to a press release for S&P500 rebalancing and the wagering around potential adds and drops. I spent a few minutes on the google machine and found nothing for TXPR changes. What the actual F?
The only pref NCIB trading recently is AX for small daily and BCE for the occasional block.
Yeah there’s no public notice for TXPR changes that I’m aware of. You need to give S&P/TSX a pile of money or ask nicely someone who does. They are good to know about.
“Irate” comes from the comments on the post below. “Astute” would be new! https://prefblog.com/?p=46046
To SonofFergus’s query, see
https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-tsx-preferred-share-index.pdf
Of note:
“Rebalancing
Index membership is reviewed quarterly. Rebalancing occurs after the close on the third Friday of January, April, July, and October. The reference date for additions to and deletions from the index is five business days prior to the first Friday of the rebalancing month. (p. 7)
What I find of note (and to Irate’s point about access to that information), you can get advance notice if you are a “client”:
“Index rebalancing announcements are made to clients after the close of trading on the first Friday of the rebalancing month, approximately 10 business days before the effective date” (page 11)
Thanks for the info peet.
If the purchase of 150 000 shares of BIP.PR.A was from CDP ETF through a block trade, I wonder how easy it was to find a seller of that size in two weeks!?
Is this a pre-agreed deal between two big players (big in the sense that it is about $3.5M)?
It will almost certainly have been arranged by the proprietary trading desk of one of the dealers.
As an institution, if you want to transact a good sized block of shares, you have a choice: you can do it on the open market (perhaps using an algorithm) which is time-consuming at best, and at worst other market players will figure out what you’re doing and adjust their prices accordingly so the trade will be more expensive to you.
Or you can call your friendly neighborhood prop desk and say ‘I want to execute such-and-such a trade.’ The degree of detail (sizes, prices, what if anything is on the other side) is up to you.
It is possible that the guy will say right away – ‘I can do that at 21.03 plus a nickel commission’ if the trade fits with his inventory and/or he thinks he can offload the position at better prices with the passage of time.
Or it is possible that he says – ‘Give the trade to me firm and I’ll work it’ … “firm” means that you are obliged to do the trade if he comes back with something that meets the specifications, unless you cancel first … so no shopping around allowed! If you want to shop it as well as showing it to him, it’s “subject” and he won’t work very hard on it. “Work it” means he pulls out his handy rolodex and thinks of all the clients he has and what interest any of them might have shown in the issue in question or ones like it. Then he calls them and says ‘I have a line on BIP.PR.A offered at 23.93. Interested?’
He does this all day long, typically makes his firm a great big pile of money every year (search for “David Berry” for a superb example of this, which is also a superb example of what it’s like to be too good at your job when you work for a bank), and gets very well paid.
“Irate” over wordpress! Akin to a nasty scar from a tumble down the stairs vs. a knife fight. Alas.
Index changes for paid insiders seems kinda like cheating. Throw it on the pile I guess.
BIP brethren BPO was very serious about its NCIB in Q1. I don’t really follow BIP so dunno if it would make sense to activate, though at $23 seems not.
I got very long of BPO starting Q4 for the reasons one would expect — tax loss selling, rates topping out, belief that the mother ship was not gonna let $3b of prefs pss in the punch bowl. When the NCIB was activated in Q1 (which I did not expect) the BPO pref complex marched up in a very pleasing way, trading up virtually every day. That march disappeared when BPO stopped buying, perhaps because the prices had recovered enough to appear reasonable.
That experience gave me the following insight: When a company *needs* the stock price to go up and it activates its buyback program, the price *is* going up, at least in the short term. You may remember when ADM had a wee accounting problem in Q1 and sold off 30ish%. It announced a buyback (which is more liberal than what the TSX allows I believe) and…presto…the price took back a good chunk of the selloff in short order Mission accomplished.
I have not backtested this theory (because that would take effort), but it has worked for me 100% of the 2 times I’ve been involved this year, meaning the trend cannot be denied. So, I am now very long of DHT.UN, which had some bad news last week (which I believe will not have a lasting effect), is terribly illiquid, and has an active buyback program. 3/3 so far!
I’m not sure if James is cool with posts not squarely within the pref share universe, but I’m hitting submit. Perhaps the global application to pref shares — illiquidity + active buyback = price goes up — has me covered lol.
Good luck to all of us!
James – That’s a good summary of how blocks work in general.
This one is a little different. Those friendly neighborhood prop desks are aware of index changes (officially two weeks ago as peet notes, or educated guesses could be made sooner) and the ETF holdings. Accordingly they can calculate the expected market on close trade ahead of time and have lots of time to buy up the shares. Then when a MOC buy order of 100k+ shares shows up today there are plenty of sellers competing to offset in the closing auction and the trade gets done in many different pieces all at the closing price.
the dave berry saga is far more than being good at block trading
he had a deal that compensated him on his dividend tax arbitrage book. scotia didnt want to pay him for what was ultimately a grey area with the CRA and likely posed an ongoing risk to the bank
years later the CRA did in fact pursue the banks for $6bb (and counting) due to these tax avoidance schemes (a small fraction of what was collectively avoided)
i believe that many of the recent taxes targeting the banks were simply because the CRA/govt were being bogged down in the courts and decided to tell the banks who in fact gets to make tax policy (remember flaherty’s about turn on income trusts?)
scotia didnt want to pay him for what was ultimately a grey area with the CRA and likely posed an ongoing risk to the bank
Hadn’t heard that part, but I consider it irrelevant (especially since Scotia would presumably have signed the deal in the first place) even if true. They set an army of accountants and lawyers on all his trades and counterparties to find anything, anything at all, that could be used to smear him and destroy his career.
I’ve heard that at least one asset management firm got told to cooperate with Scotia’s investigation or never trade with Scotia again.
Anyway, they found some crappy little stuff. Of course they did. Jesus Christ himself wouldn’t have survived an investigation of the intensity they put on.
So they pretended to be shocked, yes, shocked at his villainy and fired him so they wouldn’t have to pay him what he had earned.
That’s not tough. That’s just sleazy.
Those friendly neighborhood prop desks are aware of index changes (officially two weeks ago as peet notes, or educated guesses could be made sooner) and the ETF holdings. Accordingly they can calculate the expected market on close trade ahead of time and have lots of time to buy up the shares.
This is actually one of my hobby horses.
Pre-announcement of index changes mean arbitrageurs can get in front of the expected trades and make a bunch of money.
The ETFs couldn’t care less, because they’re buying the stock at the closing price on the effective day, which means they’re even with the index; tracking error is all they care about. And they don’t have to spend any money on analysis or take any risk either to achieve their goal! They can continue to staff their operation with part-time high-school students and still be bang-on the index!
The index providers pre-announce because ETF providers want to be bang-on the index, and the ETF providers are the customers of the index providers.
And retail won’t notice, because … they’re retail. They trust the index providers and ETF packagers to do a good job for them …. suckers! They’re paying the fat profits made by the prop-trading firms. Haha! Stupid retail scum!
Gentlemen, this has been a wonderful discussion. Thank you!!
james,
true he would have had a contract that called for a % of profits but when he ramped up the div arb book that was a whole different animal that needed a far lower payout structure. these books reaped billions in artificial “profits” via riskless transactions solely designed to reduce the banks overall taxation. The CRA has been in the courts trying to claw back as much as they are able. would have difficult for scotia to come and admit exactly where these “profits” came from because they aren’t profits at all but rather bogus tax deductions
the largest constructive dismal suit won prior to the berry case was for keiper&chapman who had a similar deal when at DS. they on the other hand were canned for making real profits largely by shorting some of the more creative accounting big cap names who also were large clients of RBC
as for the counterparts to the banks div arb practices? the CRA could literally subpoena virtually every single large pension fund in the country (among a host of others). they are all guilty and can chalk the whole practice up to canada leading the charge in what would later be referred to by yellen as the “race to the bottom” on corp taxation and lead to the GMT