Research : SplitShare Credit Quality (PrefLetter Version)

The innumeracy of regulators knows no bounds, so they permit statements in prospectuses such as:

In order to achieve the Company’s initial targeted dividends of $1.20 per Class A Share per annum, the Company will be required to generate an average annual return on the Portfolio of 8.58% if the value of the Portfolio is maintained intact until the Termination Date.

This calculation goes beyond the word ‘average’. Due to Sequence of Returns Risk, the required long term average will increase with the price volatility of the underlying portfolio, as the targeted dividends will be a significant cash drag on the company – just like a normal retirement portfolio!

In this essay, which was later distilled into a shorter version for popular appeal, I look at the determinants of credit quality for SplitShare preferreds.

Look for the research link!

This entry was posted on Monday, June 20th, 2022 at 10:12 am and is filed under Publications. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “Research : SplitShare Credit Quality (PrefLetter Version)”

  1. IS.PR.A Settles Firm On Excellent Volume « PrefBlog says:
    May 8, 2024 at 8:55 pm

    […] option premiums and dividends) on the Portfolio of approximately 10.38%.” Afficionados of SplitShare Credit Quality will knpw that given the presence of a cash drag, this requirement is highly sensitive to the price […]

  2. SBN.PR.A & TXT.PR.A Merge Into PGIC, PGIC.PR.A « PrefBlog says:
    September 14, 2024 at 12:08 pm

    […] it should be the lack of an NAV test on Capital Unit distributions – see here and here. The Capital Units have a Current Yield slightly in excess of 14% p.a. … at that rate, […]

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