4 Responses to “October 26, 2022”

1. artsfols says:

   October 27, 2022 at 9:33 am

   I believe the word is ‘precipitously’ not ‘precipituously’. (Your grammar police department – serving and protecting the nation from a decline in language skills.)

2. Prefhound says:

   October 27, 2022 at 3:48 pm

   James:
   I got my big Brookfield reorg notice today describing a spin out from (yet also into) BAM. Very hard to figure out what is going on here for the common shareholders, never mind the Floating Rate BAM.PR.E on Page 31 (or the bonds). It looks like Pref owners get a small piece of equity and reduced redemption price if the Plan of Arrangement goes ahead. It is less clear whether the equity is new BAM or old BAM (If old then do we end up with 2 small pieces of equity?). And what are those small pieces worth?
   It is pretty clear that Brookfield insiders seem to want more of the top of the food chain and less of new BAM.
   What do you have to say about this for the Pref holders? We have only about a week to decide whether to support the proposal or not.

3. cwrea says:

   November 1, 2022 at 11:49 am

   Re: @Prefhound’s remark: “It looks like Pref owners get a small piece of equity and reduced redemption price if the Plan of Arrangement goes ahead.” … that is my interpretation as well.

   I’ve read through relevant parts of Brookfield’s October 6th management circular w.r.t. “Affected Preference Shares”; i.e. the series 8 BAM.PR.E and the series 9 BAM.PR.G. I think there’s a very interesting side effect of the “Applicable Fraction” calculation described on page 31 using the redemption prices to determine how much equity of the new asset manager. I’ll describe by way of example:

   Let’s assume one has $5400 today and that BAM.A is trading at $54 (in reality not far off) and that BAM.PR.E is trading at $18 (in reality not far off), and that the market price of BAM.A remains stable at $54 until the transaction, and that the sum of the parts that follow remain consistently valued or better. If one were to use the $5400 to purchase 100 shares of the current BAM.A at $54 each before the transaction, then after the transaction one would have: 25 shares of the new Brookfield Asset Management, and 100 shares of parent Brookfield Corporation. Given the post-transaction consistent valuation assumption, your positions remain worth ~$5400. If management’s hopes and dreams to “enhance long-term value” (i.e. reduce the conglomerate discount) do come true, maybe you do better than that.

   Alternatively, if one were to use the $5400 to purchase 300 shares of series 8 BAM.PR.E at $18 each before the transaction, then after the transaction, and assuming the “Butterfly Proportion” described in the circular remains 0.12, then after the transaction one would have: 35 shares of the new Brookfield Asset Management plus some cash for a fraction of a share, and 300 shares of the new preferred issue BN.PR.E with reduced redemption value of $22.44. The market value for the new prefs would tend toward $15.84/share on account of reduced dividend resulting from reduced par value. But, ceteris paribus, shouldn’t the 35 shares of the new BAM received on the basis of $3.06 in _redemption price_ given up exceed the $2.16 in _market value_ given up? I’m thinking of this as a “fractional redemption” opportunity. (And BAM.PR.G could be even more compelling on this basis, but if you keep holding the resulting BN.PR.G you’re stuck with a worse yield for some time yet.) Somebody please correct me if I’m wrong? Of course it could all go sideways.

   Disclaimer: Not my day job. I am a software developer, not a financial analyst.

4. November 2, 2022 « PrefBlog says:

   November 2, 2022 at 7:47 pm

   […] PerpetualDiscounts now yield 6.56%, equivalent to 8.53% interest at the standard equivalency factor of 1.3x. Long corporates have posted an awesome recovery recently to yield 5.49%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has gaped wider to 305bp from the 260bp reported October 26. […]