OSP.PR.A To Reset At 8.00% For One Year Term

Brompton Funds has announced:

As previously announced, the board of directors of Brompton Oil Split Corp. (the “Fund”) determined that it would extend the maturity date of the class A and preferred shares of the Company. Today, the board of directors announces that the new term of the Fund will be 1 year to March 28, 2024. In addition, the distribution rate for the preferred shares (the “Preferred Shares”) for the new term from March 31, 2023 to March 28, 2024 has been increased to $0.80 per Preferred Share per annum (8.0% on the original issue price of $10) payable quarterly. The new Preferred Share distribution rate is based on current market rates for preferred shares with similar terms. In addition, the Fund intends to maintain the targeted monthly Class A Share distribution rate at $0.10 per Class A Share.

The Fund invests in a portfolio of equity securities of large capitalization North American oil and gas issuers, primarily focused on those with significant exposure to oil. The Manager believes that the Fund’s strategy is well positioned to participate in opportunities that are expected to continue in the energy sector.

In connection with the extension, shareholders who do not wish to continue their investment in the Fund, will be able to retract Preferred Shares or Class A Shares on March 30, 2023 pursuant to a special retraction right and receive a retraction price that is calculated in the same way that such price would be calculated if the Fund were to terminate on March 30, 2023. Pursuant to this option, the retraction price may be less than the market price if the security is trading at a premium to net asset value. To exercise this retraction right, shareholders must provide notice to their investment dealer by February 28, 2023 at 5:00 p.m. (Toronto time). Alternatively, shareholders may sell their Preferred Shares and/or Class A Shares through their securities dealer for the market price at any time, potentially at a higher price than would be achieved through retraction, or shareholders may take no action and continue to hold their shares.

Thanks to Assiduous Reader RAV4guy for bringing this to my attention. As he suggests, the crucial question is “Will it stop the current owners retracting?”, following the 41% retraction of SBC.PR.A at the end of 2022 and the 75% retraction of OSP.PR.A itself in early 2020. Well, you got me! The issue has been trading slightly under par during January and the Whole Unit NAPVU is 14.62 as of 2023-1-26, much healthier than the 8.28 at the end of February 2020. On the other hand, DGS.PR.A is yielding 9.63% at its current bid price of 9.45, despite a Whole Unit NAVPU of 15.29 as of 2023-1-26. Added to which, OSP.PR.A is inherently less credit-worthy due to its concentration in the oil industry. So retraction, or a prior sale on the market at 10.00+, certainly looks attractive! The decision would be far more complex if Brompton had offered a longer term for that big fat 8.00%.

The capital units, by the way, are trading above intrinisic value at 4.85 VWAP, but volume is low and the price shot up on Friday and there hasn’t been a Capital Unit Distribution for quite a while. It won’t take much of a capital share consolidation following preferred retraction to get the distribution flowing again … could it be that Friday’s buyers are anticipating exactly that, to be followed by a pop in the capital units from those who look for dividend yield without qualifications or reservations?

5 Responses to “OSP.PR.A To Reset At 8.00% For One Year Term”

  1. Fuzzybear says:

    Enbridge just announced its series D won’t be redeemed, but is being reset to 5.412%

    Enbridge Provides Notice of Series D Preferred Shares Conversion Right and Announces Reset Dividend Rates
    CALGARY, AB, Jan. 30, 2023 /CNW/ – Enbridge Inc. (TSX: ENB) (NYSE: ENB) (Enbridge or the Company) announced today that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series D (Series D Shares) (TSX: ENB.PR.D) on March 1, 2023. As a result, subject to certain conditions, the holders of the Series D Shares have the right to convert all or part of their Series D Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series E of Enbridge (Series E Shares) on March 1, 2023. Holders who do not exercise their right to convert their Series D Shares into Series E Shares will retain their Series D Shares.
    With respect to any Series D Shares that remain outstanding after March 1, 2023, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The new annual dividend rate applicable to the Series D Shares for the five-year period commencing on March 1, 2023 to, but excluding, March 1, 2028 will be 5.412 percent, being equal to the five-year Government of Canada bond yield of 3.042 percent determined as of today plus 2.37 percent in accordance with the terms of the Series D Shares.

  2. […] Thanks to Assiduous Reader CanSiamCyp for bringing this to my attention! […]

  3. […] recently recently reset to 8.00% for a one year term and I suppose the fat coupon persuaded many holders to hang on despite the poor credit quality of […]

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