Fortis Inc. has given notice:
that Fortis Inc. (the “Corporation”) has calculated the annual fixed dividend rate (the “Annual Fixed Dividend Rate”) for the five-year period from, and including, September 1, 2023 to, but excluding, September 1, 2028 (the “Subsequent Fixed Rate Period”) for the Corporation’s Cumulative Redeemable Five-Year Fixed Rate Reset First Preference Shares, Series G (the “Series G First Preference Shares”) in accordance with the terms of the Series G First Preference Shares incorporated in the provisions of its articles. The Annual Fixed Dividend Rate for the Subsequent Fixed Rate Period shall be equal to 6.123% per annum, being equal to the 3.993% yield to maturity of a Canadian dollar denominated non-callable Government of Canada bond with a term to maturity of five years as quoted as of 10:00 a.m. (Toronto time) on August 2, 2023 on the display designated as page “GCAN5YR Index” on the Bloomberg Financial L.P. service, plus 2.13%.During the Subsequent Fixed Rate Period, dividends on the Series G First Preference Shares shall, if, as and when declared by the directors of the Corporation, be payable quarterly at the Annual Fixed Dividend Rate.
This information is not on the Fortis website, nor is it on SEDAR. I obtained the document from Investor Relations. Presumably the company sent the notice to its only registered shareholder, CDS, with the hope that CDS would notify the brokerages and the brokerages would notify their clients. Ha-ha! We all know how careful the brokerages are to pass on every scrap of relevant information, don’t we?
FTS.PR.G was issued as a FixedReset, 5.25%+213 that commenced trading 2008-5-23 after being announced 2008-5-6. It reset to 3.883% in 2013 and to 4.393% in 2018.
Note that this issue does not have an option to convert into FloatingResets – the structure was very new at the time of issue and provisions had not yet standardized although, of course, there is nothing stopping a new issuer from coming out with an equivalent issue.
It is now having the highest yield it ever had. Higher than in the 08 crisis and in march 20200. Unless I am mistaken, which would not be the first time.
In James’ 2009 essay titled FixedResets: Break-Even Rate Shock, he established a relationship between FR and perpetual preferred shares. If market pricing for Fortis perpetuals (F/J) is rational, the relationship implies that the hypothetical new issue spread of a Fortis FR should be ~1.5%. It is currently ~5.2%.
Clearly the FR/perp relationship is not working now. Why? I think a lot of stems from a hyper-focus on current yield and market participants’ overconfidence in their yield curve projections.
James’ 2009 essay … he established a relationship between FR and perpetual preferred shares
And here’s a link! Research: Break-Even Rate Shock (PrefLetter Version)
Thanks, I will have a look into it. It should help me wrap my head around what is happening now.