12 Responses to “October 27, 2023”

1. Lateralus Capital says:

   October 30, 2023 at 7:19 am

   Have a look Premium Income Corporation (PIC/A) capital share. The Net Asset Value is only $0.41 cents. The capital share pays around ~$0.20 cents per share quarterly and from my understanding its all return of capital so as the distribution is paid the NAV goes down. This means that if the underlying assets stay at the same value the NAV will go to zero after the next two dividend payments. The market value is $3.68 meaning that the capital share is trading at 9x its true net asset value. If the underlying Bank stocks within the Split Share Corporation go down by another 2.7% the NAV of the capital share will go to zero and they will have to stop the distribution. This is one of the most over-valued preferred share situations I’ve ever seen. Investors should be selling PIC/A while its trading at a huge premium to NAV before its too late.

2. DR says:

   October 30, 2023 at 8:11 am

   lateralus,

   what a joke.

   have you read the prospectus as to what happens when NAV on capital shares goes to zero? can they keep paying distributions at pref holders expense or must the thing be liquidated and prefs goto par (or near to assuming they liquidate exactly at nav=0)?

3. Lateralus Capital says:

   October 30, 2023 at 8:24 am

   They cannot

4. Lateralus Capital says:

   October 30, 2023 at 8:26 am

   they cannot pay a dividend to the capital share if the NAV is zero. I believe the manager will not make the next dividend on the capital share.

5. DR says:

   October 30, 2023 at 8:47 am

   fair enough but is there a forced liquidation mechanism? if not, suspect would suspend div on pref as well

6. Lateralus Capital says:

   October 30, 2023 at 9:01 am

   The prefs can retract and get par or $15.00 end of next year. In theory, if all the prefs get retracted then the value of the capital share gets crystalized at the NAV on the retraction date. There is a chance you get zero on the capital share. The market value is $3.70.

7. Lateralus Capital says:

   October 30, 2023 at 9:10 am

   what is also crazy is the yield to retraction on the PIC 5.75% pref is about the same as the yield on the capital share.

8. DR says:

   October 30, 2023 at 9:28 am

   know as much as john snow does about split shares but prospectus reads that redemption of prefs is 96% of lesser of:

   PAR or
   NAV of whole unit – cost to acquire a capital share in the open market

   so if capital shares continue to trade inflated, r u sure you can get 15 back?

9. Lateralus Capital says:

   October 30, 2023 at 10:05 am

   PIC has a Special Redemption feature which allows you to get back the lesser of $15.00 or NAV in November 2024. If you don’t retract its another 7 years I think before the next retraction. You are referencing the regular redemption feature.

   The NAV of the entire Corp is still > $15.00 so as of now you should get back $15.00 in around 12 months. The market price is $12.85 so ~20% IRR to the retraction date.

10. DR says:

    October 30, 2023 at 10:11 am

    got it.

    tend to boycott all securities that by their very existence constitute a crime against humanity as i see it thus my ignorance on split shares

    sure leave lots on table as a result

11. niagara says:

    October 30, 2023 at 1:36 pm

    Lateralus Capital,
    why do you say “The NAV of the entire Corp is still > $15.00 so as of now you should get back $15.00 in around 12 months.”. The NAV has fallen 16% just since end of July, surely it could fall a lot further in the next 12 months, so to say “should get back $15” is very confident. If the underlying bank shares weaken further, who knows? The NAV of a entire corps could be just $12 in 12 months time, which would mean that the prefs only have a NAV of $12.

12. Lateralus Capital says:

    October 30, 2023 at 3:20 pm

    correct. you are exposed to a decline in the value of the underlying

    you can hedge by buying puts on the underlying portfolio to the retraction date

    also, the bank stocks would have to go down by ~17% for you to lose money (NAV goes from $15.41 today to the market value of the pref $12.85). Factoring in 0.85 cents a year of dividends then bank stocks would have to go down by around 22% from here for you to have a negative return

    i agree the prefs still could be risky…my main point was that the capital share is grossly overvalued realtive to the pref