p>Brookfield Infrastructure hasn’t announced anything, but their new issue of BIP.PR.E settled today.
BIP.PR.E is a FixedReset, 5.00%+300M500, ROC, announced January 15. It will be tracked by HIMIPref™ and has been assigned to the FixedResets subindex on the basis of its P-2(low) rating from S&P (it is not rated by DBRS).
The issue traded 421,809 shares today in a range of 24.85-00 before closing at 24.93-95. Vital statistics are:
| BIP.PR.E | FixedReset | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-01-23 Maturity Price : 23.13 Evaluated at bid price : 24.93 Bid-YTW : 4.96 % |
This issue looks quite expensive to me, according to Implied Volatility Analysis:
Click for Big
We see in this chart many of the same features we saw when reviewing the recent new issues of NA.PR.E, BEP.PR.M and CM.PR.S:
- The curve is very steep, with Implied Volatility equal to 40% (a ridiculously large figure), and
- The prior issues are trading relatively near to, or well above par
The ludicrously high figure of Implied Volatility is something I take to mean that the underlying assumption of the Black-Scholes model, that of no directionality of prices, is not accepted by the market; the market seems to be taking the view that since things seem rosy now, they will always be rosy and everything will trade near par in the future.
I balk at ascribing a 100% probability to this outcome. There may still be a few old geezers amongst the Assiduous Readers of this blog who can still (faintly) remember the Great Bear Market of 2014-16, in which quite a few similar assumptions made earlier turned out to be slightly inaccurate.
For the long term, I suggest that any change in the slope of the curve will be a flattening, with a very high degree of confidence. This will imply that the higher-spread issues will outperform the lower-spread issues.
All told, though, I have no hesitation in slapping an ‘Expensive’ label on this issue – according to the Implied Volatility analysis shown above, the theoretical price of the new issue is 23.41, down from the announcement day estimate of 23.50 – and, remember, that is before making any adjustments for the ridiculously steep Implied Volatility calculation curve.