RY.PR.O

This issue drifted into negative-YTW territory today, with a closing quotation of $25.70-78.

The redemption schedule is:

  • Redemption      2004-08-24      2005-08-23  26.000000
  • Redemption      2005-08-24      2006-08-23  25.750000
  • Redemption      2006-08-24      2007-08-23  25.500000
  • Redemption      2007-08-24      2008-08-23  25.250000
  • Redemption      2008-08-24   INFINITE DATE  25.000000

The redemption scenarios have been calculated by HIMIPref™ as:

 

  • Call  2006-09-28 YTM: -3.21 % [Restricted: -0.26 %] (Prob: 25.13 %)
  • Call  2006-11-27 YTM: 2.46 % [Restricted: 0.61 %] (Prob: 7.18 %)
  • Call  2007-05-26 YTM: 4.45 % [Restricted: 3.29 %] (Prob: 5.22 %)
  • Call  2007-09-23 YTM: 3.83 % [Restricted: 3.83 %] (Prob: 6.35 %)
  • Call  2008-09-23 YTM: 4.14 % [Restricted: 4.14 %] (Prob: 5.29 %)
  • Limit Maturity  2036-08-29 YTM: 5.38 % [Restricted: 5.38 %] (Prob: 50.82 %)

One interesting thing about this analysis is the inclusion of the scenario with the end-date of 2007-05-26. The HIMIPref™ constant OPTION_EXERCISE_CALCULATION_INCREMENT_PROBABILITY is currently set to 5% – therefore, since the Option calculation probability has crept up that much higher by 2007-05-26 than it was on the date of the previous entry in the optionCalculationList dated 2006-11-27 (which in turn was sufficiently higher than the previous threshold dated 2006-09-28), the redemption scenario is included in the calculation of portfolioYield

This issue pays $1.375 and given the $0.25 decline in call price annually, the net annual cost to Royal of the money is $1.125 – a tad more expensive than their RY.PR.A issue, but cheaper to them than RY.PR.B! I can’t say I’d bet much on it being around for more than two more years … but who knows? Maybe comparable new issues will be paying more than 5.5% dividends at that time.

Which, of course, is what makes this business fun!

This entry was posted on Tuesday, August 29th, 2006 at 9:23 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “RY.PR.O”

  1. PrefBlog » Blog Archive » RY.PR.O to be Redeemed says:
    October 19, 2006 at 10:05 am

    […] This is an interesting decision on their part. As noted in my previous post on this topic, the issue pays $1.375 and the premium was declining by $0.25 annually – implying a net cost to Royal of $1.125 annually for the $25 capital, which is quite competitive. […]

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