PrefBlog

The yield-to-worst on POW.PR.B is now negative. It closed today at 26.46-65, but it is currently callable at $26.00:

This gives rise to: 

I’ve uploaded some graphs:

• Yield-to-Worst
• Flat Bid Price
• Modified-Duration-to-Worst

I can’t say I really understand why the price should have gone up so spectacularly recently. One can make the usual argument that since the redemption premium declines by $0.25 annually, the net cost to the company is not the coupon of 1.3375, but $0.25 less than this, or $1.0875, but this is less than the current financing cost only by half the saving. The company’s treasurer has the immediate option of reducing permanent costs by about $0.125 p.a. (gross of issuance costs), at the expense of a few years loss of charges … but this analysis assumes that the current refinancing level will be available a few years hence. It might not be.

And why should the price spike now?

The best an investor can reasonably hope for is a yield of 4.03% if it lasts until its $25.00 call; there are lots of issues with similar characterists that have such a yield without the risk of negative returns. The new RY.PR.D issue settles tomorrow and yields 4.50%. RY.PR.W has a yield to worst of 4.02%, with a 2014 call date, without the risk of an intervening call. The same can be said for POW.PR.D, pre-tax bid-YTW of 4.36% based on a call 2014-11-30, with no intervening call risk – and it’s a more active trader and the same name!

So the whole situation is very mysterious and I consider POW.PR.B to be very expensive at current levels.

Well, that’s a long headline, but I want to make sure nobody misses it!

In a press release issued today, BCE stated:

BCE also announced today that it will not move forward with the planned conversion into an income trust announced by the company on October 11, 2006. However, the company is continuing with previously announced plans to simplify its corporate structure and eliminate BCE’s holding company operations. As part of this process, BCE intends, at its next annual shareholders meeting, to change its name to Bell Canada Inc. and will have two operating businesses: Bell and Bell Aliant Regional Communications. Bell Canada also intends to change its name to Bell Inc. at the same time.

Under a plan of arrangement, and as part of the corporate simplification process, holders of Bell Canada preferred shares will be asked to exchange their shares for BCE preferred shares with the same series rights. The arrangement will also provide for a one-time special dividend of $0.20 per Bell Canada preferred share outstanding immediately prior to the exchange. The arrangement must be approved by the holders of common and preferred shares of Bell Canada, each voting as a class, at a special meeting to be held on January 23, 2007.

The previously announced offer is therefore cancelled. The market hadn’t been taking it too seriously anyway.

To summarize:

• There is no longer an offer for: BCE.PR.R, BCE.PR.S, BCE.PR.Y, BCE.PR.Z, BCE.PR.A, BCE.PR.C.
• There is no longer a cash offer for: BC.PR.B, BC.PR.C, BC.PR.E (or for the Series 15, BC.PR.A; or for the Series 16, BC.PR.D; which are not tracked by HIMIPref™)
• There is now an exchange offer with a special dividend sweetener for: BC.PR.B, BC.PR.C, BC.PR.E (and for the Series 15, BC.PR.A; and for the Series 16, BC.PR.D; which are not tracked by HIMIPref™)

Update: DBRS has confirmed the ratings of Bell Canada at Pfd-2, and of BCE at Pfd-2(low), removing them from review. They had been placed under review October 11.

Faircourt has announced that they propose to merge several of their public investment vehicles:

Faircourt Asset Management Inc. has announced that it will hold securityholder meetings on January 9, 2007 for Faircourt Income Split Trust, Faircourt Split Five Trust, Faircourt Split Seven Trust and Income & Growth Split Trust (the “Funds”). At the meetings, holders of units (“Unitholders”) and holders of preferred securities (“Preferred Securityholders”) of each of the Funds will be asked to consider the proposed merger (the “Merger”) of Income Split, Split Five and Split Seven into Income & Growth Split, to create a single trust (the “Continuing Trust”). Preferred Securityholders of the Funds will also be asked to consider the proposed exchange of preferred securities of each of Income Split, Split Five and Split Seven for preferred securities of Income & Growth Split (which will be the Continuing Trust) which, if approved, is expected to occur shortly following approval. Unitholders and Preferred Securityholders will also be asked to consider various amendments to the trust agreements and trust indentures of the Funds.

There is no indication that I can find, either on the company website or on SEDAR as to just what these “various amendments” might be.

Let’s hope the amendments include a declining premium on the preferred calls! I’ll keep everybody posted.

Yet another fine old preferred security will shortly be leaving us.

In a press release dated November 22, Transalta announced:

TransAlta Corporation (TSX: TA; NYSE: TAC) today announced it will redeem all of its 7.75% Preferred Securities (the “7.75% Preferred Securities”), which have an aggregate principal amount of $175,000,000, on Jan. 2, 2007 (the “Redemption Date”).  The redemption will be funded with short-term debt and is expected to reduce interest costs.

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I’ll just bet that’s the expectation! By more than 3% absolute, I’d guess or $5-million-plus annually!

It has been a long time since this paper was investment-grade … DBRS downgraded it from Pfd-2(low)y (the “y” meaning “hybrid”) to Pfd-3(high)y on December 12, 2002, but for a little while it was a fine trader. It will be missed, and it will be a long time before investment grade paper pays 7.75% again!