This issue was specifically queried on Financial Webring, which prompted my update of HPF.PR.B.
PAY.PR.A had a listingDate of 2002-3-19 and were quoted at the close 2006-11-22 at 25.57-84. They continue to be rated at their initial level of Pfd-1(low) by DBRS. The intent of the company is that they will be redeemed 2008-7-31 … about 20 months from now.
The balance sheet is reasonably solid:
| High Income Principal and Yield Securities Corporation, as of 2006-3-31 |
| Assets (thousands) |
| Preferred Repayment Portfolio |
64,138 |
| Other Assets |
37,323 |
| Total Assets |
101,461 |
| Liabilities (thousands) |
| Preferred Shares |
60,237 |
| Other Liabilities |
15,164 |
| Equity |
26,060 |
As far as I can make out from the prospectus, the “Preferred Repayment Portfolio” will be delivered in its entirety to CIBC on the termination date in exchange for the amount due on maturity of the prefs. This is a bit of bad new for the Capital Unit Holders (because it means the current excess value of $3,901,000 will be lost), but the pref holders don’t care!
The guarantee of the principal on PAY.PR.A means we don’t really have to worry about Asset Coverage: our major concern is whether the company will be able to pay the dividends in the intervening period. The revenue statement dated 2006-3-31 looked like this (simplified from the annual report):
| High Income Principal and Yield Securities Corporation, as of 2006-3-31 |
| Item |
Gain (Loss) [thousands] |
| Dividends & Interest |
821 |
| Management Fee |
(1,279) |
| Forward Agreement Fee |
(497) |
| Other Expenses |
(732) |
| Loss on repurchase of Prefs |
(71) |
| Pref Distributions |
(3,880) |
| Realized & Unrealized Capital Gains |
2,417 |
| Total |
(3,221) |
It should also be noted that the company, after achieving this loss, went on to distribute $3,211 (thousand) to Equity & Subordinate shareholders as a return of capital.
A mess! The equity shares had a NAV of $11.59 as of 2006-3-31 and currently, according to the manager (on a table that doesn’t tie in to the Annual report, just like with the HPF.PR.B), as of 2006-11-17, are down to $10.71. Not all that hot compared to the issue price of $20.00 … but the distributions have been nice! The whole thing just goes to show what happens when salesmen try to play Investment Manager … the biographies in the prospectus make the backgrounds of the principals pretty clear!
But what do we care? Split share corporations are a complicated way for greedy investors (who buy the capital units) to transfer money to conservative investors (who buy the prefs) and salesmen (who are generally the big winners in these things), and the company is serving its purpose admirably.
Since return of the preferred share principal is guaranteed (well, almost … there’s a few weasel words in the prospectus regarding possible cancellation of the agreement) the major issue is the dividends due between now and maturity in 20 months. Twenty payments of $0.1146 is $2.29 and this is covered reasonably well by the balance sheet since the capital units haven’t had any distributions since October 2005. Ha ha!
This issue is too short term to make a calculation of curvePrice meaningful, so don’t look to this post for advice on buying or selling the prefs! PAY.PR.A has a pre-tax bid-YTW of 4.05%, based on the 2006-11-22 closing bid of $25.57 and a maturity at $25.00 2008-7-31.
