{"id":255,"date":"2006-11-08T15:23:50","date_gmt":"2006-11-08T19:23:50","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=255"},"modified":"2006-11-08T15:23:50","modified_gmt":"2006-11-08T19:23:50","slug":"bmopri","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=255","title":{"rendered":"BMO.PR.I"},"content":{"rendered":"<p>We&#8217;ve looked at <a href=\"http:\/\/www.prefblog.com\/?p=219\">BMO.PR.G<\/a> (YTW at the 11\/7 closing bid of $25.48 is -9.24%) and at <a href=\"http:\/\/www.prefblog.com\/?p=192\">RY.PR.K<\/a> (YTW at the 11\/7 closing bid of $25.52 is -10.64%), but there is another member of the OperatingRetractible Index that has a negative Yield-to-Worst.<\/p>\n<p>The option schedule for BMO.PR.I is:<\/p>\n<ul>\n<li>Redemption\u00a0\u00a0\u00a0\u00a0\u00a0 2005-11-25\u00a0\u00a0\u00a0\u00a0\u00a0 2006-11-24\u00a0 25.500000<\/li>\n<li>Redemption\u00a0\u00a0\u00a0\u00a0\u00a0 2006-11-25\u00a0\u00a0\u00a0\u00a0\u00a0 2007-11-24\u00a0 25.250000<\/li>\n<li>Redemption\u00a0\u00a0\u00a0\u00a0\u00a0 2007-11-25\u00a0\u00a0 INFINITE DATE\u00a0 25.000000<\/li>\n<li>Retraction\u00a0\u00a0\u00a0\u00a0\u00a0 2008-11-25\u00a0\u00a0 INFINITE DATE\u00a0 26.040000<\/li>\n<\/ul>\n<p>which, at the 11\/7 closing bid of $25.51, gives rise to the <a href=\"http:\/\/www.prefshares.com\/glossary.html#optionCalculationList\">optionCalculationList<\/a>:<\/p>\n<ul>\n<li>Call\u00a0 2006-12-07 YTM: 1.08 % [Restricted: 0.09 %] (Prob: 16.76 %)<\/li>\n<li>Call\u00a0 2006-12-25 YTM: -4.99 % [Restricted: -0.66 %] (Prob: 11.55 %)<\/li>\n<li>Call\u00a0 2007-12-25 YTM: 2.69 % [Restricted: 2.69 %] (Prob: 0.44 %)<\/li>\n<li>Soft Maturity\u00a0 2008-11-24 YTM: 3.60 % [Restricted: 3.60 %] (Prob: 71.25 %)<\/li>\n<\/ul>\n<p>So: YTW = -4.99%. If it makes it to the <a href=\"http:\/\/www.prefshares.com\/glossary.html#softMaturity\">softMaturity<\/a>, then the yield will be considerably greater (one might even call it respectable: 3.60% in dividends net of capital loss converts to 5.04% interest-equivalent <a href=\"http:\/\/www.prefblog.com\/?p=236\">for Ontario Investors who don&#8217;t need the money anyway<\/a>, which is a lot better than you can get at the bank for a two-year deposit &#8230; or in the bond market.<\/p>\n<p>There are clearly at least some people who are willing to slap some money on the table and bet that it won&#8217;t be called as soon as the call price declines to $25.25!<\/p>\n<p>There may be some validity to this view: BMO.PR.I pays $1.1875 p.a. as a dividend and BMO can save $0.25 by waiting an extra year before calling, giving the shares a net cash cost of $0.9375 for that year, which is simple interest of 3.71% on the $25.25 that they&#8217;d have to pony up for the shares, interest-equivalent of 5.20% using the shareholders&#8217; conversion factor &#8230; I&#8217;m not sure what factor the bank would use.<\/p>\n<p>I&#8217;d call it a tossup, really: the answer will be somewhat dependent upon BMO&#8217;s balance sheet objectives (since these are retractible, they get counted as long-term debt for capital calculation purposes &#8230; perpetuals with non-cumulative dividends get counted as equity) and their ability to refinance. Against that is the consideration that a new issue of prefs would come with <a href=\"http:\/\/www.prefshares.com\/glossary.html#issuanceCost\">issuance costs attached<\/a> of perhaps 3% of face value\u00a0(which is a major reason why immediate calls are not calculated to have a larger probability).<\/p>\n<p>\u00a0Tossups, feh. Paying $25.51 for this issue is taking too much risk for not enough return, according to me. HIMIPref\u2122 won&#8217;t recommend it, firstly because the <a href=\"http:\/\/www.prefshares.com\/glossary.html#eligibleForPurchase\">eligibleForPurchase<\/a> function doesn&#8217;t like the short-term nature of the instrument and secondly because the <a href=\"http:\/\/www.prefshares.com\/glossary.html#totalRewardAsk\">totalRewardAsk<\/a> is so low, which is largely due to the negative YTW.<\/p>\n<p>Attached to this post for your delectation and amusement are graphs of this issue&#8217;s <a href=\"http:\/\/www.prefblog.com\/wp-content\/uploads\/2006\/11\/BMOPRI_YTW_061108.pdf\">Yield-to-Worst<\/a> and <a href=\"http:\/\/www.prefblog.com\/wp-content\/uploads\/2006\/11\/BMOPRI_flatBidPrice_061108.pdf\">flatBidPrice<\/a> for the past year.<\/p>\n<p>BMO.PR.I has had a total return of 2.97%\u00a0since 2005-11-30, based on the following data reported by the <a href=\"http:\/\/www.prefshares.com\/glossary.html#performanceBox\">performanceBox<\/a>:<\/p>\n<div align=\"center\">\n<table border=\"1\">\n<tr>\n<td>Account Name<\/td>\n<td>Bank of Montreal Cl &#8216;B&#8217; Pr Series 6<\/td>\n<\/tr>\n<tr>\n<td>Account Number<\/td>\n<td>XXA40004<\/td>\n<\/tr>\n<tr>\n<td>Period From<\/td>\n<td>2005-11-30<\/td>\n<\/tr>\n<tr>\n<td>Period To<\/td>\n<td>2006-11-07<\/td>\n<\/tr>\n<tr>\n<td>Pre-tax Calculation<\/td>\n<td>Pre-Tax (approximate)<\/td>\n<\/tr>\n<tr>\n<td>Trade Date Valuations<\/td>\n<td>YES<\/td>\n<\/tr>\n<tr>\n<td>Tax Schedule ID<\/td>\n<td>-1<\/td>\n<\/tr>\n<tr>\n<td>Total Return for Period<\/td>\n<td>2.97%<\/td>\n<\/tr>\n<\/table>\n<table border=\"1\">\n<tr>\n<td colspan=\"3\">\u00a0<\/td>\n<\/tr>\n<tr>\n<td>Date<\/td>\n<td>Cash Flow<\/td>\n<td>Bid Price<\/td>\n<\/tr>\n<tr>\n<td>2005-11-30<\/td>\n<td>0.00<\/td>\n<td>25.95<\/td>\n<\/tr>\n<tr>\n<td>2005-12-30<\/td>\n<td>0.00<\/td>\n<td>25.75<\/td>\n<\/tr>\n<tr>\n<td>2006-01-31<\/td>\n<td>0.00<\/td>\n<td>25.85<\/td>\n<\/tr>\n<tr>\n<td>2006-02-01<\/td>\n<td>-0.30<\/td>\n<td>25.64<\/td>\n<\/tr>\n<tr>\n<td>2006-02-28<\/td>\n<td>0.00<\/td>\n<td>25.71<\/td>\n<\/tr>\n<tr>\n<td>2006-03-31<\/td>\n<td>0.00<\/td>\n<td>25.75<\/td>\n<\/tr>\n<tr>\n<td>2006-04-28<\/td>\n<td>0.00<\/td>\n<td>25.60<\/td>\n<\/tr>\n<tr>\n<td>2006-05-03<\/td>\n<td>-0.30<\/td>\n<td>25.34<\/td>\n<\/tr>\n<tr>\n<td>2006-05-31<\/td>\n<td>0.00<\/td>\n<td>25.42<\/td>\n<\/tr>\n<tr>\n<td>2006-06-30<\/td>\n<td>0.00<\/td>\n<td>25.47<\/td>\n<\/tr>\n<tr>\n<td>2006-07-31<\/td>\n<td>0.00<\/td>\n<td>25.75<\/td>\n<\/tr>\n<tr>\n<td>2006-08-02<\/td>\n<td>-0.30<\/td>\n<td>25.40<\/td>\n<\/tr>\n<tr>\n<td>2006-08-31<\/td>\n<td>0.00<\/td>\n<td>25.41<\/td>\n<\/tr>\n<tr>\n<td>2006-09-29<\/td>\n<td>0.00<\/td>\n<td>25.48<\/td>\n<\/tr>\n<tr>\n<td>2006-10-31<\/td>\n<td>0.00<\/td>\n<td>25.69<\/td>\n<\/tr>\n<tr>\n<td>2006-11-01<\/td>\n<td>-0.30<\/td>\n<td>25.40<\/td>\n<\/tr>\n<tr>\n<td>2006-11-07<\/td>\n<td>0.00<\/td>\n<td>25.51<\/td>\n<\/tr>\n<\/table>\n<\/div>\n<p>\u00a0<\/p>\n<p>which just goes to show that you usually\u00a0shouldn&#8217;t put money into issues with lousy YTWs, because you usually get burned!\n<\/p>\n<p><!--bbb2a9c41089cdce3c1f88f20ca7f797--><\/p>\n","protected":false},"excerpt":{"rendered":"<p>We&#8217;ve looked at BMO.PR.G (YTW at the 11\/7 closing bid of $25.48 is -9.24%) and at RY.PR.K (YTW at the 11\/7 closing bid of $25.52 is -10.64%), but there is another member of the OperatingRetractible &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"class_list":["post-255","post","type-post","status-publish","format-standard","hentry","category-issue-comments"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/255","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=255"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/255\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=255"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=255"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=255"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}