{"id":32267,"date":"2006-09-13T11:10:17","date_gmt":"2006-09-13T15:10:17","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=106"},"modified":"2006-09-13T11:10:17","modified_gmt":"2006-09-13T15:10:17","slug":"fortis-new-issue","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=32267","title":{"rendered":"Fortis New Issue!"},"content":{"rendered":"

Fortis Inc has announced<\/a> that they will be issuing a new series of prefs: perpetuals paying 4.9% (= $1.225 per share annually).<\/p>\n

\u00a0These become redeemable Dec. 1, 2011 at $26.00, the redemption price declining by $0.25 annually until redeemable at $25.00 on and after Dec. 1, 2015.<\/p>\n

\u00a0It’s a bought deal\u00a0by Nesbitt, issue size 5-million shares = $125-million. The issue is rated only Pfd-3(high) by DBRS [but P-2(low) by S&P], so if purchased, it should be purchased cautiously. Don’t put a lot of eggs in this basket! I’ll comment on relative valuation later today.<\/p>\n

Update:<\/strong> OK, I’m looking at it … a\u00a0final opinion will have to await the final prospectus, but preliminary indications are not good.<\/p>\n

There’s not much to which it can be directly compared:\u00a0There are only two other P3H (DBRS<\/a>) fixed-rate perpetuals: FAL.PR.H, with an annual dividend of $1.625; and LB.PR.D, paying $1.50. Both are high-coupon with imminent call dates and cannot be considered directly comparable.\u00a0<\/p>\n

There are three index-included issues to look at, priced near par:<\/p>\n

\n\n\n\n\n\n
Issue<\/td>\nPrice (bid, 2006-09-13 close)<\/td>\nDBRS Rating<\/td>\nDividend<\/td>\n<\/tr>\n
MFC.PR.B<\/td>\n25.00<\/td>\nPfd-1(low)<\/td>\n1.1625<\/td>\n<\/tr>\n
RY.PR.B<\/td>\n25.20<\/td>\nPfd-1(low)<\/td>\n1.175<\/td>\n<\/tr>\n
RY.PR.A<\/td>\n24.73<\/td>\nPfd-1(low)<\/td>\n1.1125<\/td>\n<\/tr>\n<\/table>\n<\/div>\n

The MFC.PR.B commence their redemption eligibility 2010-3-19 at $26.00, declining by $0.25 annually until redeemable at par commencing 2014-03-19. So even from this very rough comparison, you’re giving up the credit quality of Pfd-1(low) to buy Pfd-3(high) and only picking up $0.0625 annual dividend for the exchange, which seems pretty niggardly. According to Royal Bank trading prices, if we can assume for a minute they’re trading fairly (not really!) that’s worth less than $0.50.<\/p>\n

When we perform an indirect comparison (via the yield curve) vs. every issue in the (HIMIPref\u2122) universe, we come up with a total intrinsic value of the cash flows of $23.07, which isn’t very good:<\/p>\n

\n\n\n\n\n\n\n\n
Price due to base-rate<\/td>\n24.06<\/td>\n<\/tr>\n
Price due to short-term<\/td>\n0.07<\/td>\n<\/tr>\n
Price due to long-term<\/td>\n0.73<\/td>\n<\/tr>\n
Price\u00a0due to Cumulative Dividends<\/td>\n0.00<\/td>\n<\/tr>\n
Price due to Credit Spread (3)<\/td>\n-1.85<\/td>\n<\/tr>\n
Price due to error<\/td>\n0.06<\/td>\n<\/tr>\n<\/table>\n<\/div>\n

which to a large extent confirms our suspicions that arose when we looked at the better quality near-par perps: This thing is basically being priced as a high quality issue even though it’s a Pfd-3(high).<\/p>\n

The other Fortis issues, FTS.PR.C and FTS.PR.E are both trading about $0.25 above thier intrinsic cash values – so it would appear that the market likes the prospects for this firm and is rating them at “Pfd-3(high)(and a bit)”, if I can be permitted so qualitative an assessment. Note that these two issues are illiquid enough that a “liquidity discount” of about $0.20 each is assessed against them, so they’re trading at maybe $0.45 above their expected “fair” price.<\/p>\n

I’ll hasten to add that Pfd-3(high) isn’t all that bad! Hymas Investment Management will have to get an AWFUL lot bigger and more profitable\u00a0before it’s able to issue Pfd-3(high) prefs. According to DBRS, “Pfd-3 ratings generally correspond with companies whose senior bonds are rated in the higher end of the BBB category”.<\/p>\n

But, at least until I’ve had a look at the prospectus, I’ll be advising against the purchase of these instruments. Not only should holdings of Pfd-3 instruments be limited within a portfolio (even when (high)), but it looks like these are simply being priced too aggressively to be worth going after.<\/p>\n

Note added 2006-09-15<\/strong> : These have been added to HIMIPref\u2122 with the ticker symbol “FTS.PR.?”<\/p>\n

Note added 2006-09-27 :<\/b> Looks like the TSX will be listing this issue with the ticker symbol “FTS.PR.F”\n<\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Fortis Inc has announced that they will be issuing a new series of prefs: perpetuals paying 4.9% (= $1.225 per share annually). \u00a0These become redeemable Dec. 1, 2011 at $26.00, the redemption price declining by …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[33,17],"tags":[],"class_list":["post-32267","post","type-post","status-publish","format-standard","hentry","category-data-fixes","category-new-issues"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/32267","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=32267"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/32267\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=32267"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=32267"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=32267"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}