{"id":490,"date":"2007-01-18T13:01:17","date_gmt":"2007-01-18T17:01:17","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=490"},"modified":"2007-01-18T13:01:17","modified_gmt":"2007-01-18T17:01:17","slug":"bcepry-bceprz","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=490","title":{"rendered":"BCE.PR.Y \/ BCE.PR.Z"},"content":{"rendered":"<p>I mentioned one half of this pairing in the <a href=\"http:\/\/www.prefblog.com\/?p=489\">January 17, 2007<\/a> report and I&#8217;ll just make things more explicit here.<\/p>\n<p>This pair is very similar to the <a href=\"http:\/\/www.prefblog.com\/?p=282\">BBD.PR.B \/ BBD.PR.D<\/a> pair that has been discussed previously. They are convertable into each other on December 1, 2007, just over ten months off, but are trading at prices that are very different.<\/p>\n<p>At the moment, for instance, BCE.PR.Z is quoted at 26.38-75, 1&#215;9, and BCE.PR.Y is quoted at 24.86-90, 4&#215;9. Between now and December 1, 2007, when they can convert into each other, the former issue may be expected to pay dividends at a fixed rate totalling $1.3298, while the Ys, paying a <a href=\"http:\/\/www.prefshares.com\/glossary.html#ratchetFloatingRate\">ratchetFloatingRate<\/a> based on Canadian Prime will pay somewhere around 0.92125. Therefore, the price differential, in the absence of liquidity premia, should be in the neighborhood of $0.40 &#8230; but it ain&#8217;t. The differential bid\/bid is more like $1.50, implying (in this very simple analysis) that there is $1.10 just lying around waiting to be scooped up.<\/p>\n<p>I recognize that the BCE.PR.Y (the cheap ones)\u00a0are relatively illiquid, due to their float of only 1.1-million-odd shares. The Zs (the expensive ones) have a float of 8.8-million-odd shares. So, there will be problems exploiting this inefficiency for those who care to try it.<\/p>\n<p>But &#8230; what I can&#8217;t understand is: why would anybody hold the Zs? Even if they&#8217;re unable to buy sufficient Ys to replace them? BCE can put an extremely low rate on the &#8220;Z&#8221;\u00a0dividend payout commencing December 1, 2007,\u00a0all but\u00a0forcing conversion. Surely nobody seriously believes that BCE will leave the rate as it was set five years ago, at 5.319%. In BCE&#8217;s last ratchet\/reset, the <a href=\"http:\/\/www.prefblog.com\/?p=159\">BCE.PR.S \/ BCE.PR.T<\/a> the rate was reset to 4.502% &#8230; and\u00a0I certainly wouldn&#8217;t bet on this very generous payout being offered again on the Y\/Z reset date.<\/p>\n<p><b>Update<\/b>: The Zs actually went up in price today (2007-1-18)\u00a0(bid\/bid), closing at 26.39-75, 3&#215;8. Why? Surely there will be few who disagree that the projected price as of the Dec. 1 conversion date is $25.00 &#8230; and if you do disagree, please leave a comment, because I&#8217;m interest. So the projected capital loss (from the bid price) exceeds the intervening dividends &#8211; expected total return over the next 10 months is negative. I don&#8217;t understand &#8230;.\n<\/p>\n<p><!--7678d47bc71e015cce366eec5580ee7d--><\/p>\n","protected":false},"excerpt":{"rendered":"<p>I mentioned one half of this pairing in the January 17, 2007 report and I&#8217;ll just make things more explicit here. This pair is very similar to the BBD.PR.B \/ BBD.PR.D pair that has been &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-490","post","type-post","status-publish","format-standard","hentry","category-issue-comments"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/490","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=490"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/490\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=490"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=490"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=490"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}