{"id":49063,"date":"2018-01-16T21:11:00","date_gmt":"2018-01-17T02:11:00","guid":{"rendered":"https:\/\/prefblog.com\/?p=49063"},"modified":"2025-08-05T21:15:28","modified_gmt":"2025-08-06T01:15:28","slug":"bep-pr-m-settles-firm-on-decent-volume","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=49063","title":{"rendered":"BEP.PR.M Settles Firm on Decent Volume"},"content":{"rendered":"<p>There was no announcement from Brookfield Renewable Partners L.P., but BEP.PR.M closed today.<\/p>\n<p>BEP.PR.M is a FixedReset 5.00%+300M500 ROC <a href=\"https:\/\/prefblog.com\/?p=35965\">announced 2018-01-09<\/a>. The issue will be tracked by HIMIPref&trade; but relegated to the Scraps subindex on credit concerns.<\/p>\n<p>The issue traded 437,036 shares today in a range of 24.75-00 before closing at 24.99-00. Vital statistics are: <\/p>\n<div align=\"center\">\n<table border=\"1\">\n<tr>\n<td>BEP.PR.M<\/td>\n<td>FixedReset<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Limit Maturity<br \/>\nMaturity Date\t: 2048-01-16<br \/>\nMaturity Price  : 23.14<br \/>\nEvaluated at bid price : 24.99<br \/>\nBid-YTW : 4.92 %<\/td>\n<\/tr>\n<\/table>\n<\/div>\n<p>This issue looks quite expensive to me, but quantifying the degree of richness is difficult. According to <a href=\"https:\/\/prefblog.com\/?p=32354\">Implied Volatility Analysis<\/a>:<\/p>\n<div align=\"center\"><a href=\"https:\/\/prefblog.com\/wp-content\/uploads\/2018\/01\/impVol_BEP_180116.jpg\"><img fetchpriority=\"high\" decoding=\"async\" src=\"https:\/\/prefblog.com\/wp-content\/uploads\/2018\/01\/impVol_BEP_180116-300x247.jpg\" alt=\"impvol_bep_180116\" width=\"400\" height=\"329\" class=\"alignnone size-medium wp-image-36012\" ><\/a><br \/><i>Click for Big<\/i><\/div>\n<p>Well, it&#8217;s starting to get monotonous, but we see in this chart many of the same features we saw when reviewing the recent <a href=\"https:\/\/prefblog.com\/?p=36001\">BIP new issue<\/a> as well as last week&#8217;s <a href=\"https:\/\/prefblog.com\/?p=35965\">BEP issue<\/a>, the <a href=\"https:\/\/prefblog.com\/?p=35977\">CM issue<\/a> and <a href=\"https:\/\/prefblog.com\/?p=35984\">NA issue<\/a>:<\/p>\n<ul>\n<li>The curve is very steep, with Implied Volatility equal to 40% (a ridiculously large figure), and\n<li>The extant issues are trading relatively near to, or well above par<\/ul>\n<p>The ludicrously high figure of Implied Volatility is something I take to mean that the underlying assumption of the Black-Scholes model, that of no directionality of prices, is not accepted by the market; in turn, I suggest that this reflects a rather touching faith that the existence of a minimum rate guarantee on reset also indicates that the issues will never, ever trade below par. There will be a lot of long faces when this test gets failed in the future! All it will take is a spread-widening, whether market-wide or company-specific.<\/p>\n<p>However, for the long term, I suggest that any change in the slope of the curve will be a flattening, with a very high degree of confidence. This will imply that the higher-spread issues will outperform the lower-spread issues.<\/p>\n<p>Complicating the above analysis is a high probability that the three extant issues will each be called at the first opportunity. I will certainly agree that this is likely to happen, but I balk at ascribing a 100% probability to this outcome. There may still be a few old geezers amongst the Assiduous Readers of this blog who can still (faintly) remember the Great Bear Market of 2014-16, in which quite a few similar assumptions made earlier turned out to be slightly inaccurate.<\/p>\n<p>All told, though, I have no hesitation in slapping a &#8216;Very Expensive&#8217; label on this issue. According to the analysis illustrated by the above chart, the fair price is 23.36.<\/p>\n<p><b>Update<\/b>: Demonstration &#8211; to prepare the following chart I have constrained Implied Volatility to 10% (a much more reasonable figure, I think) and done a very, very, rough approximation to the error-minimizing Market Spread. <\/p>\n<div align=\"center\"><a href=\"https:\/\/prefblog.com\/wp-content\/uploads\/2018\/01\/impVol_BEP_180116_Demonstration.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/prefblog.com\/wp-content\/uploads\/2018\/01\/impVol_BEP_180116_Demonstration-300x247.jpg\" alt=\"impvol_bep_180116_demonstration\" width=\"400\" height=\"329\" class=\"alignnone size-medium wp-image-36017\"><\/a><br \/><i>Click for Big<\/i><\/div>\n<p>In this calculation, the calculated fair values for the issues BEP.PR.G \/ I \/ K \/ M, with the difference from the actual market price in brackets, are 27.11 (+1.56), 28.23 (+2.48), 25.29 (+0.20) and 22.53 (-2.46). The values for N(d2) are 72%, 88%, 41% and 7%, respectively.<\/p>\n<p>See the comments for the discussion.<\/p>\n<p><b>Update #2, 2018-1-23<\/b>: From January&#8217;s <a href=\"http:\/\/www.prefletter.com\/\">PrefLetter<\/a>, here are charts FR-16, FR-31 and FR-37 &#8230; the numbering is consistent with the <a href=\"http:\/\/www.prefblog.com\/wp-content\/uploads\/2017\/04\/FixedResetNotes_1610.pdf\">Fixed Reset Review of October 2016<\/a> that is referred to in the comments:<\/p>\n<div align=\"center\"><a href=\"https:\/\/prefblog.com\/wp-content\/uploads\/2018\/01\/PL_180112_App_FR_Chart_16.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/prefblog.com\/wp-content\/uploads\/2018\/01\/PL_180112_App_FR_Chart_16-300x241.jpg\" alt=\"pl_180112_app_fr_chart_16\" width=\"400\" height=\"321\" class=\"alignnone size-medium wp-image-36060\"><\/a><br \/><b>Chart FR-16, 2018-1-12<\/b><br \/><i>Click for Big<\/i><\/div>\n<div align=\"center\"><a href=\"https:\/\/prefblog.com\/wp-content\/uploads\/2018\/01\/PL_180112_App_FR_Chart_31.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/prefblog.com\/wp-content\/uploads\/2018\/01\/PL_180112_App_FR_Chart_31-300x268.jpg\" alt=\"pl_180112_app_fr_chart_31\" width=\"400\" height=\"357\" class=\"alignnone size-medium wp-image-36061\"><\/a><br \/><b>Chart FR-31, 2018-1-12<\/b><br \/><i>Click for Big<\/i><\/div>\n<div align=\"center\"><a href=\"https:\/\/prefblog.com\/wp-content\/uploads\/2018\/01\/PL_180112_App_FR_Chart_37.jpg\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/prefblog.com\/wp-content\/uploads\/2018\/01\/PL_180112_App_FR_Chart_37-300x268.jpg\" alt=\"pl_180112_app_fr_chart_37\" width=\"400\" height=\"357\" class=\"alignnone size-medium wp-image-36062\"><\/a><br \/><b>Chart FR-37, 2018-1-12<\/b><br \/><i>Click for Big<\/i><\/div>\n<p>See the comments for discussion.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>There was no announcement from Brookfield Renewable Partners L.P., but BEP.PR.M closed today. BEP.PR.M is a FixedReset 5.00%+300M500 ROC announced 2018-01-09. The issue will be tracked by HIMIPref&trade; but relegated to the Scraps subindex on &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-49063","post","type-post","status-publish","format-standard","hentry","category-issue-comments"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/49063","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=49063"}],"version-history":[{"count":1,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/49063\/revisions"}],"predecessor-version":[{"id":49064,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/49063\/revisions\/49064"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=49063"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=49063"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=49063"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}