{"id":553,"date":"2007-03-14T11:53:44","date_gmt":"2007-03-14T15:53:44","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=553"},"modified":"2007-03-14T11:53:44","modified_gmt":"2007-03-14T15:53:44","slug":"bceprg-himipref-valuation-warning","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=553","title":{"rendered":"BCE.PR.G : HIMIPref™ Valuation Warning"},"content":{"rendered":"

As has been noted, BCE.PR.G is the new symbol for BC.PR.B<\/a>, and there have been technical problems within HIMIPref\u2122 over the conversion.<\/p>\n

The reorgDataRecord<\/a> for this conversion has been set up with the reorgType<\/a> REORG_TERMCHANGE<\/a>. This decision was made due to the lower credit rating on the new shares, as discussed by DBRS<\/a>:<\/p>\n

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DBRS notes that prior to this exchange, the Bell preferreds were rated at Pfd-2 with a Stable trend. However, upon exchanging for new BCE preferred shares, the former holders of the Bell preferreds will now have a security that is rated lower resulting from the structural subordination that legally still exists between Bell and BCE. This exchange will now result in approximately $2.7 billion of preferred securities at the BCE holding level.<\/p>\n<\/blockquote>\n

It was decided that the change in credit rating was significant enough that prior data regarding the trading of this issue should be discarded, just as it is when embeddedOptions<\/a> or annualDividend<\/a> gets changed … which happens seldom enough that there is little way of testing any procedures.<\/p>\n

On its initial day of trading, volume of BCE.PR.G was 19,081 shares, which set its initial liquidityMeasure<\/a> to a value greater than the YIELD_CURVE_COMPONENT_CALCULATION_LIQUIDITY_MAXIMUM<\/a>; that is, HIMIPref\u2122 now thinks that this is a highly liquid instrument, with liquidity\u00a0for which\u00a0the market will pay a hefty premium. This state of affairs will last until (and assuming!) the liquidityAverage<\/a> is reduced through the operation of the instrumentVolumeInfoDecay<\/a>. This process will probably take about a month at current settings.<\/p>\n

The high calculated volume has set the curvePriceComponent<\/a> corresponding to yieldCurvePremiumLiquidity<\/a> to a very high value, that is almost certainly spurious – I do not expect the issue to trade 19,081 shares every day just because it’s now a borderline credit.<\/p>\n

Therefore, Users of HIMIPref\u2122 are urged to disregard valuations and trade recommendations for BCE.PR.G<\/strong> until the situation has normalized.<\/p>\n

I find it fascinating that this warning is not necessary for users of the portfolio method<\/a>, which has been discussed recently<\/a>. This is because the optimizableParameter<\/a> instrumentPriceDisparityValuation<\/a> has a much lower value in the portfolioMethod (0.086) than in the issueMethod (1.035).<\/p>\n

Update & Bump, 2007-03-14<\/strong> : In response to the comment\/query from Drew,\u00a0I have uploaded the following charts prepared by HIMIPref\u2122:<\/p>\n