PIC.PR.A: Capital Units to be Consolidated

Premium Income Corporation has announced:

a consolidation of the Class A shares effective the opening of trading on November 1, 2010. The consolidation will ensure that an equal number of Class A shares and Preferred shares are outstanding subsequent to the special retraction. Each shareholder will receive 0.738208641 new Class A shares for each Class A share held. The total value of a shareholder’s investment will not change, however, the number of Class A shares reflected in the shareholder’s account will decline and the net asset value per share will increase proportionately. Investors are advised that the CUSIP number will change to 740910302. No fractional shares will be issued and shareholders are not required to take any action for the consolidation to be effective.

This is very significant news. The implication is that at least one-quarter of the outstanding PIC.PR.A were retracted – possibly more, depending on how many of the PIC.A capital units were also retracted.

The current Capital Unit NAV is $5.98 as of October 21, so after consolidation will become about $8, implying that Asset Coverage is now in excess of 1.5:1. Credit quality on the preferreds just got a whole lot better!

I confess to being surprised by the size of the retraction given that the month low for the preferreds was 14.90, just a dime under the retraction price. I would have thought more people would sell. One possible explanation is that a large portion of the retraction was by very large holders who were hesitant to unwind a large position in the market; another possibility is that holders with high transaction costs (e.g., clients of full service brokerages) took that into consideration.

PIC.PR.A was last mentioned on PrefBlog when it was downgraded to Pfd-5 last Friday; at that time, downside protection was about 27%. They might want to bump that up a notch now that the retraction implies (given a projected Capital Unit value of $8) downside protection of 35%!

PIC.PR.A is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

3 Responses to “PIC.PR.A: Capital Units to be Consolidated”

  1. […] was last mentioned on PrefBlog when the Capital Units were consolidated. It is tracked by HIMIPref™ but is relegated to the Scraps index on credit […]

  2. […] could bail out if they didn’t like the prospects going forward. This resulted in a large retraction, which wound up improving the credit quality of the preferred shares significantly. This was well […]

  3. […] right part of the reorganization package. Such a feature cost them considerable AUM when it became exercisable with the PIC / PIC.PR.A term extension. Granting of such a right should be automatic; but for as long as there are sponsors in the market […]

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