PrefBlog

I received a call today from Assiduous Reader HR, who brought to my attention the buy-back provisions of POW.PR.F:

The First Preferred Shares – 1986 Series are entitled to a quarterly cumulative dividend at a floating rate equal to one quarter of 70% of the average prime rate of two major Canadian chartered banks. Dividends are payable on the 15th day of each of the months of January, April, July, and October in each year.

The shares are redeemable by the Corporation for $50 per share plus declared and unpaid dividends. The Corporation will make all reasonable efforts to purchase for cancellation on the open market 20,000 shares per quarter, such number being cumulative only in the same calendar year.

It’s interesting because according to the 2013 Annual Report:

During the twelve months ended December 31, 2013, the Corporation purchased 12,000 of such shares.

In 2012:

During the twelve months ended December 31, 2012, the Corporation purchased 40,000 such shares.

In 2011:

A total of 77,300 such shares were purchased during the twelve months ended December 31, 2011.

In 2010:

A total of 80,000 such shares were purchased during the twelve months ended December 31, 2010.

In 2009:

A
total of 80,000 such shares were purchased during the twelve months ended December 31, 2009.

In 2008:

A total of 60,000 such shares were purchased during the twelve-month period of 2008.

So it’s clear they’ve made their quota occasionally, but have fallen far short in the past two years. Now, let it be said that these things are hopelessly illiquid. According to the Exchange, there are 530,578 outstanding, about $25-million worth. They are the second-least liquid issue in the HIMIPref™ universe, with an Average Daily Trading Value of only $1,290, beaten only by BSC.PR.B, a split-share with only 713,371 shares outstanding (at a par value of 18.85). They were intermittently included in the Floater subindex a few times in the 1990s – one month in 1994, two months in 1996, two in 1997 and one in 1999 – but otherwise, and since November 30, 1999, they have been relegated to the Scraps sub-index on volume concerns.

But look at this!

Since January 2, 2013, there has not been a single day on which the closing quote provided by the Exchange has been above $50.00. The maximum offer has been $49.90. So, one might think, “all reasonable efforts” would include lifting the offer every day, even if only for 100 shares a time, but this clearly isn’t happening. How come?

I suspect that one reason is the volume: in all of 2013, all of 47,734 shares traded on the Toronto Exchange (there may have been more on Alpha, etc., but my guess is ‘not many’). So to give them their due, buying 12,000 shares ranks as something of an accomplishment, even though it doesn’t meet quota.

It occurred to me that there might be exchange rules with respect to issuer bids. According to the Exchange rules on Normal Course Issuer Bids:

It is inappropriate for an issuer making a Normal Course Issuer Bid to abnormally influence the market price of its shares. Therefore, purchases made by Issuers pursuant to a Normal Course Issuer Bid must not be transacted at a price which is higher than the last independent trade of a Board Lot of the class of shares which is the subject of the Normal Course Issuer Bid.

So if a single Board Lot escapes their net and hits an independent bid, then they can’t bid any more than that price until a higher independent transaction occurs.

Not only that, but there are time and volume restrictions in a NCIB:

“normal course issuer bid” means an issuer bid by a listed issuer to acquire its listed securities where the purchases:

(a) if the issuer is not an investment fund, do not, when aggregated with all other purchases by the listed issuer during the same trading day, aggregate more than the greater of: (i) 25% of the average daily trading volume of the listed securities of that class; and (ii) 1,000 securities;

(b) if the issuer is an investment fund, do not, when aggregated with the total of all other purchases by the listed issuer during the preceding 30 days, aggregate more than 2% of the listed securities of that class outstanding on the date of acceptance of the notice of normal course issuer bid by the Exchange; and

(c) over a 12-month period, commencing on the date specified in the notice of the normal course issuer bid, do not exceed the greater of
(i) 10% of the public float on the date of acceptance of the notice of normal course issuer bid by the Exchange; or

(ii) 5% of such class of securities issued and outstanding on the date of acceptance of the notice of normal course issuer bid by the Exchange, excluding any securities held by or on behalf of the listed issuer on the date of acceptance of the notice of normal course issuer bid by the Exchange,

and for the purposes of (b) and (c), whether such purchases are made through the facilities of a stock exchange or otherwise, but excluding purchases made under a circular bid.
…
7. Block Purchase Exception—A listed issuer may make one block purchase per calendar week which exceeds the daily repurchase restriction contained in subsection 628(a)(ix)(a) of the Company Manual, subject to maximum annual aggregate limits. Once the block purchase exception has been relied on, the listed issuer may not make any further purchases under the normal course issuer bid for the remainder of that calendar day.

8. Purchases at the Opening and Closing—A listed issuer shall not make any purchases of its securities pursuant to a normal course issuer bid at the opening of a trading session, or during the 30 minutes before the scheduled close of a trading session. However, notwithstanding Policy 6-501(1)(1), purchases of securities pursuant to a normal course issue bid may be effected through the Exchange’s Market-On-Close facility

These restrictions were important during the NCIB for CWB.PR.A:

Apart from block purchase exceptions, the maximum number of preferred shares that may purchased per trading day is 1,538, an amount equal to 25% of the average daily trading volume of the preferred shares on the TSX for the six month period ended January 31, 2013.

Now, despite spending a considerable amount of time with Mr. Google, SEDAR and the Power Corporation website, I have not been able to find anything that definitively states that the purchases of POW.PR.F constitute a Normal Course Issuer Bid. I think they do, but I’m not a specialist in such matters and if I was, I’d shoot myself. There are a lot of rules and compliance for such a hopelessly illiquid security must be a nightmare.

But I will send an inquiry to the company.

This entry was posted on Tuesday, April 15th, 2014 at 1:29 am and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.