Preferreds

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Sensei
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Re: Preferreds

Post by Sensei » 03 Feb 2017 19:18

Hi,

Cardhu, thanks for jumping into the discussion although a little late. You'll note, if you read all of the posts regarding this subject, that I wrote to Hogwild on January 30:
SLF.PR.G, SLF.PR.J
I'll leave what you should have done to the experts.
One can infer that I'm not an expert. I would also infer from the tone of your post that you are. My opinion was not on the merits of either issue, but that neither would interest me because the yield is rather low. YMMV. Moreover, I just don't see what SLF is offering to own them.

Just to be clear to other readers, the information I gave is correct; the yield on SLF.PR.J IS 1.92% based on the current rate of 48 cents and a par value of $25; and, as of today, at $15.15, the current yield IS 3.20%. Shareholders could also realize a significant capital gain if the issue were called (which all things being equal is in the distant future). Also, I should add that SLF.PR.G is a fixed rate issue, and SLF.PF.J is a floating rate reset. G's rate is/was a fixed 57 cents. The rate on J is reset every three months according to a formula in the prospectus which I will leave to others who are interested in the issue to find. In practice, over 2016 the quarterly rate has changed from Q1 $0.115433 to Q4 $0.121112. Potential owners may interpet all of the above data as they wish.

As a guide, how these facts might be weighted and used is the subject of Cardhu's reply.
Cheers

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Re: Preferreds

Post by Peculiar_Investor » 10 Feb 2017 10:02

Just when I figure I've got most of the preferred share terminology figured out comes a new one.

From New Issue: BEP FixedReset, 5.00%+382M500 « PrefBlog
James Hymas wrote:Brookfield Renewable Partners L.P. has announced:
that it has agreed to issue 8,000,000 Cumulative Minimum Rate Reset Class A Preferred Limited Partnership Units, Series 11 (the “Series 11 Preferred Units”) on a bought deal basis to a syndicate of underwriters led by TD Securities Inc., CIBC Capital Markets, RBC Capital Markets and Scotiabank for distribution to the public. The Series 11 Preferred Units will be issued at a price of $25.00 per unit, for gross proceeds of $200,000,000.
So what's a "Preferred Unit"? How does it differ, if at all, from a preferred share? I posted a comment on the PrefBlog article asking James to clarify.

Meanwhile, I see that Barry Critchley at FP has offered a viewpoint, Will that be preferred units or preferred shares — they are not quite the same | Financial Post
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Re: Preferreds

Post by rhenderson » 10 Feb 2017 12:02

I bought some of the Artis preferred units but hold them in my RRSP, simpler for me, don't have to worry about the different tax implications.

I noticed that in his blog, James doesn't like the minimum rate guarantee and values it as zero! I really don't understand that part at all.
Ever since the rate guarantee issues came out, they are the ONLY ones that I would buy. I like the idea of the guarantee and look at them as a quasi 5 year GIC. (Only the PF-2 rated ones though).

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Re: Preferreds

Post by AltaRed » 10 Feb 2017 12:15

I will guess James doesn't like them because they are 5 year money (likely to be called) and thus quite like 5 year GICs. James is in the market to get Total Return (cap gains and yield). There is minimal opportunity for cap gain if these minimum resets are likely never to fall below $25 to any significant degree (to bottom feed on purchase) or can be cashed out in the $26-28 range.
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Re: Preferreds

Post by SoninlawofGus » 10 Feb 2017 14:13

AltaRed wrote:I will guess James doesn't like them because they are 5 year money (likely to be called) and thus quite like 5 year GICs.
These seem like souped-up rate resets to me. But if rates were to start rising rapidly, it could be worthwhile for them not to cash out, if I understand them correctly. Seems unlikely though.

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Re: Preferreds

Post by rhenderson » 10 Feb 2017 14:32

SoninlawofGus wrote:
AltaRed wrote:I will guess James doesn't like them because they are 5 year money (likely to be called) and thus quite like 5 year GICs.
These seem like souped-up rate resets to me. But if rates were to start rising rapidly, it could be worthwhile for them not to cash out, if I understand them correctly. Seems unlikely though.
JMO,but if rates do rise rapidly they will still most likely be called because most of them have ridiculous spreads of around 400 beeps.

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Re: Preferreds

Post by AltaRed » 10 Feb 2017 14:36

SoninlawofGus wrote:These seem like souped-up rate resets to me. But if rates were to start rising rapidly, it could be worthwhile for them not to cash out, if I understand them correctly. Seems unlikely though.
If rates start rising rapidly, the large spread over GOC5 at reset would cause a recall since the yield would become too expensive. The only reason these minimums are being issued is to sell the damn things (given the beating taken by investors of 2014-2015). IOW, is one in the pref game for a souped up 5 year GIC? Or for Total Return including potentially a healthy cap gain component?
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Re: Preferreds

Post by rhenderson » 10 Feb 2017 15:57

AltaRed wrote:
SoninlawofGus wrote:These seem like souped-up rate resets to me. But if rates were to start rising rapidly, it could be worthwhile for them not to cash out, if I understand them correctly. Seems unlikely though.
If rates start rising rapidly, the large spread over GOC5 at reset would cause a recall since the yield would become too expensive. The only reason these minimums are being issued is to sell the damn things (given the beating taken by investors of 2014-2015). IOW, is one in the pref game for a souped up 5 year GIC? Or for Total Return including potentially a healthy cap gain component?
I'm in the pref game mainly for an annual return, eg. when around 2009 the banks were issuing prefs with silly spreads I bought everyone that I could at the IPO. Some of them began trading below the IPO price so I added whenever I could. After 5 years they were all called, but that's what I was counting on anyway.

Total return ? Tell me about it, years ago when I figured that rates would begin to rise, I bought a PF-2 floater, PWF.PR.A at around $20. My total return on that one is a loss of around 40%.

But that's ok, the minimum rate resets have been wonderful and make the loss on one floater insignificant.Perhaps 10 years from now it might float back to $ 20. :rofl:

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Re: Preferreds

Post by Peculiar_Investor » 10 Feb 2017 18:01

rhenderson wrote:More on the TransAlta exchange.

http://business.financialpost.com/news/ ... picks=true

FWIW, I am quite satisfied with the offer because I'm a trader and am more than happy to bail on these PF-3 issues because I really believe that one would have to be wearing super sized rose coloured glasses to think that they would someday trade or be redeemed at par, especially with a company like TA that has slashed the dividend on the common to 4 cents/quarter. :roll:
The deal is dead -- TA Withdraws Plan of Arrangement « PrefBlog
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Re: Preferreds

Post by rhenderson » 10 Feb 2017 23:18

Peculiar_Investor wrote:
rhenderson wrote:More on the TransAlta exchange.

http://business.financialpost.com/news/ ... picks=true

FWIW, I am quite satisfied with the offer because I'm a trader and am more than happy to bail on these PF-3 issues because I really believe that one would have to be wearing super sized rose coloured glasses to think that they would someday trade or be redeemed at par, especially with a company like TA that has slashed the dividend on the common to 4 cents/quarter. :roll:
The deal is dead -- TA Withdraws Plan of Arrangement « PrefBlog
I guess some people will be happy but I imagine that on Monday the issues concerned will probably drift back to the levels pre-offer. Perhaps the ones that were against the offer will be able to buy more of their favorite TA prefs.

I certainly won't be getting back in and I consider myself lucky to be out. :D

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Re: Preferreds

Post by Hogwild » 14 Feb 2017 20:56

Thanks, Cardhu.

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Re: Preferreds

Post by cardhu » 03 Mar 2017 14:16

You’re welcome, Hogwild ... it can be a challenge sometimes, wading through misleading remarks, to get to the meat of the matter ... if you are inclined to do this, I wouldn’t settle for a one-dollar differential ... the prices of G and J don’t move in sync, and so the gap between them expands and contracts ... over the past 100 trading days, for example, the prices have closed at a differential of 1.2 or greater, 20 times ... that’s about once every five days, on average, so there are opportunities, if you are so inclined, to maximize the reward. It does take some time & effort to watch for the opportunity, though.

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Preferred Shares Database

Post by soldToSoon » 08 Mar 2017 22:26

Is there a free database of Canadian preferred shares available? It should have the basic information such as (ticker, company, credit rating, current price, dividend terms etc.)
Something in Google Docs or some other format? I'm trying to search for something like this and the only thing I've found is a paid program that charges $95/year. While I won't mind paying that money to manage my own preferred portfolio, I was just wondering if there's a free and usable resource available out there.

Thanks!

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Re: Preferreds

Post by AltaRed » 08 Mar 2017 22:57

www.prefinfo.com will give you some of what you are looking for, albeit it may not be kept up-to-day on an ongoing basis. I believe it also only contains investment grade prefs.
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soldToSoon
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Re: Preferreds

Post by soldToSoon » 08 Mar 2017 23:08

Thanks. I checked that but it doesn't help you begin your search (e.g. minimum yield, credit spread, industry etc.). It's a very good resource once you know what you are looking for.

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Re: Preferreds

Post by BRIAN5000 » 09 Mar 2017 12:38

SoninlawofGus wrote:
AltaRed wrote:I will guess James doesn't like them because they are 5 year money (likely to be called) and thus quite like 5 year GICs.
These seem like souped-up rate resets to me. But if rates were to start rising rapidly, it could be worthwhile for them not to cash out, if I understand them correctly. Seems unlikely though.
What will/could happen to the new rate resets with the floor feature going forward with interest rate changes? Rates could stay the same rise or even go lower.

So let's say the floor on a prefered share, in this market, is set at about 5%. This is a new option that has been added to make resets "saleable" to retail investors? Once this option/twist was added what happened to originally issued Rate Restes that didn't have this new feature, loss of value.

So what will be the next new feature to be added? As/If interest rates rise going forward a 5% floor will not be enough so I higher floor or some new option will need to be added or a company will find a new way to raise money cheaper than issuing preferred shares maybe bonds or equity? This will make the latest crop of floor optioned preferred shares trade below par?
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Re: Preferreds

Post by rhenderson » 09 Mar 2017 16:39

soldToSoon wrote:Thanks. I checked that but it doesn't help you begin your search (e.g. minimum yield, credit spread, industry etc.). It's a very good resource once you know what you are looking for.
Some of these are dated but may be of help ?

https://www.google.ca/?gws_rd=ssl#q=cib ... are+report&*

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Re: Preferreds

Post by soldToSoon » 09 Mar 2017 17:01

So what will be the next new feature to be added? As/If interest rates rise going forward a 5% floor will not be enough so I higher floor or some new option will need to be added or a company will find a new way to raise money cheaper than issuing preferred shares maybe bonds or equity? This will make the latest crop of floor optioned preferred shares trade below par?

Probably not. Most of the rate resets are based on GOC 5 year plus the spread with a floor rate built in. So if interest rates rise by say 3% and the spread is 2.5%, the 5.5% yield will be in effect and not the floor rate of 5%.
I don't think it should impact the prices much, unless there are credit or other concerns. but then the preferred market is driven by lots of people who haven't spent a whole lot of time in understanding the nature of the security they are buying.
I've been studying this market for last several weeks and have only grasped some aspects of it.
One thing is clear- the preferred market will be driven a lot more by emotion than sound logic in times of distress (as if the other markets aren't!).

Personally, I'm looking at Preferreds as a way of generating cash flow from high quality securities without too much concern about the daily fluctuations.
I'm personally focusing on the following aspects:
1. Excellent credit
2. High spreads (at least 300 bps, ideally more) to account for deflationary scenarios
3. Trade below or very close to par to address early/immediate redemption risk.
4. Rate resets to account for that always 'hanging over heads' rising interest rates!

If the companies do indeed find a cheaper way to raise funds, they will likely have to redeem the more 'expensive' preferreds and that should be done at par. So no lose situation.
I think everyone putting in any good amount of money into these issues should spend lots of time researching what they are, how they behave under various scenarios (GOC 0% / prime rate of 2%, or GOC 6% anyone?) and see how these securities would behave.
If people had done this research back in 2010 or 2011 when some of the rate resets were being issued, some of the catastrophic losses could have been avoided.

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Re: Preferreds

Post by AltaRed » 09 Mar 2017 17:24

soldToSoon wrote:If people had done this research back in 2010 or 2011 when some of the rate resets were being issued, some of the catastrophic losses could have been avoided.
Not so fast there....

Wide spread resets will be called by the issuer on the reset date IF the GOC5 bond yield plus the spread is greater than what the issuer can go to the market with new issues. Basically they have a good liklihood of being called away from you in a universe of inceasing bond yields. A reset with a spread of 300bp will likely get called away if GOC5 hits 2.5% or so. Consider them 5 year money.

Low spread resets have the potential (not guarantee) of substantial capital gains IF they have been bought at deep discount, but not at issue price. The problem in 2014-2015 was that GOC5 bond yields continued to drop rather than increase as expected. Definitely a timing issue but that is the nature of markets in general. It was that problem that has forced issuers to issue new resets with a minimum floor. They may, or may not, get called when they reset in 3-5 years, depending on GOC5 at the time. Losses on low spread resets can be mitigated by holding them until the next time they reset at presumably higher GoC5 bond yields. Granted investors of these issues are suffering a yield loss on those that have reset in the past 3 years. That too will pass. Note that many of the older resets recovered nicely in 2016.
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Re: Preferreds

Post by soldToSoon » 09 Mar 2017 18:23

Fair enough points. if the GOC plus spread on a security is higher than what an issuer can get from a fresh issue, they will call.
But the issue here is of price drop and not of perpetuating the cash flow from a security.
To get a longer term guarantee of the cash flow, an investor needs to increase the skin the game and go with the long bond or something else.

I think the bottomline with the preferreds is clear:
-you are the mercy of the issuer.
-the issuer gets to decide if things are getting too good for the investor.
-any downside-credit risk, interest rate risk and liquidity risk- is entirely with the investor

Given the above constraints, if an investor likes the equation, may be for even 5 years, it's not a bad deal.
Personally, I'd like to be in a position where a security is called by the issuer because I had a good run for a few years, rather than getting underpaid for years and suffering with a much lower market value for years.
Again, a personal choice and something that requires clarity of why someone is getting into a security.

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Re: Preferreds

Post by rhenderson » 21 Apr 2017 14:11

Yikes !!
Canada 5 year now below 1%. I don't know if the resets that have recovered so well since Feb 2016 will hold but I guess we'll see.

It shouldn't bother my portfolio too much because 90% of my resets are the minimum rate variations.

I have a feeling that Uncle James places "no value" on this feature because he believes that interest rates can only go up. Of course
they will go up someday, but when.

Anyway, it certainly looks interesting. :roll:

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Re: Preferreds

Post by milton » 30 Apr 2017 14:06

rhenderson wrote:
10 Feb 2017 23:18
Peculiar_Investor wrote:
rhenderson wrote:More on the TransAlta exchange.

http://business.financialpost.com/news/ ... picks=true

FWIW, I am quite satisfied with the offer because I'm a trader and am more than happy to bail on these PF-3 issues because I really believe that one would have to be wearing super sized rose coloured glasses to think that they would someday trade or be redeemed at par, especially with a company like TA that has slashed the dividend on the common to 4 cents/quarter. :roll:
The deal is dead -- TA Withdraws Plan of Arrangement « PrefBlog
I guess some people will be happy but I imagine that on Monday the issues concerned will probably drift back to the levels pre-offer. Perhaps the ones that were against the offer will be able to buy more of their favorite TA prefs.

I certainly won't be getting back in and I consider myself lucky to be out. :D
I was also expecting TA.PR.H to drift back down, or, at best to stay at $18.72 where they were when the exchange was cancelled (since the BOC5YR has risen since December). Instead TA.PR.H is up another 5% at $19.70. It even broke $20 in mid-April. Most of my other rate resets since Feb 10 are up ~2.5% so this is pleasant surprise. Not sure why TA.PR.H is outperforming in the short term though.

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Re: Preferreds

Post by Wing » 03 May 2017 09:53

How do BMO.PR.L and RY.PR.W compare to each other? The former has been a drop in price lately, is it a good buy?

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Re: Preferreds

Post by Pickles » 03 May 2017 10:43

Wing wrote:
03 May 2017 09:53
How do BMO.PR.L and RY.PR.W compare to each other? The former has been a drop in price lately, is it a good buy?
No.
BMO.PR.L (and BMO.PR.K) have been called for redemption by BMO at par ($25), later this month. If you are planning to invest in prefs, you need to read prospecti and stock news and announcements from the issuers' website before buying. (the media release was sent to all brokerages last week; perhaps you missed it)
Regards,
Pickles

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Re: Preferreds

Post by milton » 03 May 2017 11:24

Question about IFC.PR.A. It's a rate reset resetting Dec 2017 at BOC5YR + 1.72%. Pfd-2L. If BOC5YR is 1.01%, then it would reset at 2.73% for $0.6825 per year. It's trading at $18.15 for a pitiful reset yield of 3.76%. Why wouldn't it be trading closer to, say $15?

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