Selling Preferred shares

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Re: Selling Preferred shares

Postby adrian2 » 11 Jan 2012 13:51

Descartes wrote:Here is a quote from Mr.Hymas (no disrespect intended) about POW.PR.A that has been redeemable at par since June 2008 and has been above par for a while:
there’s a very good chance (YTW!) the issue will be called in the near future.
This entry is from 2006.

I've had a look at the chart of POW.PR.A for the past 5 years. It bottomed more than 3 years ago below $14 and only recently went above $25, last price $25.33. IMO, it is unfair to say "it's been above par for a while" and Mr. Hymas' call from 5 years ago was wrong. BTW, the CM issue in question was quoted at $26, a level never touched, never mind traded above, in all those 5 years for the POW issue. (Note that $26 is 3 times more over par than $25.33)

Bottom line, it's a probabilities game.
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Re: Selling Preferred shares

Postby adrian2 » 11 Jan 2012 14:48

A similar prediction was done on RY.PR.K, which was indeed redeemed a year and a half later. YMMV!

More words of wisdom on this theme can be found here.
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Re: Selling Preferred shares

Postby Descartes » 11 Jan 2012 14:49

adrian2 wrote:
Descartes wrote:Here is a quote from Mr.Hymas (no disrespect intended) about POW.PR.A that has been redeemable at par since June 2008 and has been above par for a while:
there’s a very good chance (YTW!) the issue will be called in the near future.
This entry is from 2006.

I've had a look at the chart of POW.PR.A for the past 5 years. It bottomed more than 3 years ago below $14 and only recently went above $25, last price $25.33. IMO, it is unfair to say "it's been above par for a while" and Mr. Hymas' call from 5 years ago was wrong. BTW, the CM issue in question was quoted at $26, a level never touched, never mind traded above, in all those 5 years for the POW issue. (Note that $26 is 3 times more over par than $25.33)


I guess I wasn't very clear in the points I was trying to make. Let me try again:

1. just because an issue can be redeemed at par doesn't mean it will be redeemed in a timely manner ..if ever.
2. just because an issue is being bid above the redeem price doesn't mean that those people who buy with that bid will lose money.
3. non-assiduous reading of the PrefBlog, while I personally don't advise it, can't be the sole reason this is happening :).

Regarding the example of POW.PR.A, it is merely meant to illustrate the above points not to expose flaws in forecasting by Mr.Hymas. I'm also not suggesting that it is a worthy peer of CM.PR.D (which also bottomed out, like many other preferreds, 3 years ago). *However* it does share some key characteristics: it can be redeemed at par and it is being bid above par and for a while at least a couple of months ;).
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Re: Selling Preferred shares

Postby adrian2 » 11 Jan 2012 14:53

Descartes wrote:1. just because an issue can be redeemed at par doesn't mean it will be redeemed in a timely manner ..if ever.
2. just because an issue is being bid above the redeem price doesn't mean that those people who buy with that bid will lose money.

Yes and yes.

Descartes wrote:3. non-assiduous reading of the PrefBlog, while I personally don't advise it, can't be the sole reason this is happening :).

You're welcome to provide other explanations; I've never claimed mine were exhaustive. :)
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Re: Selling Preferred shares

Postby Descartes » 12 Jan 2012 10:50

adrian2 wrote:You're welcome to provide other explanations; I've never claimed mine were exhaustive. :)

Unfortunately, I do not have any peculiar insight into why an issuer will decide not to redeem when it would seem, from the general point of view, to make sense.

The discouraging thing is that it seems neither does the person who deals with preferreds for a living and who, I think, we both would acknowledge, knows most about preferreds among the active posters here.

I'm resigned like others here, I guess, to just play it safe.
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Re: Selling Preferred shares

Postby Peculiar_Investor » 12 Jan 2012 11:02

Descartes wrote:Unfortunately, I do not have any peculiar insight into why an issuer will decide not to redeem when it would seem, from the general point of view, to make sense.

The discouraging thing is that it seems neither does the person who deals with preferreds for a living and who, I think, we both would acknowledge, knows most about preferreds among the active posters here.

Could that be the "teaching moment" here, that in owning redeemable preferred shares you have ceding control of the redemption to the other party, whose motives are not known. As the investor, you need to make assumptions on how to account for not having this control in your valuation. Different investors will make different assumptions, hence we have a market.
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Re: Selling Preferred shares

Postby Descartes » 12 Jan 2012 11:18

Peculiar_Investor wrote:Could that be the "teaching moment" here

Technically, the teaching moment is to give up trying to learn more :)
...Specifically, to learn more about those motives and thus to better predict the behaviour of the issuer when in the situation of possible redemption (presuming no exposure to inside information).
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Re: Selling Preferred shares

Postby Pickles » 12 Jan 2012 12:06

Descartes wrote:
Peculiar_Investor wrote:Could that be the "teaching moment" here

Technically, the teaching moment is to give up trying to learn more :)
...Specifically, to learn more about those motives and thus to better predict the behaviour of the issuer when in the situation of possible redemption (presuming no exposure to inside information).


What do you mean by "technically"?

ISTM, that the teaching moment includes humble recognition that a) predicting incorrectly, from time to time, does not invalidate either the method of analysis or the judgement of the analyst, and b) even if, after analysis points to shares being redeemed, they may not and that this known risk is presented each time Mr. Hymas makes a prediction, whether or not the reader assiduously considers the warning.

My original query, to which you responded, Descartes, was why there was a sudden, sharp increase in CM.PR.D's share price that put it into a negative yield position, three months before possible redemption. I didn't suggest this was a prediction by Mr. Hymas, and I'm unaware of any prediction he has made on this issue. I was asking in case I had missed a CIBC press release about the pref or some event had occurred that caused this trading action.

You and I are both aware that uninformed investors often make irrational bids on preferred shares without reading the prospectus and based solely on the current yield of the issue. There are also occasions when a seemingly irrational bid might be appropriate because of the individual circumstances of the purchaser (who perhaps needs a short-term stream of income and would welcome a later loss to offset some capital gain). However, with CM.PR.D, the buyers this week had already missed the record date of the penultimate dividend; there seemed no cause (let a lone a rational one) for the sudden spike in price.

So far, adrian2's "madness of crowds" has my vote as the most likely reason. And I benefited from this madness by selling, pocketing more than an extra dividend in the process, thanks to the tools/information provided in Prefblog and Prefinfo.
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Re: Selling Preferred shares

Postby Descartes » 12 Jan 2012 13:56

Pickles wrote:My original query, to which you responded, Descartes, was why there was a sudden, sharp increase in CM.PR.D's share price that put it into a negative yield position, three months before possible redemption. I didn't suggest this was a prediction by Mr. Hymas, and I'm unaware of any prediction he has made on this issue. I was asking in case I had missed a CIBC press release about the pref or some event had occurred that caused this trading action.

Sure, but ..my interest in this query was looking beyond the obvious answer of "there are some crazy ignorant people out there" to "perhaps some of these people know more than us about an issuer's intention to redeem" ...and it isn't dealing specifically with your example of CM.PR.D but this type of situation in general.

This leads to "what method do other investors use to discern the intention of the issuer and is this a reliable method?"

I conclude that, without insider knowledge, there is no reliable method, at least known here or by the esteemed Mr. Hymas (as evidenced by the example of POW.PR.A cited upthread).

Hence, technically, what I have been taught is "give up trying to learn some hypothetical method and play it safe".

"Play it safe" means to assume redemption will happen when it appears to make economical sense to me that the issuer will redeem.



(sorry for boring anyone (everyone?) with these pedantic explanations but I seem to have a knack for making myself misunderstood on this forum)
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Re: Selling Preferred shares

Postby Norbert Schlenker » 12 Jan 2012 14:29

Non-redemption by issuers is quite inexplicable in many cases. Descartes brings up a Power issue. Let me give an even more ridiculous example.

Union Gas delivers natural gas to end users in southern Ontario. The company was taken private many years ago and is owned now by Spectra, a US utility holding company. It has two publicly traded series of preferred shares outstanding, though "traded" is a bit of a joke. Altogether, there are less than 150,000 shares outstanding of what are $50 par value preferreds and they've been redeemable forever at small premiums to par. One pays 5.5%, one pays 6%, so for these days, that's not particularly cheap money.

On top of the $400k dividends Union Gas pays each year, there are listing fees of probably $50-100k per year per issue plus public reporting requirements quarterly that must be another $50-100k, all of which could be avoided if these prefs were redeemed. I figure the annual cost of these prefs to the company is probably 8-9% after tax, which isn't cheap at all. Yet Union Gas will not redeem. (They offered once a few years ago as part of a plan of arrangement but withdrew the offer without giving a reason publicly.)

Financially, this makes no sense to me. I assume there must be some deep dark provision buried in some vault that gives them a good reason to leave these shares in place. I own a few of each series and, while I appreciate the quarterly dividends, I don't understand why they continue to pay me.
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Re: Selling Preferred shares

Postby Shakespeare » 12 Jan 2012 14:49

If somebody wants to make the effort, an approximate yield-to-call should be doable in one line by using Excel bond functions, setting quarterly interest, and adding accrued interest back to the price. It won't quite be correct, but may make comparison of several issues simpler.
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Re: Selling Preferred shares

Postby Rick_J- » 12 Jan 2012 14:54

Before selling something I would like to try to understand the investment. In an effort to do so I have read the prospectus I could find and have been reading more on Mr. Hymas' site. I am trying to confirm where in his taxonomy of prefered shares each falls,but i am having some difficulty. here is what I have so far:

FTS.PR.F operating retractible
IAG.PR.E perpetual straight -unsure if premium or discount
L.PR.A operating retractable
RY.PR.H perpetual straight - unsure if premiumor discount

on the other hand I may be completely wrong about their taxonomy position
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Re: Selling Preferred shares

Postby Peculiar_Investor » 12 Jan 2012 15:17

Norbert Schlenker wrote:The company was taken private many years ago and is owned now by Spectra, a US utility holding company. It has two publicly traded series of preferred shares outstanding, though "traded" is a bit of a joke.
From http://investors.spectraenergy.com/phoe ... =irol-debt, and the Preferred Share Information link, they actually have 5 series of preferred shares -- you need to include the Westcoast Energy ones as well, another take-over.
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Re: Selling Preferred shares

Postby westinvest » 12 Jan 2012 22:36

Norbert Schlenker wrote:Non-redemption by issuers is quite inexplicable in many cases.


I raised this question in the "Preferred" section of the board last week using the example of ENB.PR.A, which has been redeemable at $25 since 2007, and yet sells for $26.35 today, but I did not get any answers. I'm wondering if there is a pecking order of quality of capital for utilities, or some rating formula that make these shares better for them to have outstanding?
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Re: Selling Preferred shares

Postby brucecohen » 16 Jan 2012 17:07

Peculiar_Investor wrote:and was going to suggest using Yield Calculator for Resets « PrefBlog

I just tried using this calculator for TD.PR.G which I own and which Jim included in his Jan 11 Prefblog. Prefblog shows YTW of 2.37%. Using the same bid price -- $27.08 -- I got 2.96% assuming the calculator's "yield to call" is the same as Prefblog's "yield to worse" in this case. I suspect the gap is due to the final dividend. The calculator's cash flow shows a dividend being received on the call date, Apr 30 2014, but the prospectus says there's no dividend due then.How would I set the calculator so its cash flow shows only the redemption amount on that day?
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Re: Selling Preferred shares

Postby jiHymas » 16 Jan 2012 18:27

brucecohen wrote:
Peculiar_Investor wrote:and was going to suggest using Yield Calculator for Resets « PrefBlog

I just tried using this calculator for TD.PR.G which I own and which Jim included in his Jan 11 Prefblog. Prefblog shows YTW of 2.37%. Using the same bid price -- $27.08 -- I got 2.96% assuming the calculator's "yield to call" is the same as Prefblog's "yield to worse" in this case. I suspect the gap is due to the final dividend. The calculator's cash flow shows a dividend being received on the call date, Apr 30 2014, but the prospectus says there's no dividend due then.How would I set the calculator so its cash flow shows only the redemption amount on that day?


On January 11 I published:
PrefBlog wrote:RBC crossed 86,200 at 27.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 27.08
Bid-YTW : 2.37 %


In the calculator I entered:
Current Price 27.08
Call Price 25.00
Settlement Date 2012-1-11
Call Date 2014-4-30
Quarterly Dividend = 1.5625/4
Cycle 1 (JAJO)
Pay Date 31
Include First Dividend 0 = No

...

and got Annualized Quarterly Yield to Call of 2.37%

My first guess is that you included the first dividend (it went ex-Dividend 1/5), but that results in a 3.05% yield, so there is probably something else wrong.

You will get the last dividend, earned to and paid on the call date.
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Re: Selling Preferred shares

Postby brucecohen » 16 Jan 2012 18:56

jiHymas wrote:My first guess is that you included the first dividend (it went ex-Dividend 1/5), but that results in a 3.05% yield, so there is probably something else wrong.

Yes, most of the error was due to including the first dividend. I also made two other mistakes based on scanning -- not reading -- the prospectus cover page. I entered 30, not 31, as the pay date because I saw that but didn't notice that it was the pay date for only the first dividend. Similarly, I entered the quarterly div as 0.38527 -- the amount of the first payment -- instead of 0.390629. :oops:

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Re: Selling Preferred shares

Postby Peculiar_Investor » 16 Feb 2012 18:57

Peculiar_Investor wrote:Has anyone used James' spreadsheet, Preferred Share Spreadsheets on GoogleDocs: Yield Calculator « PrefBlog?
James Hymas wrote:I am pleased to announce that the Yield-to-Call Calculator spreadsheet, originally developed by Keith Betty in MS-Excel format, has been reformatted to Google Docs format by Rob Vassov and made available publicly by Hymas Investment Management Inc.

Anyone??

I think there are a couple of problems with this version. As instructed I copied "the spreadsheet to your own Google Docs account in order to use it.". First thing I noticed is that input into B15 to B18 doesn't get summarized, as it appears the formulas are missing in B5 to B8. So I set B5 to =B15 and then tried and analyze IAG.PR.F using the values you posted in February 15, 2012 « PrefBlog, I get ?NAME showing in columns D, E and G. Am I doing something wrong, or is there an error in the spreadsheet?

See (might need to double-click the thumbnail to be able to properly read it).
Google Docs YTC tool.PNG

I've posted the same question via a comment in Preferred Share Spreadsheets on GoogleDocs: Yield Calculator « PrefBlog, but James is moderating first comments, so I don't know when he'll notice.
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Re: Selling Preferred shares

Postby Shakespeare » 16 Feb 2012 19:08

I just wish to point out that I am no longer developing the spreadsheet. James's versions should be used for any future enhancements to avoid forking the development.
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Re: Selling Preferred shares

Postby jiHymas » 16 Feb 2012 22:15

Peculiar_Investor wrote:I've posted the same question via a comment in Preferred Share Spreadsheets on GoogleDocs: Yield Calculator « PrefBlog, but James is moderating first comments, so I don't know when he'll notice.


Somehow all the named ranges had their name changed by the addition of an exclamation mark, e.g., "Call" became "!Call".

Don't ask me how this happened. It's fixed now.
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Re: Selling Preferred shares

Postby jiHymas » 17 Feb 2012 00:04

Peculiar_Investor wrote:analyze IAG.PR.F using the values you posted in February 15, 2012 « PrefBlog

See (might need to double-click the thumbnail to be able to properly read it).
Google Docs YTC tool.PNG


The data input by Peculiar_Investor is correct and results in the display of a calculated Annualized Quarterly Yield to Call (AQYTC) of 5.37% now that the blasted thing is working again.

This is different from the value I reported on the February 15, 2012 « PrefBlog, which was 5.41%.

This is because my analytical software HIMIPref reports bond-equivalent yields (BEY), by which I mean compounded semi-annually (this has nothing to do with interest-equivalent yields, which address taxation rates. That's a separate issue entirely.

Converting that AQYTC to Annual Compounding (which is the normal way of expressing Internal Rate of Return) is done by taking the quarterly yield, = 5.37% / 4 = 1.3425% and annualizing it = 1.013425^4 - 1 = 5.48%

Converting the BEY to Annual Compounding is done by taking the semi-annual yield = 5.41% / 2 = 2.705%, and annualizing it = 1.02705^2 - 1 = 5.48%.

There will occasionally be a difference of a bp or so because the dates for future cash flows calculated by the two different algorithms will not necessarily be the same.


The discrepency in reported yields gives rise to a riddle us bond geeks like to ask each other: "What's the yield of a 5% bond?". The proper answer is, of course, "Not enough data!". Ha-ha! Us bond geeks consider that a real thigh-slapper!
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Postby Arby » 19 Feb 2012 12:51

Peculiar_Investor wrote:As instructed I copied "the spreadsheet to your own Google Docs account in order to use it."


A newbie question on Google Docs... the "File > Make a copy" menu item is not enabled on James' spreadsheet, so how do I copy the spreadsheet to my account?

I tried saving the spreadsheet in CSV format to my computer using "File > Download As", and then importing the saved file into a new Google Docs spreadsheet. This seems to work, however the cell formatting is lost. Is there a better method to copy James' spreadsheet to my Google account, so that the cell formatting is preserved?
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Re:

Postby jiHymas » 19 Feb 2012 12:59

Arby wrote:A newbie question on Google Docs... the "File > Make a copy" menu item is not enabled on James' spreadsheet, so how do I copy the spreadsheet to my account?


I have no idea. Tell me what buttons I have to push and I'll push them.
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Re: Selling Preferred shares

Postby Peculiar_Investor » 19 Feb 2012 13:04

I just checked when Google has me Signed In, File->Make a copy is working for me. If I log out, then File->Make a copy is greyed out and not available.
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Re: Selling Preferred shares

Postby Arby » 19 Feb 2012 13:27

Thanks PI - I guess I was not logged into Google when I first accessed James' spreadsheet. The File > Make A Copy is now working for me.
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