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Alterna Savings looking to raise $50 million in 4% preferred share issuance
July 8, 2019
9:25 am
Doug
British Columbia, Canada
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canadian.100 said

Doug said

Not as quickly as the typical 4-5 business days that a Big 5 bank's preferred share offering can fill order for $250 million (or more), with all their investment banking utility and such, but still impressive since it's all organically generated by their website and branch network. 🙂
 

That is so true - I recently tried to buy the new preferred issues for TD Bank @5.50% dividend and a good reset - and a fairly large issue too - sold out completely in about 3 hours. I (as well as many others obviously) figured preferred shares were now a bargain - and 5.50% for a major bank was a great rate with low risk, as interest rates seem to be either dropping more or bottoming.  

You definitely have better relative safety in your investment in bank preferred shares over credit union preferred shares; however, there's no obligation for the bank to repurchase such preferred shares at their par value, thus, they trade on the secondary market. They behave like bonds relative to interest rate movements, or predictions of said movements, yet have the relative volatility of common shares. I like preferred shares, don't get me wrong, but right now I don't think is the time to be buying rate resets with more downside likely. I'd want to wait until the BoC cuts about 3 times before I'd step in and that way they're at or below 1% and have less relative downside.

One I'm looking at is retractable preferreds, which typically obligate the issuer to repurchase them at 5- or 10-year intervals. There's only 2 on the market right now, one is Brookfield Investment Corporation (a Brookfield financing subsidiary) and the other is Canadian General Investments, Limited, that has one retractable preferred paying 3.75% p.a. that is retractable in 2023, I believe, such that CGI - a closed end investment fund - will repurchase the preferreds at their par value and, presumably, issue a new series of preferreds at the same time.

Cheers,
Doug

Full and Fair Disclosure: I am a beneficial shareholder of TD Bank Group, CIBC, Scotiabank Group, HSBC Holdings plc [registered shareholder], and Street Capital Group, which owns Street Capital Bank of Canada, though I'm significantly underwater on the latter.

July 8, 2019
11:57 am
canadian.100
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Doug said

One I'm looking at is retractable preferreds, which typically obligate the issuer to repurchase them at 5- or 10-year intervals. There's only 2 on the market right now, one is Brookfield Investment Corporation (a Brookfield financing subsidiary) and the other is Canadian General Investments, Limited, that has one retractable preferred paying 3.75% p.a. that is retractable in 2023, I believe, such that CGI - a closed end investment fund - will repurchase the preferreds at their par value and, presumably, issue a new series of preferreds at the same time.

  

I have owned retractable/redeemable pref shares in the past (banks, insurance etc.) and they were redeemed eventually by the issuer at full par - while I got back 100% of my capital, the downside was they were high dividend perpetual type (not rate reset) and I lost the superior dividend rates that they were paying. (obviously that is why the issuer exercised their right to redeem - and they would issue new series at lower dividend rates.)

You indicate that you are looking at 3 drops in the BOC rate before you would purchase interest rate sensitive shares like Preferreds. I am not convinced that 3 drops in the BOC rate will happen very quickly - but time will tell.

July 23, 2019
5:21 pm
Doug
British Columbia, Canada
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It's worth bumping this thread, as Alterna Savings and Credit Union, Limited, parent company of Alterna Bank, has published an update (link: https://www.alterna.ca/Personal/Investments/SpecialShares/ASClassASpecialSharesSeries6/) that its Class A Investment Shares series 6 are now 90% sold (they were 60% sold as at July 6, 2019). They're looking to raise $50 million, likely because their loan book has risen and credit unions, like banks, are required to hold a certain percentage of their assets as regulatory risk capital (i.e., equity). So, since they first launched the offering in late May, they've sold fully $45+ of their $50 million funding requirements.

We've also had some new members, like @MapleOne, join us, who might be interested in the offering. Credit union shares aren't guaranteed by the FSRA deposit insurance fund, but they are redeemable, at the board's discretion, for the full par value ($1.00 per share). Generally speaking, Alterna Savings asks that members hold their investment shares for at least 5 years and, following that, they generally approve members to redeem at least 10% of their investment shares (potentially more) per year. These investment share offerings also help to let existing holders redeem their shares. sf-cool

Members wishing to purchase investment shares must do so in an Alterna Savings branch and must purchase between $1,000 and $200,000 in investment shares, including shares held jointly. Still, on $200,000, that's $8,000 returned annually as interest income, which can be held in registered accounts including TFSAs.

So, if you don't need the capital over the long term, it's worth considering. I would buy, but Alterna Savings needs to update their bond of association (like Meridian) to let B.C. residents join.

Cheers,
Doug

July 23, 2019
9:04 pm
Loonie
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Does one have to join the credit union or will the bank do? The credit union has a lot of fees and doesn't offer anything of interest - or least it didn't when we belonged to it.

July 23, 2019
9:52 pm
Doug
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Loonie said
Does one have to join the credit union or will the bank do? The credit union has a lot of fees and doesn't offer anything of interest - or least it didn't when we belonged to it.  

My understanding is, even though Bank and Credit Union share a common core banking platform, you'd still need to be an Alterna Savings member. The reason is because Alterna Savings owns Alterna Bank and the Alterna Savings members own the credit union. No one directly owns Alterna Bank, just like being a Motus Bank customer would not entitle you to buy Meridian Credit Union investment shares when offered. You could open a Daily Interest Savings or Investment Savings account, which have no monthly fees and two free debit transactions per month (any type). That's one more free debit transaction than many of the virtual branches of Manitoba CUs offer. sf-cool

https://www.alterna.ca/SharedContent/documents/Fees/Personal_Service_Fee.pdf

Loonie, though, you impress me that you might be considering it as I assumed you only bought GICs from credit unions and banks. Basically, it's like buying an investment grade corporate bond, even though it's equity, in that it's redeemable at par value after 5 years.

Alternatively, I see Alterna provides their Basic Chequing Account, which includes 20 debit transactions (any type), for free to seniors aged 59+ otherwise there's a $4.00 monthly fee. Those under 59 can get that account for free with a nominal $1,000 monthly balance in the account (lost opportunity cost of $1.95 for a 31 day month at 2.30% interest).

Cheers,
Doug

July 23, 2019
10:05 pm
Loonie
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Sorry to disappoint but I'm not really considering buying the shares. I just like to know how everything works, and it might be useful info to other readers.
I haven't looked at these ones in detail, but normally it seems to me that they are a pain to cash in and that you can't necessarily do it when you want to, so that doesn't appeal to me at my age, although it may provide a steady income stream. At least with GICs, I know when the end point is and have some choice as to when it will be.
Perhaps I should consider a smallish amount but have not done so. I'm actually more in favour of the community bonds that nonprofits sometimes offer and would be more likely to purchase some of them - but have never done so. They pay around 4-5% usually, and you know exactly what you're supporting, so you can pick your enterprise on its merits. When the term is up, you get our money back or can reinvest.

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