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Alterna Savings looking to raise $50 million in 4% preferred share issuance
July 8, 2019
9:25 am
Doug
West Kelowna
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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.

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