Natixis Canada Blog

Month: January 2014

NVCC-Compliant Issues: Thoughts from Jeff Herold, CFA

Following up on the Royal Bank’s inaugural NVCC-compliant issue last week, National Bank is issuing NVCC-compliant preferred shares this morning. The dividend rate is 4.10%, compared with Royal’s 4.00%. The National reset spread is 240 bp, compared with 221 bp with Royal’s issue. Indicated size of the issue is $200,000,000, but will likely grow if there is enough demand. We are not buying the National Bank issue.

Now that NVCC-compliant issues have started coming to the market, we expect most, if not all, of the Canadian banks will be issuing them in the near future. With substantial redemptions of high reset spread preferreds expected in April, the anticipated NVCC new issue supply should alleviate some of the reinvestment concerns. However, the timing of the new issues and the redemptions may not be well matched.

Tactically, we have decided to increase the cash position in the NexGen Canadian Preferred Share Fund to the 5% to 10% range, because we believe the new issues may come faster than the redemptions, and that may create opportunities to pick up things a little cheaper than at current levels. We also believe the NVCC-compliant issues are likely to come progressively cheaper (i.e. higher dividend rates), so it will pay to be patient.

Jeff Herold

TransCanada Redemptions: Comments from Jeff Herold, CFA

This morning, TransCanada Corp. has announced the redemption of its Series Y preferred shares (TCA.PR.Y) effective March 5th. The redemption proceeds will include $50.00 par value plus $0.2455 accrued and unpaid dividends. Prior to redemption, the shares will be paying their regular quarterly dividend of $0.70 on February 3rd. The issue had 4,000,000 shares outstanding for a total par value of $200,000,000. Btw, this was a perpetual issue, not a rate/reset. We did not hold the issue.

Jeff Herold

Royal Bank’s New NVCC-Compliant Issue: Thoughts from Jeff Herold, CFA

The Royal Bank today announced a new, NVCC-compliant preferred share issue. Initial offering size is $200 million, 4.00% dividend, and 5 year reset with a spread of +221 basis points. It seems very expensive to us at first look. We are still looking into the details of the issue’s NVCC characteristics.

Yesterday the Royal Bank rolled over two existing rate/reset issues. The cheapest one had a reset spread of +267 basis points, so it will yield approximately 45 basis points more than the new issue. The new issue also has greater risk of being converted into common equity if the bank runs into financial difficulty. Lower yield and higher risk, hmmm!

So we are surprised that the Royal Bank is trying to jam this new issue into the market at this pricing.

Jeff Herold

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