Three banks announced that they would be redeeming almost $1 billion in preferred shares over the next three months ($883 million on April 30th and $110 million on June 16th). TD Bank is calling the $300,000,000 TD.PR.E and the $375,000,000 TD.PR.G, Canadian Western Bank is maturing the $208,825,000 CWB.PR.A and Laurentian Bank will redeem the $110,000,000 LB.PR.E. The TD and Canadian Western Bank issues were expected to be redeemed, as they are not NVCC-compliant and have high reset spreads (between 437 and 500 basis points), while Laurentian Bank launched a $125,000,000 new preferred share issue to fund the LB.PR.E.
Investors who elect to hold these preferred shares to redemption can expect to make very modest returns, as all four issues were trading above the $25 call price. Using yesterday’s TSX closing price, the two TD preferred shares will yield investors less than 0.5%, while the Canadian Western Bank and the Laurentian Bank preferred shares will yield investors less than 1.5%.
So far this month, over $1.9 billion in redemptions have been announced, compared to only $600 million in preferred share new issuance. This supply imbalance has been highlighted by us for some time, and has put a bid into the preferred market over the last few months. While we expect new issuance to increase in the upcoming weeks, we do not anticipate it to keep up with future redemption announcements, which could equal $1.5 billion next quarter. We have positioned the fund to take advantage of this opportunity, by holding what we deem to be high yielding, high quality, and perpetual preferred shares. We believe this strategy can benefit mutual fund, ETF, and individual investors who are looking to reinvest cash they have received from recently announced redemptions.