Natixis Canada Blog

Month: June 2014

Scotiabank Redemptions: Comments from Jeff Herold, CFA

Scotiabank has announced that it will be redeeming its $300,000,000 Series 13 preferred shares (BNS.PR.K) on July 29th. The shares will be redeemed for $25.00 plus a $0.30 dividend.

The BNS.PR.K was a perpetual preferred issue, but did not contain Non-Viable Contingent Capital compliant covenants. As a result, the shares had decreasing value as part of the bank’s regulatory capital. July 29th was the first date that the bank could redeem the issue at par. (OSFI has encouraged the banks to not redeem securities at a premium.)

The BNS.PR.K shares closed yesterday at $25.60, as some investors failed to realize the potential risk of redemption. Today, the shares closed at $25.29, a loss of more than 1% in the last 24 hours. The NexGen Canadian Preferred Share fund did not hold the BNS.PR.K issue because we had recognized the redemption risk.

Jeff Herold

TD Redemptions: Comments from Jeff Herold, CFA

As expected, the TD Bank has announced that it will be redeeming TD.PR.I and TD.PR.K on July 31st. The two issues had reset spreads of 415 and 433 basis points, respectively.

In total, $625 million will need to be reinvested, and we believe much of that will flow into other preferred shares.

Holders of TD.PR.I and TD.PR.K should consider selling prior to July 31st. Potential returns from these two securities are limited and low, and there may be better opportunities between now and July 31st.

Jeff Herold

A Hectic Week in the Preferred Share Market: Comments from Dax Letham

Last week was extremely busy in the preferred share market, with four new preferred share deals in the first four days. TD and BMO followed Royal’s lead from the prior week, each issuing rate/reset preferreds with a 3.9% dividend. Both new issues were met with good demand and were upsized, with TD raising $500 million and BMO raising $400 million. Due to the low yields on bank preferred shares right now, the fund did not participate in either deal.

Brookfield Asset Management (BAM) and Emera (EMA) also launched rate/reset deals last week which looked expensive to us versus outstanding issues. BAM raised $300 million at 4.5% with a reset spread 2.86% and EMA issued $200 million at 4.25% with a reset spread of 2.63%. For comparison, the fund holds a BAM perpetual yielding 5.5% and a EMA preferred yielding 5.2%. In total, issuers raised $1.4 billion last week ($1.9 billion in five days if you include Royal Banks preferred from the previous week). All this supply weighed on the preferred share market causing the S&P/TSX Preferred Share Index to drop by -1.35% and the S&P/TSX Preferred Share Ladder Index to fall by -1.99% last week.

Dax Letham

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