Investment Q&A

Q: I have option to transfer series 1 preferred to series 2. I have pasted the announcement to provide all the relevant info. Could you please let me know if I should convert to series 2. I will appreciate your response ASAP since I have to make decision soon.
Thanks and kind regards,
Tarun


First National Announces Dividend Rates on Cumulative 5-Year Rate Reset Class A Preference Shares, Series 1 and Cumulative Floating Rate Class A Preference Shares, Series 2
2016-03-02 10:00:00 PM ET (CNW Group)




First National Financial Corporation ("First National") (TSX: FN, TSX: FN.PR.A) today announced the applicable dividend rates for its cumulative 5-year rate reset Class A Preference Shares, Series 1 ("Series 1 Preference Shares") and cumulative floating rate Class A Preference Shares, Series 2 ("Series 2 Preference Shares").

With respect to any Series 1 Preference Shares that remain outstanding on March 31, 2016, commencing as of such date, holders thereof will be entitled to receive cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of First National. The dividend rate for the five-year period commencing on April 1, 2016, and ending on March 31, 2021 will be 2.79%, being equal to the 5-Year Government of Canada bond yield determined as at 10 am (Toronto time) March 2, 2016 plus 2.07%, as determined in accordance with the terms of the Series 1 Preference Shares.

With respect to any Series 2 Preference Shares that may be issued on March 31, 2016, holders thereof will be entitled to receive floating rate cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of First National, based on a dividend rate equal to the 90-day Canadian Treasury Bill plus 2.07% on an actual/365 day count basis, subject to certain adjustments in accordance with the terms of the Series 2 Preference Shares. The dividend rate for the period commencing on April 1, 2016 and ending on June 30, 2016 will be equal to 2.532%, as determined in accordance with the terms of the Series 2 Preference Shares.

Beneficial owners of Series 1 Preference Shares who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to ensure that they meet the deadline to exercise such right, which is 5:00 p.m. (Toronto time) on March 16, 2016

Q: Can you tell me what is happening with WEQ. I bought a huge position (in an account I call VEGAS)at 0.22 and wonder if it will ever get back to its highs in 10 years. They were tied to oil and gas but have shifted to other industries (Movie rentals, Permanent Modular, Passive House Construction etc.) How do the debentures play out? Do you know the management?

Q: How do I research existing rate reset preferreds? I need income and some of them even close to expiry are likely a good diversifier, especially when the reset is at the bank rate plus 4 or more percent.

Q: What would make this issue any better for capital preservation than all other reset prefs that have been capital destoryers .
I have been a long term holder of prefs but since the inception of resets I have not played in that sand box.
25% of my portfolio is in soft callable prefs
Stan

Q: Hi

Could I have your opinion on The Bank of Nova Scotia 5.50% 5 Year Rate Reset Preferred Shares, Series 36

Thank you

Q: Hi 5i
I am holding Husky reset preferred shares,with a 50% loss. Husky is are allowing holders to convert series one shares into series two shares until March 1/2016. Your thoughts on this conversion would be appreciated.
Thanks M

Q: Just further to Eric's question, from the bought deal prospectus:
"At the option of holders and provided that payment of the final instalment has been made, each Debenture will be convertible into common shares of APUC ("Common Shares") at any time on or after the Final Instalment Date, but prior to the earlier of maturity or redemption by the Company, at a conversion price of C$10.60 per Common Share. " As the stock is currently trading below the conversion price, hopefully the "overhang" is mostly priced in already, as 5i suggested in its answer. Recall that the stock was trading at about $11.50 prior to the announcement of the deal.
John

Q: Hi Team,

Currently rate reset prefs have been completely hammered (for obvious reasons). However, at this point should they be considered more compelling over the long term? Even though interest rates could certainly go lower, over the next 5 years I would expect the average interest rate to either be at or above where we are today. If that is a realistic expectation, then should there not also be some capital gain potential with these type of prefs?

Q: i understand why reset preferreds have generally taken a beating for the last year or so but I don't understand why those with generous reset rates such as Efn.pr. at 4.71 points above the bank rate also get dragged down. I would have thought this would have lessened the blow somewhat. Can you educate me on this?

Q: I have preferred shares in my porfolio :ENBRIDGE INC 4% SER-3 PFD (ENB.PR.Y-C) ,BROOKFIELD ASST4.2%-34 PF (BAM.PF.B-C) and RYL BK CDA NVCC 4%-AZ PFD (RY.PR.Z-C). These were bought before I took care myself of my portfolio. All of them are down 40 to 50%.
I am tempted to sell all those preferred and replace them with CPD to get the capital loss for 2016 and keep getting some income.
I do not know much on the mechanics of preferred. Is this a good idea? Should I buy back the same titles after the 30 days required to avoid a superficial loss are expired?
Thank you.
Serge Lacroix

Q: What do you think is the potential downside risk with cpd....where is the bottom.please give some hard numbers.
And is the potential upside higher then the downside?

Q: My question relates to the effect of lower interest rates. There seems to be a considerable discussion to the issue of negative interest rates. In a scenario that the BOC decided to lower interest rates to 0 (let alone negative) what would be the effect on CBO. Currently the NAV of CBO is 19.12 and the yield is 3% ish. If the BOC reduces rates to 0, what in your estimation does NAV become and what does the yield become. I don't need a long explanation but rather the 2 numbers. Great service and keep up the good work.

Q: Hi Peter & team. The company suspended the dividend on the common shares. These preferred CF.PR.A are to reset in September 2016. The formula for the reset rate is 321bp + GoC 5year-bond. Assuming the latter at 0.40% (is this a reasonable figure?), the yield at reset, based on the current share price, will be just over 10% (am I right?). I am wondering whether this represents good value and an opportunity for income. How would you assess the risk that the dividend be also suspended on the preferred? What are the general rules in that regard? Thanks for your excellent service.

Q: Good Evening
I am looking to add a rate reset preferred to my income holdings. Would you recommend the above Empire Life issue or the recent Manulife offering?
I recently purchased the new Pembina in the after market.

Thanks team

Q: Hi 5i: Along with many others I have significant paper losses on CPD. I would hold for the good divided if I could be reasonably sure I wouldn't suffer another large hit if the BoC were to lower rates again, or go negative on us. Some time ago I sold about a half and reinvested the proceeds. I'm considering dumping the rest to limit the remaining potential damage. What do you think?

Q: Hello Peter,

Per today's the Globe and Mail, one third of the global government bond market is now trading at subzero rates. Under this negative rates environment, what kind of impact will it impose to prefer shares in general? Does it make sense for companies issued prefer shares to call them back, then reissue them at much lower rates. If the prefer share's rate resets in next couple of months, will the new rate be set to much lower rate than before (other than lower prime rate)? Thanks.

Lin

Q: Hi Peter & Team,
The AQN.PR.A prefer is it a perpetual prefer or Reset prefer? If it is perpetual based on 4.5%/$25.00 issue price. That looks very good buy at today's price $13.50 ?
I have 600 @22.89 should I add more or cut my loss?
Thank you and learned a lot and appreciate from 5i .

Q: hi; when these reset june 1 2017 could they exchange them for new as they are trading at a low price.others have done this hair cut. if left the same they would yield over 6% + 5 year rate u.s. thanks for the great service--brian

Q: Hello! Having some VSB and CBO already (short-term bonds), I would also like to consider some modest exposure to high quality/longer term government bonds, 5-10yrs, and fairly liquid. Would like your recommendation in that space.
Appreciate your service always, member's input as well.
Thank you!

Q: Good morning,
With interest rates currently at very low levels with no sign of going up in a significant manner anytime soon, does a preferred share type ETF or actively managed fund holding mostly reset type preferred have a place in most portfolios. If so, what are your thoughts on PIC.PR.D at this time and can you recommend something else that would be more preferable in this asset class? Thank you