Investment Q&A

Q: Hello 5i team,

I recently subscribed and bought a significant qty of CSU debentures @ the strike price of 133.
With the Canadian economy perhaps going into a recession? and rate cuts, how would you project the price to behave over one year? The percentage drop in price is more than the yield. Can one expect a total return of 8% for the next year? Would you suggest a sell and deploy in stocks?
Appreciate your analysis on the subject.
Regards
Rajiv

Q: my debentures have traded down to 120.
what should I do with this large capital loss and what is the future of these debentures for current holders? appreciate your analysis and direction.

Q: Sorry but another question on CSU.db
It appears that only CSU shareholders will receive the warrants for a potential swap. I have a friend that holds the original debentures and they did not receive any warrants for exchange? Why would the shareholders receive warrants ( they don't need them) and the original debenture holders not receive warrants ( they will need them)?
Secondly on the rights , 3.03 rights are required to buy $100 face value, is it fair to say its actually 4 rights then? Fractional rights won't be allowed?
thanks

Q: Sorry for another questions about the CSU rights, warrants and debentures. I was thinking of taking a small position in the debentures and have the rights to do that. However, I believe that I would be getting the Series 1 debentures which likely means that I will someday have to buy warrants to remove the redemption feature. The cost is now starting to increase because I am not sure there will be enough warrants to cover the Series 1 debentures so the warrants could be expensive. It seems to me that if CSU wanted to remove the redemption feature they could just do it without the warrants. Will there be enough warrants to go around? And if the warrants sell for $1 that is another 1% lost. Any further comments?

Q: I hold the Series 1 Debentures and am quite content to continue to do so, also the rights to purchase Series 2 which I intended to let expire. Should I or is it advantageous to sell Series 1 to switch?

Q: It appears from the news release that the rights dividend allows a holder to purchase a debenture. There is no indication of allowing and existing debenture holder to switch issues to a non redemptive issue.
This is exactly the way csu sold its original tranche of debentures.
It also states that this issues is an additional to the previously issued debs,ie no series 1 and 2
Am I missing something

Under the rights offering, the company will issue the rights in satisfaction of the rights dividend that will entitle the shareholders to buy up to $700 million of unsecured subordinated floating rate debentures, Series 1 of the company.
The Series 1 debentures will be issued as an additional tranche of, and will form a single series with, the outstanding $282.2 million of unsecured subordinated floating rate debentures, Series 1 of the company. There is no minimum principal amount of debentures that must be issuable upon the exercise of rights.
The company plans to use the net proceeds of the rights offering to pay down debt under its existing credit facility and use any remaining proceeds for future acquisitions.
The rights will be issued in satisfaction of the rights dividend in the amount of one right per common share.
The rights will be exercisable until 4:30 pm Toronto time on Sept. 29 at $133 per $100 principal amount of Series 1 debentures purchased, plus accrued interest in the amount of $0.217 per $100 principal amount of Series 1 debentures purchased on account of interest accrued on the Series 1 debentures from, and including, Sept. 30 to, but excluding the issue date.

Q: hello 5i:
regarding the warrants that will eventually trade for the CSU bonds: can you hazard a guess as to what price range they might trade at; possibly looking back and seeing what others have done in this situation?
thanks
Paul L

Q: I am holding 200 units and 130 units in registered and cash accounts respectively. Recently a special warrant dividend will be given to each unit of CSU share holders. I do not own the series 1 debenture and have difficulty to comprehend the debenture matters.
Please advise what are the appropriate actions to be taken for unit holders. Thank you for your great service. Bill.

Q: Re your answer on the warrants. High finance seems as clear as mud. If csu wants a deb until 2040 it just needs to never redeem it.
It seems as I only have 30 shares of csu and $40,000 in debs I have to buy 370 warrants. Thus add to my cost base of 105.
On the surface it seems the best course of action is to sell my debs now for the cap gain ( rrif) as I prefer not to add to the cost basis .
I assume csu plans a redemption, why else go through with this exchange.
Thoughts ?

Q: hello 5i:
more questions/clarification on the CSU warrants:
first, warrants do not HAVE to be exercised, and CSU would wind up with both Series 1 and Series 2 bonds, correct?
second, how do you see trading in the bonds affected? eg. as Series 2 can't be called before 2040, would this make them more valuable than Series 1? Or, if they can be called at any time, would this make them less valuable.
third, the interest rate for the bonds will still follow the same criteria for both Series 1 and Series 2?
fourth, using $10,000 (a round number that makes calculations easier), a holder would then receive 100 warrants? What about numbers that would involve parts of warrants eg. $111,100
thanks for straightening this out
Paul L

Q: I don't quite understand your answer to Rajeev's question on CSU debentures. Does this debenture exist and what is a rights issue ? The only debenture I can find listed on the TSE is CSU.DB which show a yield of 9.5% not 13.3% . So I imagine I'm looking at the wrong one. Could you give the correct symbol for the debenture in question ? And also explain and assess CSU.DB comparing it with the one Rajeev is interested in ? Which one would you prefer as part of the fixed income section of a portfolio ? Thanks .....

Q: Peter,

Is it safe to assume CSU.DB will not be called this year? What is the final date they can make that announcement?

Thank you

Paul

Q: hello 5i:
can I have your thoughts regarding on receiving income from the 2 names above? Recognizing that the FTS shares pay a 6% dividend and the CSU shares a 7.2% dividend, can you discuss safety, trading volumes, and most important, the outlook for the future. If YOU were looking for income, which would you prefer?
thanks
Paul L

Q: Hi Peter & team:
IF I buy CSU.DB today at 138 $ and tonight CSU makes their recall announcement , the baystreet computers will grind away for about TWO milliseconds and tomorrows opening price may very well be about 115$ to 118$, and THEN a gradual decline to 100$ over 5 years.
My question is do you agree that this debenture is riskier than it appears since new buyers after the announcement will also expect to make money during the 5 year roll-off. Please poke holes in my theory if you wish...

(Of course the 5 years could also start in 2035 ...)

Q: I have already asked a question about this security. Thanks very much for your answer regarding the payments being interest and not dividends.
I just can't understand this security. It is an inflation linked bond with a maturity date in 2040. The new year's interest rate has been announced as 13.3% based on the 100 bond price. The current face value has declined over the last week even though the interest rate has gone up by just over 2% per year. The current rate on face value of 137 is 9.7%.
I know about the thin trading volume and the potential for Constellation to redeem the bond with 5 years notice.
What am I missing?? Is there a good reason not to put a fair chunk of fixed income destined money into this debenture?
Thanks as always for your insight!!

Q: I think I know the answer but can you confirm that the payment from this is considered interest and not a dividend by CRA? With that in mind what are your top picks for yield and capital preservation with a dividend yield to save taxes?
Thanks
Richard

Q: Can I get you thought about buying CSU.DB? Is it a good value purchase at this point and where does it fit in a portfolio? Merits and risks of this holding?

Thanks

Q: Hi 5i.
Looking to boost the dividends in my Canadian equity portfolio by peppering in some preferred shares, Can you recommend 5 companies preferred shares that are buyable with an eye on safety, I currently have CSU.DB
Many thanks!

Q: i read somewhere that Constellation Software has a new debenture but i cannot find any information. Can you provide any further information and do you think this is a reasonable investment for a retiree with some tolerance for risk.

Q: Within a low fixed income component (10%), would half of that component in PFIA be too much? For the other half I’m thinking CSU.DB.

Thanks.