sculpin Posted April 19, 2019 Share Posted April 19, 2019 Year end commentary from the Ravensource Fund... https://www.ravensource.ca/financials.php?sub_name=2018 Dundee Corporation (“Dundee”) Dundee (TSX: DC.A) is a publicly listed holding company headquartered in Toronto. Founded in 1991, Dundee became one of the largest independent asset managers in Canada. In 2011, Dundee sharply pivoted from what worked in the past by selling its asset management and real estate crown jewels only to hastily spend the proceeds on speculative new investments across ~100 holdings mostly in industries in which Dundee had no expertise. These new investments have performed abysmally, causing Dundee to write-down approximately 70% of its invested capital only a few years after they were made. In turn, Dundee’s common shares has fallen in value by over 95% since its peak in 2013 while its Series 2 & 3 preferred shares tumbled to approximately 50 cents on the dollar despite being Dundee’s most senior securities. Across the capital structure, Dundee’s investors lost confidence, panicked and fled. Free of emotional baggage carried by existing investors, we worked to determine whether there was opportunity within the chaos. With Dundee’s portfolio of ~100 names, we first performed triage to cull the smaller and speculative investments and focused our analytical rigour on the remaining few with tangible and obvious value. Our analysis concluded Dundee’s assets were worth in excess of the face value and 3x the market value of its preferred shares. We were also attracted to the preferred shares’ 12% dividend yield, equivalent to 15.7% interest on a bond factoring in the tax advantages of dividends. In the third quarter of 2018 we began buying the Series 2 & 3 preferred shares, based on a large margin of safety, healthy yield and potential catalysts for meaningful capital appreciation. Link to comment Share on other sites More sharing options...
sculpin Posted June 6, 2019 Share Posted June 6, 2019 New 52 week lows in all of the Canadian preferred ETF's. New low list on the TSX is chockers with pref's hitting new lows... http://prefblog.com/ It was a wild day, with new 52-week lows all over the place, but the cavalry arrived at 3:40pm to stave off disaster. TXPR closed at 596.46, down 0.34% on the day after touching a new 52-week low of 593.67 (down 80bp). Volume was 3.12-million, the highest of the past thirty days. CPD closed at 11.915, down 0.46% on the day, after hitting a new 52-week low of 11.85. Volume of 231,500 was the second-highest of the past thirty days – eclipsed only by yesterday. ZPR closed at 9.565, down 0.16% on the day, after hitting a new 52-week low of 9.47. Volume of 254,264 was the third-highest of the past thirty days, eclipsed only by yesterday and (just barely) May 31. Five-year Canada yields were down 4bp to 1.30% today. PerpetualDiscounts now yield 5.59%, equivalent to 7.27% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.60%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 365bp, a sharp widening from the 345bp reported May 29. https://www.penderfund.com/commentaries/pender-corporate-bond-fund-managers-commentary-may-2019/ The other source of weakness was in our fairly small weighting (approx. 4%) of rate reset preferred shares from issuers such as Bell Canada, Husky Energy and Brookfield Properties. The math behind the undervaluation of rate resets is very compelling here, although we have found arguing with a stampeding herd to have limited effect. Nevertheless, we added to these lines where we found pre- and estimated post- reset yields in the 6-7% range of issuers whose five-year bonds yield in the 2’s and 3’s. We also made significant additions to our holdings of the preferred shares of Husky Energy. We consider Husky, a smaller integrated oil and gas player, to be materially misunderstood by the market. Although the company’s upstream operations in the Canadian prairies are subject to the famous price discount that has become a recent “cause célèbre” in Canadian political circles, investors miss the degree to which Husky’s downstream operations, such as its refineries, benefit from low input costs from these areas. Husky is a strongly cash generative producer at much lower oil prices than those currently prevailing and its very strong balance sheet provides ample capacity to support fixed charges. With various preferred share series yielding well over 6%, even considering lower future resets, we like the combination of junk-type coupons and investment grade credit fundamentals that Husky preferreds represent. Link to comment Share on other sites More sharing options...
longlake95 Posted June 7, 2019 Share Posted June 7, 2019 I’ve been adding to BPO.PR.P I also own AZP.PR.A Link to comment Share on other sites More sharing options...
Philbert77 Posted June 8, 2019 Share Posted June 8, 2019 I’ve been adding to BPO.PR.P I also own AZP.PR.A Would you mind explaining your logic in purchasing these particular preferred shares? Link to comment Share on other sites More sharing options...
sculpin Posted June 23, 2019 Share Posted June 23, 2019 TransAlta: Get An 8.4% Yield With 12x Dividend Coverage https://seekingalpha.com/article/4271674-transalta-get-8_4-percent-yield-12x-dividend-coverage Jun. 23, 2019 3:04 PM ET | About: TransAlta Corporation (TAC), Includes: BEP, TRSWF Trapping Value Trapping Value Deep Value, special situations, REITs, dividend investing (17,356 followers) Summary TransAlta got a rating downgrade due to an overaggressive shareholder return strategy. The common stock has held up on the belief a big buyback is coming. But the preferreds have got hammered as the rating downgrade has overshadowed the decent metrics. We explain why this is a terrific way to lock in a 8.4% yield. TransAlta Corp. (TAC) has struggled ever since Alberta decided to phase out coal use for electricity. In spite of receiving a healthy settlement for those provincial actions, the stock is down 45.75% over the past five years versus a 40.30% up move for the Utilities Select Sector SPDR ETF (XLU). ChartData by YCharts While we have focused our buying efforts on its controlled subsidiary, TransAlta Renewables (OTC:TRSWF), recent events have made a rather compelling investment case for a direct investment TransAlta. We make our investment case below. The Business TransAlta has a diversified mix of revenues, with "clean" energy forming a major subset. Source: TransAlta Presentation It is also diversified geographically with assets in Australia and the US in addition to its primary assets in Canada. While the renewables assets have delivered steady performance and the gas fired electricity plants have done relatively well, Alberta's attack on coal has hurt TransAlta's results. The company cut its dividend in 2016 and has focused its cash flow on debt repayment and also on converting its plants from coal to gas usage. Source: TransAlta Presentation These conversions significantly extend life of assets and are a big plus in the era of overabundant low natural gas prices on the AECO exchange. Source: TransAlta Presentation Recent events TransAlta's assets received a stamp of approval from none other than the Brookfield entity Brookfield Renewable Partners (BEP). Source: TransAlta Presentation BEP has agreed to invest $750 million in TransAlta and it was that news that really sparked a rally in the common shares from the December lows. Source: TransAlta Presentation TransAlta further scared the bears into hiding by revealing a more aggressive shareholder return strategy by planning to accelerate its share buybacks. The stock was thus up more than 75% at one point from the December lows. ChartData by YCharts Where is the opportunity? Okay, so if you are thinking that this seems rather off for our routine strategy of buying up beaten up shares, you are correct. We are not one to chase high flyers and we are not doing so here. TransAlta's attack on its common share price, though, was not seen too kindly by the rating agencies who would have rather TransAlta continued deleveraging. TransAlta also had rather subpar Q1-2019 results and its Chief Financial Officer left in May. The combination of these events led to a rating downgrade. "Calgary, Alberta-based TransAlta Corp.’s leverage is expected to remain elevated over the next two years following its agreement with Brookfield to borrow $350 million in subordinated debentures and planned $400 million preferred stock issuance (which we view as debt) to fund share repurchases, refinance debt, and accelerate coal-to-gas power plant conversion. We expect the company’s funds from operations (FFO) to debt to remain below 22% and debt to EBITDA above 3.5x (our downgrade thresholds for the rating) for a prolonged period. Consequently, we are lowering our issuer credit rating and senior unsecured issue-level ratings on TransAlta to ‘BB+’ from ‘BBB-‘. We are also lowering our preferred stock rating to ‘B+’ from ‘BB’ and our Canadian preferred stock rating to ‘P-4’ (high) from ‘P-3’. We are assigning our ‘3’ recovery rating to the company’s senior unsecured debt, reflecting our expectation of meaningful recovery in a default scenario." We view a lot of things wrong with this logic. First, S&P sees the preferred shares as debt. There is a good rationale for that, but it is obvious that TransAlta can stop paying its preferred dividends without stopping its interest payments. So downgrading its debt ratings was a bridge too far. Second, the debt to EBITDA that S&P considers "bad" is just 3.5X. Yes, TransAlta is still having issues modifying its asset base away from coal, but that 3.5X bar is a ridiculously low number for a utility. TransAlta will likely hover between 3.5X and 4.0X debt to EBITDA for the next two years as excess cash flow is directed towards coal to gas conversions and possibly some buybacks. We think that is unlikely to damage its ability to remain a very viable entity. Interestingly, the common stock has yawned at the news. But not the preferred shares. Their downgrade sent them hurtling lower and they are now very well priced. The preferred shares Several classes of TransAlta preferred shares exist and covering all their merits is beyond the scope of this article. We will focus on one that we are personally long though, TA.PR.H. Source: TMX The TA.PR.H shares currently pay C$1.30 in dividends and trade at $15.46 for a yield of 8.4%. This resets in September 2022 with a spread of 3.65% over the benchmark of 5-year Canadian Treasury bonds. Source: TransAlta Currently, the 5-year Canadian Treasury bonds yield 1.4%. So if the reset were today, the dividend would be reset $1.2625 ($25 par value X 5.05%), not materially different than what is being paid. Investors do have steady payments for the next 3 years at the current rate and the 8.4% yield is very well covered. TransAlta has been improving its results since the low energy prices of 2016, and in 2018, the preferred dividends were covered by a 13X margin. Source: TransAlta 10-K That is correct, free cash flow of C$524 million was 12X higher than the C$40 million required to pay preferred dividends. TransAlta's interest coverage was also a rather stunning 4.8X. Source: TransAlta 10-K None of this seems remotely distressful to us. But the rating agencies have decided that going above 3.5X debt to EBITDA is just too much with the Alberta weak power prices and have decided to take an axe to the ratings. We are happy to take the other side and buy the preferreds with a 12X dividend coverage. Conclusion We think the preferred shares are a strong buy. Think about the fact that the prime Brookfield entity BEP also believes that common shares are an incredible bargain and a case can certainly be made for that. But to us the preferred shares are a bulletproof way of getting a 8.4% yield that is likely to go up as interest rates rise in the longer term. The current underperformance of the preferred shares versus the common has opened up a rather big gap that we think gets filled by the preferred shares moving up by at least 20%. Source: TMX The catalyst for upside movement will come as TransAlta likely dials down its share repurchase plan and refocuses on restoring its investment grade rating. A much stronger upside might come if TransAlta decides to buy back its highly discounted preferred shares in the market (remember S&P is seeing this as debt) as that would create double whammy of reducing debt at a big discount and plus creating demand for the beleaguered preferred shares. TransAlta had floated a similar idea back in 2016, but it never materialized as TransAlta wanted them too cheap. So you can rest assured that the company is likely eyeing these again. Regardless whether they buy or not, rest assured that the Brookfield directors are also watching out for your investment. "As previously disclosed, Brookfield will invest $750 million in TransAlta through the purchase of exchangeable securities, which are convertible into an equity ownership interest in TransAlta’s Alberta hydro assets in the future at a value based on a multiple of the hydro assets’ future adjusted EBITDA. In connection with today’s initial closing, Brookfield invested $350 million in TransAlta in exchange for unsecured, subordinated debentures; the remaining $400 million will be invested in October 2020 in exchange for a new series of redeemable, retractable first preferred shares, subject to the satisfaction of certain customary conditions precedent. In connection with the transaction, TransAlta shareholders recently elected to its Board of Directors two experienced Brookfield executives, Harry Goldgut and Richard Legault, at its 2019 Annual and Special Shareholders’ Meeting." Link to comment Share on other sites More sharing options...
gokou3 Posted June 24, 2019 Share Posted June 24, 2019 The 8.4% yield sounds very enticing, but if Canada central bank starts dropping rates these rate-reset or floating rate pref shares may re-test their 2016 lows. Patience wins. Link to comment Share on other sites More sharing options...
longlake95 Posted June 24, 2019 Share Posted June 24, 2019 I’ve been adding to BPO.PR.P I also own AZP.PR.A Would you mind explaining your logic in purchasing these particular preferred shares? Sure, basically its a parking place for cash with a fat yield - with low correlation to the market. When lower equity prices arrive I will move out of the prefs into equities. I like these prefs because the are fixed not floaters. Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted June 24, 2019 Share Posted June 24, 2019 I’ve been adding to BPO.PR.P I also own AZP.PR.A Would you mind explaining your logic in purchasing these particular preferred shares? Sure, basically its a parking place for cash with a fat yield - with low correlation to the market. When lower equity prices arrive I will move out of the prefs into equities. I like these prefs because the are fixed not floaters. I think with AZP.PR.A, the company is also reducing debt significantly so credit rating might improve over time and close the giant spread it trades at. Also, the company is trying to buy the preferred back but they won't be back in the market until December because they maxed out already for the year. Link to comment Share on other sites More sharing options...
sculpin Posted June 24, 2019 Share Posted June 24, 2019 The 8.4% yield sounds very enticing, but if Canada central bank starts dropping rates these rate-reset or floating rate pref shares may re-test their 2016 lows. Patience wins. Read the article, this pref doesn't reset until 2022... This resets in September 2022 with a spread of 3.65% over the benchmark of 5-year Canadian Treasury bonds. Link to comment Share on other sites More sharing options...
Rod Posted June 24, 2019 Share Posted June 24, 2019 I’ve been adding to BPO.PR.P I also own AZP.PR.A I own BPO.PR.N, which is very similar to the P. The basic case is you are getting equity-like returns or better in a preferred that is, as far as I can see, much less risky than an equity. On an after-tax basis, the dividend is worth about 1.3x compared to interest. I think the market for Canadian preferred shares is retail-dominated and prone to irrational moves. Link to comment Share on other sites More sharing options...
no_free_lunch Posted June 24, 2019 Share Posted June 24, 2019 I like the core BAM preferred's. There are higher up the chain as best I can tell so more diversification and safety on the dividend. In particular I am looking at BAM.PR.S right now. It gets adjusted quarterly, for better or worse and currently yields close to 7%. It would have to rise 50% to get back to it's high water mark in early 2018. Obviously that could take years (or a few months) but getting 7% (give or take) while you wait is not bad. The main risk is that we get into a europe type situation and the government yields drop down to near 0. However, you would still be getting 5%+ and that would be a good dividend in a 0 rate world, as long as brookfield can survive. Link to comment Share on other sites More sharing options...
longlake95 Posted January 8, 2020 Share Posted January 8, 2020 Has anyone seen any interesting mis-pricings in the prefs lately. I currently own AZP.A and BPO.P. I'm looking to park some more $$$ in prefs while I wait for lower equity prices. The FFH's seems to offer some value. LL Link to comment Share on other sites More sharing options...
longlake95 Posted January 15, 2020 Share Posted January 15, 2020 any low vol Canadian pref ideas to park some $$$ for a bit ( until the next market hissy fit )? I think BCE has some monthly pays. Link to comment Share on other sites More sharing options...
Rod Posted January 15, 2020 Share Posted January 15, 2020 any low vol Canadian pref ideas to park some $$$ for a bit ( until the next market hissy fit )? I think BCE has some monthly pays. I like the Dundee prefs (DC.PR.B/D--$15). I suspect Dundee will soon announce a substantial issuer bid for them. They are in the process of obtaining a loan, and their stated #1 capital allocation priority is buying back prefs. The logic of doing so is rock solid. An SIB announcement would likely see them bounce by $1 or so. I also think they are a good long term bet. Link to comment Share on other sites More sharing options...
longlake95 Posted January 15, 2020 Share Posted January 15, 2020 Thanks Rod, I owned the DC.D sometime ago. I'm not up to speed on DC. I did worry about the underlying business. I think they have a better balance sheet now due to higher gold prices and their ownership in DPM. Buying back these discounted prefs does seem like a no brainer. Link to comment Share on other sites More sharing options...
bskptkl Posted January 16, 2020 Share Posted January 16, 2020 Dundee already buying their prefs under NCIB. But NCIB/SIB for its shares would be more accretive. From last Q: During the nine months ended September 30, 2019, the Corporation purchased 61,000 Preference Shares, Series 2, having an aggregate stated capital value of $1,525,000, for cancellation pursuant to these arrangements. The Corporation paid $891,000 to retire these shares. The excess of the value of stated capital over the purchase price, which totalled $583,000, was recorded as an increase in retained earnings. During the nine months ended September 30, 2019, the Corporation purchased 3,800 Preference Shares, Series 3, having an aggregate stated capital value of $95,000, for cancellation pursuant to these arrangements. The Corporation paid $56,000 to retire these shares. The excess of the value of stated capital over the purchase price, which totalled $39,000, was recorded as an increase in retained earnings. Link to comment Share on other sites More sharing options...
Rod Posted January 16, 2020 Share Posted January 16, 2020 Dundee already buying their prefs under NCIB. But NCIB/SIB for its shares would be more accretive. From last Q: During the nine months ended September 30, 2019, the Corporation purchased 61,000 Preference Shares, Series 2, having an aggregate stated capital value of $1,525,000, for cancellation pursuant to these arrangements. The Corporation paid $891,000 to retire these shares. The excess of the value of stated capital over the purchase price, which totalled $583,000, was recorded as an increase in retained earnings. During the nine months ended September 30, 2019, the Corporation purchased 3,800 Preference Shares, Series 3, having an aggregate stated capital value of $95,000, for cancellation pursuant to these arrangements. The Corporation paid $56,000 to retire these shares. The excess of the value of stated capital over the purchase price, which totalled $39,000, was recorded as an increase in retained earnings. Yes, but they are too cash constrained to continue buying right now, hence the idea of getting a loan against the value of their DPM shares and using that to make a more substantial bid Link to comment Share on other sites More sharing options...
longlake95 Posted January 5, 2021 Share Posted January 5, 2021 Any prefs out there that have caught your eye? Link to comment Share on other sites More sharing options...
no_free_lunch Posted January 9, 2021 Share Posted January 9, 2021 FFH preferred. I think I own series g. Good dividend @6.5%. Price is down substantially still. Link to comment Share on other sites More sharing options...
maplevalue Posted January 17, 2021 Share Posted January 17, 2021 Any prefs out there that have caught your eye? The number of very low priced prefs (i.e. has the most upside in a higher interest rates scenario) is not that big. TRP-H being one of them. Link to comment Share on other sites More sharing options...
Rod Posted January 18, 2021 Share Posted January 18, 2021 Any prefs out there that have caught your eye? I like the Brookfield Office Properties prefs, BPO.PR.N and BPO.PR.P specifically. They are priced about $14 up from $10 but still very cheap. Link to comment Share on other sites More sharing options...
longlake95 Posted January 18, 2021 Share Posted January 18, 2021 Thanks Rod, I own BPO.pr.p already Link to comment Share on other sites More sharing options...
bizaro86 Posted January 18, 2021 Share Posted January 18, 2021 Any prefs out there that have caught your eye? I like the Brookfield Office Properties prefs, BPO.PR.N and BPO.PR.P specifically. They are priced about $14 up from $10 but still very cheap. I thought this piece on BPO prefs was pretty good. https://seekingalpha.com/article/4398071-brookfield-property-partners-canadian-preferred-shares-will-remain-outstanding-and-are Link to comment Share on other sites More sharing options...
wisowis Posted March 20, 2021 Share Posted March 20, 2021 I saw this interesting thread on twitter that the Artis preferreds will likely need to be redeemed because of their (desired) switch from a closed-end to an open-end trust: Link to comment Share on other sites More sharing options...
maplevalue Posted April 8, 2021 Share Posted April 8, 2021 (edited) Quote A clause in Rogers’ 128-page takeover offer has hedge funds eyeing big gains from Shaw’s preferred shares Specifically, the document stated Rogers can force Shaw to redeem $300-million worth of preferred shares on June 30, for $25 each. In return, Rogers pledged it will pay Shaw $120-million if the Calgary-based company redeems its preferred shares, and the takeover doesn’t close next year. That payment would be in addition to the $1.2-billion break fee Rogers will hand to Shaw if the deal falls apart. From Rogers’s point of view, getting Shaw to buy back its own preferred shares is good housekeeping, according to one hedge fund manager who owns the securities. (The Globe and Mail is not identifying the source because they are not authorized to speak publicly about the fund’s holdings.) These Shaw shares are only redeemable once every five years. If Rogers misses this opportunity, it will be forced to keep paying out cash dividends until 2026. Rogers would rather use that money to pay down debt, or fund 5G networks. However, there’s a significant gap between where Shaw preferred shares have traded since the takeover was announced – around $21 each – and the $25 a share the company would pay out at the end of June if it chooses to redeem. Wasps at picnics have nothing on merger arbitrage funds that smell a 15-per-cent-plus return in less than three months. This is becoming a popular trade. A clause in Rogers’ 128-page takeover offer has hedge funds eyeing big gains from Shaw’s preferred shares - Globe and Mail Edited April 8, 2021 by maplevalue Link to comment Share on other sites More sharing options...
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