Post by
RetailRube on Apr 09, 2021 11:48am
Globe and Mail Article on Pref Shares
Andrew Willis wrote an article on April 7th on how Arbs are playing the pref shares hoping for a June 30th redemption. The pref shares went up in the last few days about $2, probably because of the article.
After considering RagingBull's sceptical view of my posts, I did further analysis and sold all my pref shares at around $21.
I now think Rogers may not redeem. Partly it is because pref shares support borrowing capacity. Partly it is because pref shares are still cheaper financing than Rogers' debt. If they don't redeem, then Arbs will dump their holdings and this thinly traded security will trade through its pre-deal price of around $14-$15 and may test $10-$12 before eventually recovering.
Debt Capacity: $300M of pref shares support $660M of debt, based on Rogers 2.2 Debt/Equity ratio. So the business case for redeeming shows a swing of $960M of debt capacity. Rogers' total Senior Notes is $18.4B. Maybe $1B of debt capacity matters to them.
Debt Cost: Weighted average interest rate on Rogers' Senior Notes is 4.5%, which is 3.3% after tax using Rogers' statutory tax rate. If the SJR.PR.A reset today, they would cost the company (2.0% + 0.95%)x$25 per share in dividends. That is 2.95% after tax (dividends not tax deductible). So if 5 Gov't of Canada bond rates don't go above 1.3% by May 31, pref shares will be cheaper financing than Senior Notes.
I concede nobody really knows if Rogers will announce on May 31 that they want Shaw to redeem. I decided not to be greedy. I took my profits and retreated to the sidelines. In spite of all that, I do think the takeover will eventually be approved in some form.