RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Preferred share exchangeThere are no capital gains if you bought at the issued price 4 years ago…
Minimum guaranteed rate reset isn’t worth much as the existing shares are discounted so much as it is
Assuming a new investor has $10k to spend on some prefs today.
Existing Resets
-$10k buys 594 shares @ $16.83 (I’m being generous in this calc as it really should have been $15 prior to announcement)
Collect $1.15 / share ($683.1 / year)
Same example where the GOC5YR is at the emergency low interest rate of 1.2%
Resets at 4.3% for a new dividend of $1.075 ($638.6 / yr) in 2017
2022 rolls around and we’re back at normal interest rates (Going back 20 years, the avg is approx. 4%). Resets at 7.1% for a new dividend of $1.775 ($1054.35 / yr)
So…
-$10k
$683.1 – year 1
$3,193 – years 2:6
$5,272 – years 7:12 (2027)
Total Interest over the next 11 years is $9,148
New Resets
-$10k buys 594 shares @ 16.83
Collect $1.15 / share ($683.1 / yr) in first year
Exchanged at 0.705. Now you have 419 Series 1 shares yield $1.625 / share ($680.87 /yr)
Resets at 4% + 5.29% = 9.29%, or $2.3225 / share ($973.13 / yr). WHOA! Did you catch that? These new shares will pay you LESS if GOC5YR is greater than 1.43%
So…
-$10k
$683.1 – year 1
$3,404 – years 2:6
$4,866 – years 7:12 (2027)
Total Interest over the next 11 years is $8,953
In summary, a new investor will get more money under the existing rules and have little downside risk (since the prefs are trading at $16.83) vs the exchange where the prefs reset at $25 and have huge downside risk again (I seen this movie once already 3 years ago when all the prefs melted down).
Yes, I know, math is hard… but you really should evaluate this rotten exchange offer instead of getting unduly influence by a flashy minimum 6.5% rate reset. If you can run the numbers yourself and prove to us all how this is a better deal for the pref shareholders, by all means enlighten us!