Author Topic: Short Term Bonds in Canada  (Read 2614 times)

no_free_lunch

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Re: Short Term Bonds in Canada
« Reply #10 on: April 22, 2018, 07:02:24 AM »
I did find this on the dream preferred's.

http://divestor.com/?p=6757

Quote
In other words, the market value of this preferred share issue is going to be anchored around the $7.16/share mark as investors are able to skim off a 7% eligible dividend until such time the corporation bites the bullet and finally redeems the shares. If it goes too below $7.16, it is an easy arbitrage to buy below $7.16 and instantly redeem if you believe there is any sense of credit risk. It is as close to a risk-free 7% as it gets.


gokou3

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Re: Short Term Bonds in Canada
« Reply #11 on: April 22, 2018, 10:09:17 PM »
That does sound interesting goku.  I just wonder couldn't they not pay the preferred's if they get under stress?  Do they have to honor the retraction?  I will have to do some research on it but it is important that I not take a loss of principal as I'm not talking pocket change here.   However, it is also a very attractive yield so I definitely will be doing the work.

I have/had a medium size position in dundee  corp which I am massively underwater on.   I have to try to balance that as well.  They aren't 100% correlated but I would hate to get stung twice by dundee.

no_free_lunch,

The preferred is cumulative, so any missed dividends shall remain payable at a later date.  I would refer you to their May 31, 2013 prospectus on SEDAR (starting on PDF page 58) for all the details regarding the "Redemption at the Option of the Holder" (Section 4.03(g)) and other clauses.   AFAIK, the company can no longer convert the preferred shares into commons after June 30, 2016 (Section 4.03(c)), so some risks are eliminated there. 

IMO, there is no incentive / need for the company not meeting their preferred obligation.  The company has almost $2B of assets with over $900M of equity (as of FYE2017), whereas the par value of the preferred shares is only $29M.  Their net income for each of last 5 years exceed $29M.  I would be monitoring the company's liquidity and any signs of the Canadian RE collapse.

Although I think this is a very safe investment, I am NOT going into a all-in carry trade by taking a HELOC at 3% and investing into this for 7%.  In my mind this is a very good place to park my cash while waiting for better long-term opportunities.

P.S. I am also long Dundee, but only in the preferred at a cost close to the current market price.   I see Dundee preferred being a bit riskier due to it not being retractable.