Author Topic: ORH.A Today  (Read 12624 times)

kmukul

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Re: ORH.A Today
« Reply #20 on: February 05, 2009, 09:21:31 PM »
thanks  :)


FFHWatcher

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Re: ORH.A Today
« Reply #21 on: February 06, 2009, 03:42:17 PM »
I thought the same.  I believe I read in the prospectus that they are only allowed to redeem after Oct. 2010 and they have to pay at least the $25.

oec2000

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Re: ORH.A Today
« Reply #22 on: February 08, 2009, 12:32:43 AM »
Stubble,

Agree with you that it's a no-brainer.

However, until very recently, volumes have been too low to make repurchases meaningful. If I am not mistaken, there are restrictions on banks buying back their own preferreds. Not sure whether ORH is subject to similar constraints - I can't find anything in the prospectus that precludes them from repurchasing though.

Anyone familiar with these rules?



oec2000

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Re: ORH.A Today
« Reply #23 on: February 08, 2009, 02:07:08 AM »
where do you find information on the preferreds for example what price and when can they be called? Can the dividend be cut for the preferreds or is it a liablity of the company to pay predefined preferred div unless they go bankrupt.

For info on US preferreds:

quantumonline.com is good and free. Provides detailed terms and conditions as well as links to propectuses.

epreferreds.com is a subscription site ($300-400 p.a.). I just signed up yesterday. Provides some research (my initial impression - not that great), some analytics (yield, etc), and a search capability. I'm still evaluating the site but starting to feel that it may not be worth the cost (hey, can't help it if I'm a value investor!).

For Cdn pfds:

prefblog.com is THE SITE to go to. Operated by James Hymas, who is regarded as the high priest of Cdn preferred share investing, site has lots of interesting commentaries and links to articles as well as link to prefinfo.com, which is where you can get terms of selected pfd issues.

globeinvestor.com is useful if you just want to find out what preferreds have been issued by a particular company (click the Price Reports link once you have gone to the quote page of the issuer) and the indicative yield on the preferreds. Same info for US pfds also available here.

As to whether pfd dividends can be cut, the answer is yes but only if the dividend on common stock is suspended also. They are not like interest obligations on bonds. Pfd shareholders have no recourse if dividends are stopped. You have to differentiate between cumulative and non-cumulative preferreds though. Non-cum pfd dividends that are skipped are foregone forever; cum pfd dividends that have been skipped have to be made good before common stock dividends can be resumed.





oec2000

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Re: ORH.A Today
« Reply #24 on: February 08, 2009, 03:47:59 AM »
Question: any other Preferreds out there, in Canada or U.S., that present real value and opportunity in this environment?

Stubble's Harris Bank idea makes a lot of sense. (Thanks for bringing it to our attention!)

Like Stubble, I saw many opportunities in Nov/Dec in Canada. The best opportunities were mainly in the Split Corp preferreds with monthly retraction features. Case in point: BAM Split Corp B (BNA.PR.B). For 3 consecutive months (Oct, Nov & Dec), I was able to buy the B preferreds and surrender them for retraction at the end of each month for 20%, 20% and 45% returns respectively - actual returns, not annualised - giving a compounded return of 100% (not annualised!) over 3 months. Not bad when everything else was tanking. (Paid for my loss on BCE!) A related pfd, BNA.PR.C, also traded to levels where you could lock in a 20+% yield to 2019 maturity.

Other BAM pfds also traded to very attractive levels in Nov/Dec but have since rebounded sharply. I had pointed this out then on the old message board although I was not specific about issues because I was still buying.

Unfortunately, after the rebound in Jan Cdn pfds are no longer super-cheap (except for one I am still accumulating so can't disclose) so I would wait for another market dislocation before buying. Cdn pfds are underfollowed and information is hard to get - this gives the diligent investor a huge edge.

Right now, my focus is on US bank preferreds. WFC has a convertible pfd with 13% yield; BAC pfds carry high teens yields; C in the 20s; RBS in the 30s. This does not take into account potential capital gains since they are trading at about only 50%, 25%, 30%, and 20% respectively of par. True, these are not for widows and orphans and certainly the risk of suspension of dividends is high. But, if you believe that in this post-Lehman world, govts will not let any major bank go under, the pfds of survivor banks will eventually trade back much closer to par.

This is where I disagree with Stubble's comment that there are no home runs in the pfd mkt. My turn to ask for your feedback or derision, Stubble. :)

On my to-review list - Fannie and Freddie pfds. Assuming their par values have not been written down permanently, could one possibly look at these as no-expiry calls on FNM and FRE? If the govt keeps them afloat until the housing mkt recovers, they should eventually get back to health and possibly reinstate their pfd dividends. Am I delusional?

Stubble, as to your concern about inflation, this can be taken care of by buying floating rate issues , issues with short fixed maturities or retraction rights, or fixed/float convertibles.



 




bablu

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Re: ORH.A Today
« Reply #25 on: February 09, 2009, 02:55:25 PM »
oec2000 ..

Do you mind giving a primer on how this retractable shares work and what are these split corp preferreds all about ?

Thanks for your time in advance..

oec2000

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Re: ORH.A Today
« Reply #26 on: February 10, 2009, 01:15:38 AM »
Do you mind giving a primer on how this retractable shares work and what are these split corp preferreds all about ?

Split share corporations are usually set up to invest in specific asets (in case of BAM Split Corp, it is to invest in BAM shares). The split corp issues both capital shares and pfd shares - funds raised are used to invest in the specified asset. The pfd shares earn a fixed rate of dividend (or interest) and have a fixed redemption date. The capital shares thus have a leveraged exposure to the underlying specified asset. E.g Pfd is isuued at $25 and Capital share at $10; proceeds of $35 used to buy 1 share of Royal Bank at $35. Dividends received from this RY investment is used to first pay pfd dividend, balance goes to Cap Shs. On maturity date of Split Corp, RY shs sold, pfd shares redeemed at $25, balance goes to Cap Shs. If RY shs are $50 at maturity, Cap Shs holders make out like bandits getting $25. If RY are at $25 or below, Cap Shs holders get zero.

In good times, the underlying assets appreciate and the capital shares appreciate even more and the pfd shares trade like bonds. In bad times like now, as the underlying assets fall in value, fears arise that at some point, even the pfd shares might not be adequately covered by the underlying assets. This, probably together with some forced selling in Oct/Nov, cause these pfds to trade to fairly large discounts to underlying value. For e.g., in Nov, BNA.PR.C (another BAM Split Corp pfd) traded to below $8 even though the NAV of the underlying assets (BAM shares) was $45 meaning that the Pfd shares were 1.8x covered.

Many of these split corp issues come with monthly or yearly retraction features which allows shareholders to surrender their pfd or capital shs or both for redemption based on a fixed formula. I've attached the BNA.PR.B prospectus as an example - you can read the relevant section on retraction for details. Each retractible pfd has its own terms so you have to check out the prospectus each time. Lots of homework but this is why you get anomalies in the market sometimes. The market seems to have caught on to the BNA.PR.B retraction rights now, unfortunately, and the arbitrage opportunity no longer exists. However, there are other issues on which some arb opportunities still exist but because they are small and illiquid, I would prefer not to specify what they are. As mentioned previously, www.prefblog.com is a good site to go to for information.




oec2000

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Re: ORH.A Today
« Reply #27 on: February 10, 2009, 01:22:29 AM »
BNA.PR.C still carries a Cdn tax-advantaged YTM of about 14% at current prices. If you think that BAM is a survivor, this is still not a bad yield to lock in for 10 years.

bablu

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Re: ORH.A Today
« Reply #28 on: February 10, 2009, 01:32:28 PM »
Thanks Oec2000..

that's very helpful intro...

StubbleJumper

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Re: ORH.A Today
« Reply #29 on: February 10, 2009, 05:23:08 PM »
Stubble,

Agree with you that it's a no-brainer.

However, until very recently, volumes have been too low to make repurchases meaningful. If I am not mistaken, there are restrictions on banks buying back their own preferreds. Not sure whether ORH is subject to similar constraints - I can't find anything in the prospectus that precludes them from repurchasing though.

Anyone familiar with these rules?




FFH is already a big owner of ORH preferreds.  So even if ORH is not in a position to do a re-purchase, the holding company can certainly do it. 

SJ