Hi, I came across Bombardier Pref Shares Series 3 (BBD.pr.d on TSX) which is trading at 14.75 which is way below their 25 call price (Aug 2017) and would have a projected yield of 6.6% this year.I don't understand why they would trade so low compared to their call price. The credit rating for Bombardier is BB and is certainly not a business that would go out of business soon. If their shares are called back on Aug 2017 then that would represent a 70% gain. I understand that they can extend another 5 years and the price could linger below 25$ but I would only assume that they would at least appreciate close to their call price in the next few years.I never traded preferred shares before so perhaps I am missing some important details... Any help is appreciatedThanks,Pascal
A BBB- rating is usually considered the bottom of the investment grade bond ratings. BB is clearly a junk rating. It indicates that the rating agency could not find assets to cover redeeming the preferred. Hence, Bombardier must earn enough to repay you, or preferred owners will not get their money back.Sometimes when the business is doing well and perhaps a rating upgrade may be in the offing pricing can be closer to par, but for now it's a high risk investment.
Perhaps this is why:http://ir.bombardier.com/en/preferred-series-3An unlimited number of non-voting preferred shares, without nominal or par value.DividendFor the five-year period from August 1, 2012 and including July 31, 2017, the Series 3 Cumulative Redeemable Preferred Shares carry fixed cumulative preferential cash dividends at a rate of 3.134% or $0.7835 Cdn per share per annum, payable quarterly on the last day of January, April, July and October of each year at a rate of $0.195875 Cdn, if declared.For each succeeding five-year period, the applicable fixed annual rate of the cumulative preferential cash dividends calculated by the Corporation shall not be less than 80% of the Government of Canada bond yield, as defined in the Articles of Incorporation.
I own these ones, a different issue. The price goes up and down a buck or two a year, but the dividend is solid. That's all I care about.http://ir.bombardier.com/en/share-price?qm_symbol=BBD.PR.C:C...You can find the "D" issue on the same page in a link on the left.Rip
Yes, I read that but excuse my lack of knowledge in the pref share space but at the end are those shares worth 25$? The yield is over 6% right now. I understand that extension can be made past 2017 but would those shares get at least around 22$ near the end of the first term?I know the BB rating is quite low but this company has highs and lows because of the cyclical nature of the industry they operate in. I highly doubt they would go out of business soon.
I saw the other series but I was curious to know why the "D" got slammed in August. After reading the series D description, I saw the dividend lowered hence the price fall. However they yield over 6% right now. If the share price goes up then it is no big deal since I will get capital appreciation despite a lower yield. There is ample room before reaching 25$.
I understand that extension can be made past 2017 but would those shares get at least around 22$ near the end of the first term?Read the prospectus carefully to understand what you are being promised. Most preferred shares are forever until called. The call provisions are specified. Hence, you will collect the promised interest payments until the issue is called. And they will be called at the call price--usually $25.But if the market price is far below the call price, the company can tender for the shares by offering some premium over the market price for whatever shares people are willing to sell. Call is at company's option; shareholder must comply. Tender offer is optional. Shareholder need not accept the offer.The company needs to come up with the funds to retire the issue. Earning the cash with ordinary business transactions is the easy way. But otherwise, if financing becomes available at lower cost, they can effectively refinance by calling the issue with borrowed money.If the business is thought to be failing, shareholders will worry about the future and sell their shares, but price will plummet as few will buy shares in those circumstances. That is when a tender offer becomes attractive to the company.
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