Harvest Energy debenture liquidation

I noticed in my accounts today that the “D” series of Harvest Energy (6.4% coupon, maturity October 31, 2012) has been sold at 1.015 on the dollar. I set the order about a month after the takeover announcement.

At this price, the debentures have a current yield of 6.31% and an implied capital gain of -0.51%.

There is a floor price of 1.01 on the dollar because of the obligation of KNOC to purchase all debentures at this price; my sense of risk suggests that I should be liquidating them on the open market higher than the 1.01 repurchase price. I don’t want to wait two and three-quarters years to collect my money since I can probably reinvest the proceeds at a rate better than 5.8%.

The “E” series of trust units is a little trickier; its coupon is 7.25%, maturity on September 30, 2013. Right now it is at 1.0175 which is implying a current yield of 7.13% and a capital gain of -0.46%. It is priced relatively lower than the D series. If you assume the same yield valuation on the E series, you get a price of 1.045 on the debentures (current yield 6.94%, capital gain -1.15%) but the debentures will never trade that high. My liquidation point for the E series is between 1.015 and 1.045 and we will see if it gets there.

Harvest “G” is the longest duration and highest coupon (7.5%, maturity May 31, 2015) and it is trading at 1.026 currently. This is an implied current yield of 7.31% and a capital gain of -0.67%.

I will be happy to receive a premium over the 1.01 floor price and be rid myself of the debentures, preferably in the new tax year. I don’t like liquidating gains at the end of a tax year, but the price offered was too attractive. Fortunately, this liquidation also included my TFSA, which is now sitting at $13,000 for the end of this year.

I am also relatively pleased I can liquidate these things for a premium on the open market, mainly because if I had to submit instructions to my broker (in this case, Questrade), I have a sinking feeling that they would screw up the tendering or otherwise cause me to lose liquidity.

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