Pengrowth Debentures – To be redeemed

(Update, December 21, 2016: The proposal was shelved because PGF’s senior debt holders did not want cash to go to junior creditors.)

A short couple months ago I wrote an article about a “very likely 12% annualized gain” in the form of buying (TSX: PGF.DB.B) at 97 cents.

So it looks like I gave up that return (at least with some idle cash holdings, I do have a position from far cheaper prices earlier this year) as management announced today they are seeking consent from debtholders to allow the company to redeem them as if they have matured on March 30, 2017 (i.e. you’d get about 3 months of accrued interest paid out to you immediately).

So it looks like debtholders will be paid off at $1.03116 per dollar of debt. The redemption will occur on December 30, 2016.

The choice of getting paid today vs. getting paid the same amount in three months is a no-brainer: take the money today and move on.

I have no idea where I will re-invest the proceeds. There was nothing nearly as “safe” as this specific debt issue. Any suggestions out there?

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I like DRM.PR.A.

Last year when you suggested buying it as a form of arbitrage I was wary of it because management could convert them into regular shares.

They could only be converted prior to july of this year. So now I’m getting a pretty safe 7% yield. But there is almost no upside since both the holder and the issuer can redeem then for cash at 7.16$/share.

I also like AZP.PR.B. It’s a fixed reset pref with currently a 8.5% yield. I bought some at a much cheaper price last year but I’m thinking of adding to my position.

I really like what the management is doing. They are paying debt fast, improving efficiency and they are shareholder friendly. I fully expect their debt to be re-rated above speculative grade in the next few year meaning the price on the pref should improve.

Roll the dice with Temple Hotel? Morguard seems to want to own it for the cheap with all these rights offering.

I’m sure you are always keeping an eye out at MIC. You’ll own at least 10% one day!

Etienne,

If you own the AZP.PR.B, you should consider switching into the AZP.PR.C, which are the interconvertible floaters. Your annual return jumps to over 12% on an effective basis, all else being equal. Meanwhile, if you think the 90 day t-bill yield is going up in the next few years, your return could be even higher. The same situation is occurring with FTS.PR.H and FTS.PR.I although the total return is a lot lower there (8%), all else being equal.

Sasha, do you still own GCM.DB.V? I still like the risk/reward there but a little perplexed by the strategic review.

Not sure how you do your math on AZP.PR.C, it’s a 3 month GOC + 4.18%. The 3 month GOC is at 0.5
So = (0.50 + 4.18 ) / 100 * 25 / 14.3 = 8.2%

It’s interconvertible with AZP.PR.B, so all else being equal in December 2019, you pick up the extra $1.76 (difference between $16.06 and $14.30, the quotes for AZP.PR.B and AZP.PR.C, respectively). $1.76/14.30 = 12.3% spread out over about 3 years to conversion is ~4%. You can add that ~4% to the 8.2% to get ~12% (I’m simplifying the math because I’m lazy).

I think this spread exists because retail investors are focused on current yield and don’t realize the interconversion option or don’t factor it in because its so far away. This of course is all else being equal but the spread between the two classes should close by the December 2019 one way or another so the outperformance should still be realized.

Far, far too hairy as an answer to this question, but the ADK pref looks to offer a ~30% return until its likely redemption in 1 year.

Safety, I get your point.
Thank you.

No worries. I’ll be curious if you will make the switch! I’ve explained it to others before and they appreciate it but they still buy the AZP.PR.B because the current yield is higher! As I mentioned, I also like the FTS.PR.I vs FTS.PR.H on the same basis.

I won’t because I have more than 50% gain on it and it’s on a registered account, don’t wont to pay taxe on it 😉

But, You got me curious on this. I’ll have to dig a bit deeper on this.

For example, do you have past example of this kind of spread and how it settled ? Did the fixed reset went down, the fixed went up, or both at the same time and the met in the middle.

Well if it’s in a registered account, you don’t have to worry about paying tax!

I don’t have any past examples as I don’t think there have been any that have made it to the second reset (10 years) as I believe they began being issued in 2008 (please correct me if I’m wrong). Also, those initial issues had very large resets as they were issued during the financial crisis and were mostly redeemed at par.

I have noticed some narrowing in other pairs, like in some of the insurance names like MFC.PR.F/MFC.PR.P. It’s hard to predict which way it will work itself out as I think that’s dependent on the market’s interest rate outlook. You could argue that, AZP.PR.C is fairly priced vs AZP.PR.B because the 90-day t-bill rate is going to plunge below zero in short order so the expected dividends will be much lower than the current dividend. I just don’t have that view on interest rates.

: Agree; the question is timing and terms!

All the TPH debentures have moved up as of late. I own all four which I bought in the 70s and 80s. TPH recently issued a rights offering…..my guess to pay out there 2017 debentures??? I think Morguard has completly commited itself to TPH. Any thoughts anyone?

I’ve read that there’s a demand for hotel rooms in Fort McMurray, with all the rebuilding going on. I’m sure TPH is getting a monthly check from a few insurance companies. Does anyone think one should wait for redemption , or sell out close to par……I got rid of the “C” at par.
Morguard is well respected from all I’ve read…..I don’t think there rolling the dice solely on an immediate oil comeback.