4.25% Investment Share Offer | Page 2 | DUCA Credit Union | Discussion forum

Thanks for the explanation. I hope I can remember it!

Norman1 said
One doesn't need to remember. Such details of preferred shares are spelled out in excruciating detail in the their offering prospectus. One needs to review the prospectus because preferred shares are a diverse bunch.

For example, this is the dividend entitlement of the BCE First Preferred, Series S shares from its prospectus. No sign of a "subject to change or exception at any time, at the Board’s discretion" term:

Until November 1, 2001, the holders of the Series S Preferred Shares will be entitled to receive fixed cumulative preferred cash dividends as and when declared by the board of directors of BCE, at an annual rate of 5.28% per share ($1.32 per share per annum) to accrue from the date of issue and to be paid on the first day of February, May, August and November in each year. The initial dividend, if declared, will be payable on February 1, 1997, and assuming an issue date of October 21, 1996, will amount to $0.3725 per share.

From November 1, 2001, the holders of the Series S Preferred Shares will be entitled to receive floating adjustable cumulative preferred cash dividends as and when declared by the board of directors of BCE, to accrue from November 1, 2001 and to be paid on the twelfth day of each month, commencing with the month of December 2001. The annual floating dividend rate for the first month will be equal to 80% of Prime. The dividend rate will float in relation to changes in Prime and will be adjusted upwards or downwards on a monthly basis by an adjustment factor whenever the Calculated Trading Price of the Series S Preferred Shares is $24.875 or less or $25.125 or more respectively. The maximum monthly adjustment for changes in the Calculated Trading Price will be ±4.00% of Prime. The annual floating dividend rate applicable for a month will in no event be less than 50% of Prime or greater than Prime. …

After eight dividends are in arrears, the Series S shares become voting shares until the arrears is cleared:

The holders of Series S Preferred Shares will not be entitled (except as otherwise provided by law) to receive notice of, attend, or vote at, any meeting of the shareholders of BCE unless BCE shall have failed to pay eight dividends on the Series S Preferred Shares, whether or not consecutive. In that event, and for only so long as any such dividends remain in arrears, the holders of Series S Preferred Shares will be entitled to receive notice of and to attend all shareholders’ meetings, and to one vote for each share held, except meetings at which only holders of another specified class or series are entitled to vote.

Changes in the preferred share terms, including dividend entitlement, need more than just board discretion:

The provisions attaching to the First Preferred Shares may be repealed, altered, modified or amended with such approval as may then be required by the CBCA, currently being at least two-thirds of the votes cast at a meeting or adjourned meeting of the holders of such shares duly called for the purpose and at which a quorum is present.

  

Sometimes when I read those, my eyes tend to glaze over, though. Everything is spelled out, in excruciating detail, as Norman says, but I often find that that excess of detail and verbiage makes for a challenging read.

If I can find it, I often prefer to read the "term sheet" from the initial preferred share offering. It provides nearly all of the details on the preferred share offering including par value, terms, reset provisions, cumulative vs. non-cumulative, etc.

Also, "retractable" preferred shares are ones that require the issuer to redeem the preferred shares at par value at the maturity date. There are only two in Canada in that I am aware of, a closed-end investment fund corporation in Canada General Investments, Ltd., and a non-operating Brookfield financing subsidiary (Brookfield Investment Corp., I believe). The former pays 3.75% p.a. with maturity in 2023. It tends to trade at or near its $25.00 par value, but if you can get the shares, even at a modest 1-2 cent premium, over the course of three years, it's a good way to earn a guaranteed 3.75% yield. As well, the fund itself trades at a significant discount to its net asset value, which means that in the event the fund was to liquidate, it should be able to make both its common and preferred holders whole and then some. The fund has been operating for nearly 100 years and is managed by Michael Smedley, a semi-frequent BNN Bloomberg guest.

Cheers,
Doug