Laurentian Bank rate reset preferred H -Avoid

Recently a friend was given very bad advice in regards to this issue.

I wish he had checked with me  first, but he got his advice from someone who was not qualified to give it.

I am only offering objective advice and am not selling product.

I am asking all of you to consult with me first before you make a decision you will regret later

This preferred was issued five years ago at an issue yield of 4.3%

The issue is rated P-3 Low by S&P

The current yield is 6.4%

The shares are callable at$25 on June 25 of this year

The shares are subject to being reset on the same date with a reset spread of 255 basis points plus the 5 year Canada yield of 1.53% to total 4.08%.

My friend was told that this issue will be called at $25, a substantial premium  from the current price of $17

This is very poor advice. There is absolutely no incentive for the company to call this issue. Current yields are higher than the issue yield for the same credits.

The company can purchase shares on the open market at $17 rather than calling the issue at $25

All the company will do is to reset the dividend in June to 4.08%, assuming 5 year Canada yields remain the same as today.

This reset yield of 4.08% is lower than the issue yield of 4.30%.

Conclusion

Rate reset preferreds do not perform well when rates are falling

Very illiquid reset preferreds like this one perform even worse

This issue will not be called.

Avoid this issue.

 

 

 

 

 

 

 

 

 

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