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Can Building Societies repay PIBS and CCDS at par ?

Gilts, bonds, and interest-bearing shares
paulmiller
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Can Building Societies repay PIBS and CCDS at par ?

#144764

Postby paulmiller » June 9th, 2018, 8:14 pm

Is anyone completely certain what this sentence contained in the Building Societies Act (BSA) actually means with regard to the price paid for repayment ?

“and funds so raised may be repaid when they are no longer required for the purposes of the society.”

Does it mean that Building Societies are allowed to repay “perpetual” PIBS, and presumably also CCDS, whenever they are no longer required ? And if so does this mean that repayment is allowed at market price or at par ?

If it is at par then it is obviously a great concern as many “perpetual” PIBS and CCDS are currently trading at prices well above par. For example : Coventry 12.125% PIBS, and Nationwide 10.25% CCDS

The BSA does not seem to specify any price for repayment of funds. Is it possible then that some clever law firm could use the BSA to override any terms that may be in the original prospectus ?

After the Aviva bombshell can investors be completely certain that Building Society “perpetual” PIBS and CCDS (assuming there are no call dates and assuming the issuer has no financial problems) are completely safe from ever being repaid at par ?

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Re: Can Building Societies repay PIBS and CCDS at par ?

#144806

Postby NeilW » June 10th, 2018, 12:42 pm

The only price for the repayment of funds is par - since that is what they were issued at. Similarly from the society's point of view they are only ever paying interest at a rate on the par value of the bond.

See example here: https://markets.ft.com/data/announce/detail?dockey=1323-13570005-6JU4C1A3SBGQ8N7R81558DQFM1

The market value of anything is largely irrelevant from the entity's point of view. It's only ever a matter of contract and statute.

If you buy anything above par value, there is always a risk the underlying entity will cancel the instrument at par and you'll suffer a loss unless there is a clear term in the underlying contract you can rely on.

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Re: Can Building Societies repay PIBS and CCDS at par ?

#144821

Postby Alaric » June 10th, 2018, 3:52 pm

paulmiller wrote:After the Aviva bombshell can investors be completely certain that Building Society “perpetual” PIBS and CCDS (assuming there are no call dates and assuming the issuer has no financial problems) are completely safe from ever being repaid at par ?


Does the "Permanent" in PIBS give protection? In other words the issuer cannot pay back the capital borrowed without majority consent of the lenders? The only way to get such consent being to offer a market price.

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Re: Can Building Societies repay PIBS and CCDS at par ?

#144830

Postby paulmiller » June 10th, 2018, 4:32 pm

Alaric wrote:
paulmiller wrote:After the Aviva bombshell can investors be completely certain that Building Society “perpetual” PIBS and CCDS (assuming there are no call dates and assuming the issuer has no financial problems) are completely safe from ever being repaid at par ?


Does the "Permanent" in PIBS give protection? In other words the issuer cannot pay back the capital borrowed without majority consent of the lenders? The only way to get such consent being to offer a market price.


Well this is the question. Do these words “permanent” and “perpetual” give any protection to PIBS and CCDS ? Does the BSA not say that these can be repaid whenever they are no longer required ? I have not seen in either the Coventry PIBS or the Nationwide CCDS any reference to the majority consent of the lenders being needed before repayment. So is it not possible that repayment can be made with the simple majority consent of the members of the Building Society ? The vast majority of the members of the Building Society will not be owners of the PIBS or CCDS so why would they have any interest in paying more than par ?

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Re: Can Building Societies repay PIBS and CCDS at par ?

#144836

Postby NeilW » June 10th, 2018, 5:57 pm

It's not even a matter for the members. PIBS can generally be redeemed by notice whenever the management decide.

Permanent refers to the fact the bonds have no set redemption date, not that they will never be redeemed

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Re: Can Building Societies repay PIBS and CCDS at par ?

#144843

Postby Alaric » June 10th, 2018, 6:27 pm

NeilW wrote: PIBS can generally be redeemed by notice whenever the management decide.


Here's a page listing what was available in 2004.
http://www.thisismoney.co.uk/money/mark ... table.html

Note that some PIBS have call dates and others don't. The ones without call dates stand generally at much higher prices.

I think it would be news to both market makers and holders if PIBS without Call dates could be paid off at par just because the management felt like it. But that was 2004, perhaps there's been deficient legislation since then that could be exploited.

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Re: Can Building Societies repay PIBS and CCDS at par ?

#144860

Postby paulmiller » June 10th, 2018, 7:30 pm

Alaric wrote:
NeilW wrote: PIBS can generally be redeemed by notice whenever the management decide.


Here's a page listing what was available in 2004.
http://www.thisismoney.co.uk/money/mark ... table.html

Note that some PIBS have call dates and others don't. The ones without call dates stand generally at much higher prices.

I think it would be news to both market makers and holders if PIBS without Call dates could be paid off at par just because the management felt like it. But that was 2004, perhaps there's been deficient legislation since then that could be exploited.


Yes in exactly the same way that is was news to everyone when Aviva recently said it could pay £1 for the Aviva preference shares !

Who is to say that the same thing could not happen with PIBS and CCDS at some time in the future ?

The BSA would seem to permit repayment and I have not seen it stated anywhere what the repayment price should be.

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Re: Can Building Societies repay PIBS and CCDS at par ?

#144876

Postby GoSeigen » June 10th, 2018, 10:07 pm

paulmiller wrote:Is anyone completely certain what this sentence contained in the Building Societies Act (BSA) actually means with regard to the price paid for repayment ?

“and funds so raised may be repaid when they are no longer required for the purposes of the society.”


Paul, I've been otherwise occupied all weekend and just catching up on this board now.

You've quoted the above but with no reference or link, only that it was in the BSA. Please could you tell us where exactly you found it as there is insufficient context to understand what is meant by the quote, which does not mention PIBS, for example, just "funds".

Thanks.


GS

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Re: Can Building Societies repay PIBS and CCDS at par ?

#144879

Postby PinkDalek » June 10th, 2018, 10:23 pm


paulmiller
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Re: Can Building Societies repay PIBS and CCDS at par ?

#144887

Postby paulmiller » June 10th, 2018, 11:38 pm

GS,

Here is a link below.

I saw it first mentioned by Mark on the other board discussion about PIBS and CCDS.

Do you think perhaps it is just referring to deposits and not connected to anything else ?

Thanks,

Paul

http://www.legislation.gov.uk/ukpga/198 ... ?wrap=true

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Re: Can Building Societies repay PIBS and CCDS at par ?

#144889

Postby GoSeigen » June 11th, 2018, 12:57 am

paulmiller wrote:GS,

Here is a link below.

I saw it first mentioned by Mark on the other board discussion about PIBS and CCDS.

Do you think perhaps it is just referring to deposits and not connected to anything else ?

Thanks,

Paul

http://www.legislation.gov.uk/ukpga/198 ... ?wrap=true



Paul,

Sorry, still struggling. That link seems to be to an earlier version of the BSA 1986 (specifically, as it stood on 1 Jan 1993). Is this the version Mark was referring to?

The Act has been amended since then as I am sure you know. I'm happy to refer to the older law if there is a good reason... but here is the latest text:

https://www.legislation.gov.uk/ukpga/1986/53/part/II
or a useful version courtesy the BSA dated 2013:
https://www.bsa.org.uk/BSA/files/f1/f12 ... ffcae5.pdf

Which one do we use for the purposes of your question?



Also, the wider context of the quote in your OP refers to shares, but PIBS are deferred shares. What were your thoughts on this distinction in relation to the text you quoted from the Act?

I'll be abroad for a few days from tomorrow, so may struggle to keep up with this discussion.

GS

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Re: Can Building Societies repay PIBS and CCDS at par ?

#144923

Postby NeilW » June 11th, 2018, 10:14 am

PIBS are just subordinated deposits with a building society that generally don't have an end date. That's all 'permanent' means, just like the 'permanent' in the title 'permanent building society'.

If management decides it doesn't need the subordinated deposits any more, they can issue notice to cancel them under the terms of the contract and statute as I demonstrated in the link https://markets.ft.com/data/announce/detail?dockey=1323-13570005-6JU4C1A3SBGQ8N7R81558DQFM1

Looking at some of the 'special conditions of issue' of a set of PIBs, the repayment terms vary wildly.

Nationwide has the following terms:

The Society may, having obtained Relevant Supervisory Consent (as defined below) and having given
not less than 30 nor more than 60 days’ notice to the PIBS holders in accordance with Condition 13
(which notice shall be irrevocable), redeem on any Reset Date (as defined in Condition 5(2)) all of the
PIBS then outstanding by the payment of:
(a) subject to Condition 5, a sum in respect of interest which has accrued (but has not been paid) up to
but excluding the date of redemption; and
(b) the principal amount of the PIBS.


So the first job is to find the list of PIBS that have no repayment terms in their underlying contract. Most of the modern ones that have their terms on the Internet seem to have a repayment clause. A quick search only threw up a set of old Coventry convertible notes from the mid 1980s that seem to have a no repayment at all term in their contract and can only be redeemed at market price: https://www.fixedincomeinvestor.co.uk/sdoc/3021.pdf

The legislation you link to just gives a building society the option to issue shares that *can* be repaid (at par) by the society. Normally shares in a company when issued cannot be repaid, they have to be repurchased in the market and cancelled that way.

So I'd say it's all down to what it says in the underlying terms of issue of the PIBS in question.

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Re: Can Building Societies repay PIBS and CCDS at par ?

#144935

Postby Alaric » June 11th, 2018, 11:53 am

NeilW wrote:Nationwide has the following terms:

...
redeem on any Reset Date (as defined in Condition 5(2))
...


Note that it says that the PIBS can only be redeemed on pre-specified dates. The obvious inference is that outside of these dates, they cannot be redeemed.

Borrower option to repay at an unconstrained time of their choosing is a valuable option. If the existence of such an option isn't clearly stated (which it is in the Nationwide's case), it's poor drafting as the required interest rate would be different. With a "reset" date, the price of the PIBS will behave much more like a Gilt or Corporate Bond. Having a reset date can be a winning option for the borrower, since if interest rates have fallen they may be able to reduce their borrowing cost, whilst not being required to pay a higher price if interest rates have risen. They might though expect to pay a higher coupon than on a plain infinite PIBS.

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Re: Can Building Societies repay PIBS and CCDS at par ?

#145019

Postby paulmiller » June 11th, 2018, 7:40 pm

GS,

Yes this is the section that was being discussed on the other board.

It is in the BSA link that you have given under Section 8 “Raising funds and borrowing”.

The power of a building society to raise funds by the issue of shares is a power -
(a) to issue shares of one or more denominations, whether in sterling or another currency; and
(b) to issue them either as shares paid up in full or as shares to be paid by periodical or other payments, and (in either case) with accumulating or other interest;
and funds so raised may be repaid when they are no longer required for the purposes of the society.


So it was not very clear from the discussion on the other board what this section in the Building Societies Act was actually referring to and whether this was perhaps some provision that could potentially be used for the repayment of PIBS or CCDS at par, assuming there are no call dates and assuming they are trading well above par.

A law firm and Aviva recently said that they had found a way to pay par for preference shares that were trading well above par, and so I thought that the same law firm or some other law firm might be quite interested if they could also find a way to pay par for any PIBS or CCDS that are currently trading well above par ! If it is not possible though then that is quite reassuring news for holders of these PIBS and CCDS.

Paul

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Re: Can Building Societies repay PIBS and CCDS at par ?

#145082

Postby GoSeigen » June 12th, 2018, 6:52 am

paulmiller wrote:GS,

Yes this is the section that was being discussed on the other board.

It is in the BSA link that you have given under Section 8 “Raising funds and borrowing”.

The power of a building society to raise funds by the issue of shares is a power -
(a) to issue shares of one or more denominations, whether in sterling or another currency; and
(b) to issue them either as shares paid up in full or as shares to be paid by periodical or other payments, and (in either case) with accumulating or other interest;
and funds so raised may be repaid when they are no longer required for the purposes of the society.


So it was not very clear from the discussion on the other board what this section in the Building Societies Act was actually referring to and whether this was perhaps some provision that could potentially be used for the repayment of PIBS or CCDS at par, assuming there are no call dates and assuming they are trading well above par.

A law firm and Aviva recently said that they had found a way to pay par for preference shares that were trading well above par, and so I thought that the same law firm or some other law firm might be quite interested if they could also find a way to pay par for any PIBS or CCDS that are currently trading well above par ! If it is not possible though then that is quite reassuring news for holders of these PIBS and CCDS.

Paul


Thanks Paul.

In my understanding Subsection 5 as quoted refers to shares issued to individuals whereas PIBS are deferred shares. Why is it argued that subs 5 is applicable?

Would be nice if someone could link to the original discussion.

GS
Sorry for briefness, busy week.

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Re: Can Building Societies repay PIBS and CCDS at par ?

#145331

Postby paulmiller » June 12th, 2018, 11:30 pm

GS,

Thanks. Here is a link to the discussion on the other board.

There was not really any clear answer reached on the other board about this section in the BSA that Mark had mentioned.

Paul

https://www.fixedincomeinvestments.co.u ... ter-aviva/

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Re: Can Building Societies repay PIBS and CCDS at par ?

#145369

Postby GoSeigen » June 13th, 2018, 8:14 am

paulmiller wrote:GS,

Thanks. Here is a link to the discussion on the other board.

There was not really any clear answer reached on the other board about this section in the BSA that Mark had mentioned.

Paul

https://www.fixedincomeinvestments.co.u ... ter-aviva/


I’ve referred to PIBS being deferred shares a couple of times in this thread but no-one has commented...

I am NOT going to do all the work though will happily point the way if anyone is interested.

GS

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Re: Can Building Societies repay PIBS and CCDS at par ?

#146553

Postby GoSeigen » June 18th, 2018, 10:04 pm

paulmiller wrote:GS,

Thanks. Here is a link to the discussion on the other board.

There was not really any clear answer reached on the other board about this section in the BSA that Mark had mentioned.


Back from travels now; no further posts so can we assume the OP is answered now?

My summary of the situation, which the OP has hopefully discovered for himself:
-PIBS are deferred shares of Building Societies.
-They may not be repaid by the issuer without the prior approval of the regulator except in a winding up.
-Beyond this any repayment terms are contractual.


GS


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