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Preference shares -- keeping it simple

Gilts, bonds, and interest-bearing shares
ChrisNix
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Re: Preference shares -- keeping it simple

#359696

Postby ChrisNix » November 24th, 2020, 5:34 pm

OwenSwansea wrote:Fortunately, a rudimentary knowledge is all you need to understand the rights attached to Preference Shares. They are not that complicated.
Ambiguous Prospectuses are the problem!

Owen.


Au contraire, the contract between the shareholders and the company is set out in the articles.

Issuing documents are mainly relevant for original subscribers, who would have an action if the particulars therein were misleading.

Chris

stockton
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Re: Preference shares -- keeping it simple

#360032

Postby stockton » November 25th, 2020, 5:27 pm

GoSeigen wrote:
stockton wrote:Interesting page here https://dictionary.cambridge.org/dictio ... redeemable
where they provide a ChrisNix type definition but then provide examples which suggest the opposite definition.

IRREDEEMABLES

bonds that pay interest but have no agreed date on which the borrower must pay the lender:

"Irredeemables have no redemption date at all, so that interest on them will be paid indefinitely."


Stockton even more lost than OwenSwansea! OS's [mistaken] point was that there is ONLY ONE meaning to the term IRREDEEMABLE.

You quoted the meaning of an entirely different word "irredeemables" which is a noun not an adjective, and the quote refers to bonds, not preference shares.

Wake up at the back!


GS

Not quite. The editor of the dictionary quoted the word irredeemables, intending to clarify the meaning of the word irredeemable.

In court you would presumably be claiming that the editor of this particular dictionary was mistaken.

PrefInvestor
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Re: Preference shares -- keeping it simple

#360064

Postby PrefInvestor » November 25th, 2020, 6:42 pm

Hi All, Well I've got a few RSAB and I noticed that the price initially bounced to ~129 with the takeover but has now fallen back somewhat to just over 124 today. I am interested in the return of capital position, as that would appear to be the only threat to holding onto them.

My reading of the RSAB prospectus states that holders will receive "the price (rounded to 3 decimal places) at which the gross yield reported to the Company by three gilt-edged market makers selected by the Directors on the advice of The Securities and Futures Authority Limited (or equivalent regulatory authority) on each Preference Share is equal to the gross yield on 3.5% War Loan or such Government Stock as the Company, with advice from The Securities and Futures Authority Limited (or equivalent regulatory authority), may agree to be appropriate, calculated by reference to the middle market quotations (as derived from the Daily Official List) for that stock on the date of winding up, save that such price shall not exceed a sum equal to twice the nominal amount of a Preference Share."

Now 3.5% War Loan was redeemed in 2015 at about 90 odd pence a share, lets call the gross yield on that 4% then for simplicity. Unless there is some convention in place regarding an equivalent alternative ?. The price that RSAB would need to be to yield 4% is over 180p, very nice too if its correct !!.

Can anyone here shed any more light on exactly how this will work as I've not come across this War Loan clause before.

If my calculation is correct I cant see them trying a return of capital. Or if they do it should be quite profitable !.

ATB

Pref

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Re: Preference shares -- keeping it simple

#360065

Postby GoSeigen » November 25th, 2020, 6:52 pm

PrefInvestor wrote:Hi All, Well I've got a few RSAB and I noticed that the price initially bounced to ~129 with the takeover but has now fallen back somewhat to just over 124 today. I am interested in the return of capital position, as that would appear to be the only threat to holding onto them.

My reading of the RSAB prospectus states that holders will receive [...]

<snip>

Can anyone here shed any more light on exactly how this will work as I've not come across this War Loan clause before.

If my calculation is correct I cant see them trying a return of capital. Or if they do it should be quite profitable !.

ATB

Pref


This post refers:

viewtopic.php?p=354128#p354128

GS

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Re: Preference shares -- keeping it simple

#360192

Postby 88V8 » November 26th, 2020, 10:20 am

GoSeigen wrote:This post refers: viewtopic.php?p=354128#p354128


Ah yes, on wind-up.

If they get cancelled, it will be the holders who are wound up !

V8

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Re: Preference shares -- keeping it simple

#360360

Postby GoSeigen » November 26th, 2020, 4:50 pm

88V8 wrote:
GoSeigen wrote:This post refers: viewtopic.php?p=354128#p354128


Ah yes, on wind-up.

If they get cancelled, it will be the holders who are wound up !


They have a great chance to unwind themselves now because pricing of these shares is still reasonably good. If (and that's a big IF of course) the new ord. shareholders wished to retire the preference shares I can see nothing to stop them in the preference share terms. The only crumb of comfort I could find was that the pension fund might be compensated on a return of capital in certain circumstances, according to the cash offer terms.

If the preference shares survive four to five years they may become a good earner, but given they will be no good as capital by 2025, personally for valuation purposes I'd use that as a pseudo-call date, making their yield to call about 2% at 124.5p bid.


GS

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Re: Preference shares -- keeping it simple

#360558

Postby 88V8 » November 27th, 2020, 11:33 am

GoSeigen wrote:If the preference shares survive four to five years they may become a good earner, but given they will be no good as capital by 2025, personally for valuation purposes I'd use that as a pseudo-call date, making their yield to call about 2% at 124.5p bid.

I wonder if that doleful metric could be applied to other Prefs.
Hmmm.

V8

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Re: Preference shares -- keeping it simple

#360592

Postby ChrisNix » November 27th, 2020, 12:22 pm

88V8 wrote:
GoSeigen wrote:If the preference shares survive four to five years they may become a good earner, but given they will be no good as capital by 2025, personally for valuation purposes I'd use that as a pseudo-call date, making their yield to call about 2% at 124.5p bid.

I wonder if that doleful metric could be applied to other Prefs.
Hmmm.

V8


Not applicable to NWBD and BWRA. You might also be all right with ELLA and AVA, so long as current boards are in situ -- perhaps assume a longer grace period?

Chris.

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Re: Preference shares -- keeping it simple

#360663

Postby Gan020 » November 27th, 2020, 4:16 pm

My view is the shares can be cancelled at par should the shareholders vote for it. If you're not in agreement with my view none of the rest of this post matters.

So, the FD
a) can if he wishes cancel them at par for £150m
b) make a reasonable offer of say 130p a share for £195m (which note hasn't been offered as part of the buy-out)
c) continue paying the coupon of 7.75%

£45m is a lot of incentive to put up with a bit of bad press.

Also, even if they need T1 capital (and I don't know if they do or they don't) it would be most cost effective to get on and do this immediately as the replacement cost will be less than 7.75%

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Re: Preference shares -- keeping it simple

#360707

Postby Alaric » November 27th, 2020, 6:31 pm

Gan020 wrote:My view is the shares can be cancelled at par should the shareholders vote for it.


But which shareholders? Preference holders would wish for a price that enabled them to replicate the income being foregone. Ordinary shareholders may be in favour, unless as the case of Aviva, they are also Preference shareholders.

Historically there has to have been ambiguity in the original prospectus, as who would subscribe knowingly to an issue where the value of the holding could plummet at the issuer's option should or when interest rates including a risk premium fell well below the coupon?

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Re: Preference shares -- keeping it simple

#360719

Postby ChrisNix » November 27th, 2020, 7:02 pm

Alaric wrote:
Gan020 wrote:My view is the shares can be cancelled at par should the shareholders vote for it.


But which shareholders? Preference holders would wish for a price that enabled them to replicate the income being foregone. Ordinary shareholders may be in favour, unless as the case of Aviva, they are also Preference shareholders.

Historically there has to have been ambiguity in the original prospectus, as who would subscribe knowingly to an issue where the value of the holding could plummet at the issuer's option should or when interest rates including a risk premium fell well below the coupon?


Not ambiguity. When the pref’s were issued significant premia were unknown.

In some cases the holders also had some Ord holdings, so perhaps had some sway at EGM of ALL members.

Not uncommon for holders to agree to exit at discounts where rates had risen from issue.

Fun times!

Chris

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Re: Preference shares -- keeping it simple

#360757

Postby OwenSwansea » November 27th, 2020, 9:34 pm

If interest rates had increased after the Preference Shares were issued, and this was always a possibility, the holders would have suffered a loss of capital. This was the risk they took, and they deserve to be rewarded accordingly. This is a matter of simple justice, especially when the very title of the Preference Shares contained the word IRREDEEMABLE!

Owen.

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Re: Preference shares -- keeping it simple

#360768

Postby 88V8 » November 27th, 2020, 10:52 pm

OwenSwansea wrote:If..... when the very title of the Preference Shares contained the word IRREDEEMABLE!

Well in this case the holders are likely to be irredeemably f""""ed :)

It is hard to rotate out of instruments that have paid reliably through the panpanic, but GS has illustrated where we're at if we don't. Not RSA in my case, but the same goes for many others.
Prices are pretty good right now, not many holders are aware of the looming rocks ahead. Time to jump ship, really.

V8

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Re: Preference shares -- keeping it simple

#360770

Postby grpaway » November 27th, 2020, 11:11 pm

#360592 by ChrisNix » November 27th, 2020, 12:22 pm
88V8 wrote:
GoSeigen wrote:
If the preference shares survive four to five years they may become a good earner, but given they will be no good as capital by 2025, personally for valuation purposes I'd use that as a pseudo-call date, making their yield to call about 2% at 124.5p bid.

I wonder if that doleful metric could be applied to other Prefs.
Hmmm.

V8


Not applicable to NWBD and BWRA. You might also be all right with ELLA and AVA, so long as current boards are in situ -- perhaps assume a longer grace period?

Chris,
You are obviously much more knowledgeable than me.
Would you be kind enough to give your opinion where NTEA stands.
Thanking you
Grpaway

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Re: Preference shares -- keeping it simple

#360806

Postby 88V8 » November 28th, 2020, 10:30 am

grpaway wrote:Would you be kind enough to give your opinion where NTEA stands.

The price has moved up recently after a long period in the doldrums. Dunno why, particularly.
Running yield about 4.7% which is nothing special.

From the thread on Mark's site where the various Prefs were analysed for their 'safety' I don't recall NTEA as being 'safe'.

As ChrisN commented, the only safe havens in forced redemption terms, were said to be NWBD and BWRA.

I seem to recall that Buffett at one time had a controlling interest in what was Northern Electric. Anyway, with non-Financial issuers such as NE, it's not the Tier 1 buffers that will crash the gravy train, it's the simple fact that pre-2026 they will see banks and insurers cancelling their expensive debt, and it will become a band wagon.

So, it's one of the shares I shall be unloading next week. I was on the Lloyds ECNs when they sank, and it seems pointless to run the risk when I can get similar running yields from income ITs, without risking that miserable metric of circa 2% 'YTM'.

V8

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Re: Preference shares -- keeping it simple

#361128

Postby ChrisNix » November 29th, 2020, 11:22 am

grpaway wrote:#360592 by ChrisNix » November 27th, 2020, 12:22 pm
88V8 wrote:
GoSeigen wrote:
If the preference shares survive four to five years they may become a good earner, but given they will be no good as capital by 2025, personally for valuation purposes I'd use that as a pseudo-call date, making their yield to call about 2% at 124.5p bid.

I wonder if that doleful metric could be applied to other Prefs.
Hmmm.

V8


Not applicable to NWBD and BWRA. You might also be all right with ELLA and AVA, so long as current boards are in situ -- perhaps assume a longer grace period?

Chris,
You are obviously much more knowledgeable than me.
Would you be kind enough to give your opinion where NTEA stands.
Thanking you
Grpaway


GRP,

My recollection is that NTEA has no contractual protection. That said, it is a subsidiary of Berkshire Hathaway, which may mean a less focussed approach. It could have cancelled anytime over recent years, so either Northen Electirc can't be bothered, or it hasn't got their attention.

Sorry I can't be more helpful.

Chris

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Re: Preference shares -- keeping it simple

#361342

Postby Gan020 » November 30th, 2020, 8:28 am

Alaric wrote:
Gan020 wrote:My view is the shares can be cancelled at par should the shareholders vote for it.


But which shareholders? Preference holders would wish for a price that enabled them to replicate the income being foregone. Ordinary shareholders may be in favour, unless as the case of Aviva, they are also Preference shareholders.

Historically there has to have been ambiguity in the original prospectus, as who would subscribe knowingly to an issue where the value of the holding could plummet at the issuer's option should or when interest rates including a risk premium fell well below the coupon?


But which shareholders? If the takeover goes through the consortia Intact Financial and Tryg will own 100% of the ordinary shares. The number of ordinary shares will be significantly more than the number of preference shares in issue so they can vote for what they like. In the same way Aviva can vote for what they like on the General Accident prefs.

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Re: Preference shares -- keeping it simple

#361347

Postby johnhemming » November 30th, 2020, 8:45 am

Gan020 wrote:But which shareholders? If the takeover goes through the consortia Intact Financial and Tryg will own 100% of the ordinary shares. The number of ordinary shares will be significantly more than the number of preference shares in issue so they can vote for what they like. In the same way Aviva can vote for what they like on the General Accident prefs.


There is additionally a question as to whether EU law would still apply in requiring a class vote of the preference shares. I have no idea and I am not going to investigate it, but it came up as an issue on the Aviva GA matter.

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Re: Preference shares -- keeping it simple

#361824

Postby 88V8 » December 1st, 2020, 2:49 pm

This morning I sold LLPC, LLPD, NTEA, SAN, SAN.B, STAB, STAC.

I convinced myself that BP will not risk the adverse publicity of doing the dirty for what is to them a trivial sum so I kept BP.A and BP.B, Aviva have committed themselves to an orderly retirement so I retained AV.A, Ecclesiastical are decent chaps so no danger there, and BWRA and NWBD are safe as per their Articles.
I hope I am right about the BP prefs as they trade at an enormous premium.

As to where the cash was redirected, some of it went into Bond funds as part of an IT package https://lemonfool.co.uk/viewtopic.php?f=54&t=26503 where dealtn should be thanked for highlighting the mad world of gilts.

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