Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to tjh290633,csearle,jfgw,bionichamster,Shelford, for Donating to support the site

What next for prefs ?

Gilts, bonds, and interest-bearing shares
swanmore1
Posts: 9
Joined: November 7th, 2016, 12:34 pm
Been thanked: 7 times

What next for prefs ?

#185573

Postby swanmore1 » December 8th, 2018, 12:43 pm

Hi All,


Current yields attractive, but what is in store ?
For Av.A and ELLA it appears that irredeemable means until the issuer goes bust.
For bonds, BOI offers similar attractions.

But what for LLPC ?
From April this year, Reuters carried the following comment :
'George Culmer, the bank’s chief financial officer, provided the reassurance on Wednesday as Lloyds reported first-quarter profits that just missed analysts’ expectations.
“Absolutely no discussion on these and absolutely no plans to cancel these irredeemable preference shares through a reduction in capital,” Culmer told a media call.
Am not 100% convinced .
Swapping prefs into a loss absorbing/contingent capital equivalent would appear an obvious option Lloyds but this would exclude small retail holders.
similar to the exchange from ECN"s to AT1 , and i am not sure how the issuer would go about this within the confines of the listing particulars..would it be a vote ?
I will re read listing docs but if anyone has researched the mechanics of exchanging as opposed to cancellation , please fwd .

The other issue is SAN.. ex abbey national 10.375.. had a scare when mkts thought Santander was going bust which proved ill informed .. i will look at prospectus again but think it may have been rewritten as Santander UK ?

Aviva prefs traditionally traded a premium/lower yield than Lloyds, now they are on par/even higher yld.
Will buy a little AV.A whilst looking further into LLPC and SAN

Best wishes,

Swan

swanmore1
Posts: 9
Joined: November 7th, 2016, 12:34 pm
Been thanked: 7 times

Re: What next for prefs ?

#185575

Postby swanmore1 » December 8th, 2018, 12:56 pm

Cntd..

Have dug into LLPC prospectus and my take is next step is to review the Articles:

From prospectus :

Substitution Subject to the Articles, the provisions of the Companies Act and
all other laws and regulations applying to the Company and to
confirmation from the FSA that it has no objection, the Company
may substitute the Preference Shares in whole, but not in part,
with Qualifying Non-Innovative Tier 1 Securities, at any time
without any requirement for consent or approval of the holders of
the Preference Shares. Upon such substitution, the Preference
Shares shall be exchanged for, or redeemed by, the relevant
Qualifying Non-Innovative Tier 1 Securities or the proceeds of
redemption of the Preference Shares shall be mandatorily applied
to the subscription or purchase of the Qualifying Non-Innovative
Tier 1 Securities so issued.

GoSeigen
Lemon Quarter
Posts: 1675
Joined: November 8th, 2016, 11:14 pm
Has thanked: 391 times
Been thanked: 390 times

Re: What next for prefs ?

#185649

Postby GoSeigen » December 8th, 2018, 7:51 pm

swanmore1 wrote:Cntd..

Have dug into LLPC prospectus and my take is next step is to review the Articles:

From prospectus :

Substitution Subject to [...]


LLPC/D are idiosyncratic in this respect. I think most if not all other preference shares require a class vote to vary their terms. Unlikely to happen except on improved terms (carrot) or a big stick of some kind.


GS

PeterGray
Lemon Slice
Posts: 549
Joined: November 4th, 2016, 11:18 am
Has thanked: 183 times
Been thanked: 146 times

Re: What next for prefs ?

#185667

Postby PeterGray » December 8th, 2018, 8:35 pm

There was a fair bit of discussion of this a while back on the Fixed Interest Investments site, as I recall not many had a class vote written in to their terms. NWBD being an example of where it was. AV was assumed to be safe, at least for now, after the recent messing around, but I don't think it's very clear with many others.

GoSeigen
Lemon Quarter
Posts: 1675
Joined: November 8th, 2016, 11:14 pm
Has thanked: 391 times
Been thanked: 390 times

Re: What next for prefs ?

#185688

Postby GoSeigen » December 8th, 2018, 11:01 pm

PeterGray wrote:There was a fair bit of discussion of this a while back on the Fixed Interest Investments site, as I recall not many had a class vote written in to their terms. NWBD being an example of where it was. AV was assumed to be safe, at least for now, after the recent messing around, but I don't think it's very clear with many others.


Peter, I fear you are confusing alteration of rights with capital reduction. Many preference shares require no agreement from their holders voting as a separate class to be repaid and cancelled. The decision to reduce the capital of the company is to be taken by all shareholders voting collectively,i.e. in the interests of the holders of the entire company in proportion to their respective voting power.

On the other hand, if a class of preference shares to remain in issue but their rights altered, by for example the liability being transferred to a new company, then it is absolutely the case that they practically all require the approval of the holders as a class to achieve this. It is this situation that is being discussed in the thread [as relevant to substitution-type situations].

English courts have repeatedly ruled that reduction of capital does NOT constitute an alteration of rights: it is rather a fulfilment of the company's liability to pay preference shareholders first as the company's capital is repaid.

GS

swanmore1
Posts: 9
Joined: November 7th, 2016, 12:34 pm
Been thanked: 7 times

Re: What next for prefs ?

#186032

Postby swanmore1 » December 10th, 2018, 6:33 pm

GS.. Re LLPC/D : given that class vote is required to alter terms and that such a vote would, one would assume, only be passed if terms were more favourable, is there any other legal way for Lloyds to take these issues off the market ?

I can only think of three ways in which the amount of shares in issue are reduced and there may well be restrictions in prospectus/articles on the issuers ability to do these :

1) Lloyds buys in at mkt prices to cancel shares..if so why has it not done this already ? See later comment re LLPD amount in issue,

2)A tender offer above mkt prices ?..an alternative, more holder friendly, to option 1 , but take up uncertain.

3) An Exchange offer to switch into new AT1 (professional) combined with a "sweet deal" for retail ..What form a sweet deal for retail could take is beyond me ..a long dated convertible could be attractive at the current equity price ? But no guarantee of 100% take up without coercion and how can holders be forced to accept something they do not want ??

Am looking at ways Lloyds could wrench these issues away from me and am struggling to find one ?

No longer qualifying capital ? Does grandfathering out mean that Lloyds can cancel ?..I think not but am open to opinion .
Tax event ?
Regulatory bodies and Court(s) issue ruling to cancel all preference shares ??

The issues are outdated in terms of capital usefulness and whilst issue size, £300mm for LLPC and £100mm for LLPD ( although Cannacord has the issue size for " D " as £56m ..perhaps some have been bought back ?? ) is not that large ,the dividend payments are not insignificant.

So i can"t find a way and Lloyds must be struggling, or have given up by now !

If anyone has a viable idea as to how these can be cancelled or swapped into something else, perhaps best to keep it off the board and use email ?

Swan

"LLPC/D are idiosyncratic in this respect. I think most if not all other preference shares require a class vote to vary their terms. Unlikely to happen except on improved terms (carrot) or a big stick of some kind.


GS[/quote]"

GoSeigen
Lemon Quarter
Posts: 1675
Joined: November 8th, 2016, 11:14 pm
Has thanked: 391 times
Been thanked: 390 times

Re: What next for prefs ?

#186042

Postby GoSeigen » December 10th, 2018, 8:19 pm

swanmore1 wrote:GS.. Re LLPC/D : given that class vote is required to alter terms and that such a vote would, one would assume, only be passed if terms were more favourable, is there any other legal way for Lloyds to take these issues off the market ?


Swan I was pretty sure LLPC/D were vulnerable to capital reduction at par subject to a special shareholder resolution and High Court approval. I covered purchase, redemption and capital reduction in the following post some time back:

viewtopic.php?p=149625#p149625



Provided Lloyds can get the support of their shareholders, cancellation of LLPC/D through capital reduction at par, or a low-ball tender threatening the same might be achievable.



I'm afraid as a non-holder I have not studied the other aspects in detail. You will need to look for regulatory call clauses in the Articles.

GS

swanmore1
Posts: 9
Joined: November 7th, 2016, 12:34 pm
Been thanked: 7 times

Re: What next for prefs ?

#186105

Postby swanmore1 » December 11th, 2018, 10:38 am

GS..Tks for link.

The substitution clause is what i will look further into .

"Note that LLPC has a substitution clause too: the company has the absolute right without consent of holders to replace LLPC as a whole with Qualifying Non-innovative Tier 1 Securities at any time with approval of the regulator."

To substitute the "whole " of the prefs with a qualifying T1 is complex due to retail being excluded.

Am not up to speed on Basel (11 or 111 or maybe 4 by now ) for bank capital requirements bur recall "guidance" was that preference shares should be phased out or substituted , wherever possible, by a set date 2023 or 2026 ?

With so much uncertainty on the Lloyds issues , i think the yield is not yet generous enough to warrant commitment.

Swan

flyer61
2 Lemon pips
Posts: 241
Joined: November 11th, 2016, 12:53 pm
Has thanked: 56 times
Been thanked: 57 times

Re: What next for prefs ?

#186207

Postby flyer61 » December 11th, 2018, 5:51 pm

GoSeigon and Swanmore1 are there any Prefs you would be comfortable buying for the long term? Ie not getting the Capital repaid at par.

swanmore1
Posts: 9
Joined: November 7th, 2016, 12:34 pm
Been thanked: 7 times

Re: What next for prefs ?

#186215

Postby swanmore1 » December 11th, 2018, 6:45 pm

flyer61,

From recent declarations ELLA and AV.A would be at the fore.
Am looking further into SAN.B & NWBD .
Am not expert/qualified in this field ; there are some good names that i recognise on this board from previous discussion board that may have a list of least threatened prefs .
I have held and traded a basket of prefs and sub debt for a number of years and i underestimated the risk of snatch back at par.. so am combing through prospectus again.
Reading is one thing, fully understanding is another!

If you are in tax wrapper and liquidity is not a prime concern then BOI may suit ?

Swan

GoSeigen
Lemon Quarter
Posts: 1675
Joined: November 8th, 2016, 11:14 pm
Has thanked: 391 times
Been thanked: 390 times

Re: What next for prefs ?

#186260

Postby GoSeigen » December 12th, 2018, 12:12 am

flyer61 wrote:GoSeigon and Swanmore1 are there any Prefs you would be comfortable buying for the long term? Ie not getting the Capital repaid at par.


I've been cautiously buying NWBD. I seem to recall BWRA are sound, also AV.A, AV.B and ELLA, as Swanmore said. GACA and GACB may be alright if you believe Aviva's assurances. The market seems to be pricing them same as AV.A/B.

The others you'll have to research further, some may depend on voting balance between the various classes. Even if a preference share is subject to capital reduction at par there may be only a small probability of it happening -- it'll be a judgement call.

Finally, long term investments are risky. Shares even more so. Anything can happen to preference shares. If you worry, reduce your portfolio duration.



GS

flyer61
2 Lemon pips
Posts: 241
Joined: November 11th, 2016, 12:53 pm
Has thanked: 56 times
Been thanked: 57 times

Re: What next for prefs ?

#186387

Postby flyer61 » December 12th, 2018, 4:01 pm

Many thanks Swanmore1 and GoSeigen, plenty of food for thought.

Once upon a time whilst chatting with my MP (live in super solid Tory heartland seat)we got onto the subject of what was filling his inbox/surgery. Landlords not returning the deposit was his reply but of late he mentioned many of the old duffers were complaining about there being no Lloyds dividend. When I thought about this and read up a little it became apparent that the Prefs needed to be paid before the Ords could have their bit. I went all out on LLPC around the 80p mark on the basis this would occur sooner rather than later. Sure enough it did...happy days! When the yields came down sub 6% I sold a goodly amount however the Aviva episode left a bad taste. Thanks GoSeigen for keeping at it and explaining what was really going on as much as it hurt to hear it!

swanmore1
Posts: 9
Joined: November 7th, 2016, 12:34 pm
Been thanked: 7 times

Re: What next for prefs ?

#186523

Postby swanmore1 » December 13th, 2018, 8:56 am

GS, flyer,

Have bought some NWBD today as prospectus is clear on class vote and will look to add on further weakness.

Am looking further into mechanics of LLPC substitution but fear i will tie myself in knots .

Looked at a few other plays in bank sub yday which i will update in due course

Tks,

Swan

flyer61
2 Lemon pips
Posts: 241
Joined: November 11th, 2016, 12:53 pm
Has thanked: 56 times
Been thanked: 57 times

Re: What next for prefs ?

#187096

Postby flyer61 » December 15th, 2018, 4:15 pm

Topped up NWBD, please don't tell my wife!

bruncher
Lemon Slice
Posts: 310
Joined: November 4th, 2016, 12:20 pm
Has thanked: 44 times
Been thanked: 16 times

Re: What next for prefs ?

#218907

Postby bruncher » May 2nd, 2019, 10:45 am

Prices of all the Prefs and PIBS seem to have gone up significantly in the last month. I am surprised, as I expect inflation to rise if Brexit happens, and the dividends to be worth less in a high/er inflation environment.

Gan020
Lemon Pip
Posts: 82
Joined: March 3rd, 2019, 12:25 pm
Has thanked: 23 times
Been thanked: 44 times

Re: What next for prefs ?

#218911

Postby Gan020 » May 2nd, 2019, 11:03 am

You may feel inflation is likely to rise leading to higher interest rates but the market does not agree. It believes interest rates are going to stay lower for much longer than previously thought.

There are some thoughts here: viewtopic.php?f=52&t=17311

Alaric
Lemon Quarter
Posts: 3535
Joined: November 5th, 2016, 9:05 am
Has thanked: 13 times
Been thanked: 700 times

Re: What next for prefs ?

#218932

Postby Alaric » May 2nd, 2019, 11:46 am

Gan020 wrote:It believes interest rates are going to stay lower for much longer than previously thought.


Therefore then sufficient investors are trying to lock in the current yields on Prefs to drive the prices higher.

ayshfm1
2 Lemon pips
Posts: 120
Joined: November 5th, 2016, 9:43 am
Been thanked: 41 times

Re: What next for prefs ?

#219020

Postby ayshfm1 » May 2nd, 2019, 4:45 pm

I'm certain LLPC and D could have an Aviva done unto them.

I'm also sure it'll turn into a similar Manure storm if they try it. The holders of the prefs are also the holders of the ords. Just as Aviva found the institutions will use their ords to defend their prefs

OwenSwansea
Lemon Slice
Posts: 411
Joined: November 7th, 2016, 9:51 am
Has thanked: 10 times
Been thanked: 25 times

Re: What next for prefs ?

#219175

Postby OwenSwansea » May 3rd, 2019, 9:54 am

I think that Brexit will lead to lower inflation, as the cost of basic food and clothing goes down. The Pound will soon recover in value when the EU are forced to do a sensible deal with us. Everyone keeps forgetting that we have a £90 billion trade deficit with them. They will soon come to heel if we just hold our nerve and show some backbone for a change.
Thus, the outlook for Prefs could be quite good.

{PS Where is Guy Fawkes when you need him!]

daveh
Lemon Slice
Posts: 569
Joined: November 4th, 2016, 11:06 am
Has thanked: 39 times
Been thanked: 172 times

Re: What next for prefs ?

#219249

Postby daveh » May 3rd, 2019, 12:44 pm

Today Lloyds have announced they are redeeming the 6.3673% prefs (LLPG I think) at par:
www.investegate.co.uk/article.aspx?id=2 ... 0604Y&fe=1

They were trading at 98/103 when I looked and I assume par is 100 and they seem to have be trading around 100 (between 94 and 110) for the last 3 years.
I don't hold (I have some LLPC) so I don't know how their prospectus varies from LLPC/D


Return to “Gilts and Bonds”

Who is online

Users browsing this forum: No registered users and 2 guests