Alaric wrote:From a mathematical viewpoint, that judgement was complete nonsense. If you have a stream of income that unfettered is worth 1.5X and you are offered X for it, how does this not affect your rights?
Pref Issues that post dated this judgement would attempt to make it so that it didn't apply. Applying a class vote being one such solution, issuing enough Pref shares to constitute a blocking majority being another. Not with complete success it would seem.
If you are, say, a General Accident Pref holder, the risk of a coercive payback is just as much a default risk as Aviva, GA's parent, going bust. The FCA are now at least monitoring these potential elective defaults.
Alaric,
Taking the last statement first, without being an expert on the creditworthiness of Aviva, I think it is safe to say that the probability of a cancellation at par for GNA prefs is far, far greater than that of an Aviva default. Compliance with law and the terms of an instrument is
not coercion in the eyes of most people, and certainly not in those of the courts.
If it was an
essential requirement that the prefs had a veto, the original subscribers ought to have
insisted on one. One can only conclude their appetite for the prefs led them to cut corners.
It is not the judgement which is faulty it is your maths. The stream of income was
not unfettered so the equation ought to have been MV = NPV at required rate of return of dividend stream and cancellation price, from the time of calculation to a reasonable estimate of when a cancellation might be expected to occur. GS has suggested three years as a relatively 'safe' period, which seems reasonable to me. If the required rate of return has fallen below the dividend rate, then the pref would be expected to sell at a premium, not an enormous one such as 1.5x.
The reason such a cancellation is not a variation of rights is as set out in the following HoF excerpt, which follows the consistent reasoning of the previous 30 years:
‘The reduction of capital now proposed to be made gives effect to that right [that the second preference shareholders were entitled to priority of repayment after certain preferences shares and before any other shareholders on a reduction of capital]. This necessarily involves, of course, that all other rights attached to the shares will come to an end,
but that is something to which the holders of the shares must be taken to have agreed as a necessary consequence of their right to prior repayment receiving effect.
Chris