# New 4.90% Intact Financial Preferred Share Announced today



## InvestingForMe (Sep 6, 2012)

Intact Financial Corp. (IFC.PR.G) **New Issue**

4.90% Non-Cumulative, Redeemable, Rate Reset, Class A, Series 7, preferred shares


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## AltaRed (Jun 8, 2009)

Tip: Go to Prefblog later today or tomorrow. James Hymas will likely have views on whether the issue is lean or rich relative to other issues by the same issuer, and/or the sector itself. He has it down to a science.


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## dubmac (Jan 9, 2011)

AltaRed said:


> Tip: Go to Prefblog later today or tomorrow. James Hymas will likely have views on whether the issue is lean or rich relative to other issues by the same issuer, and/or the sector itself. He has it down to a science.


Alta - Do you know whether Hymas provides any advice on selecting good, reliable prefs? I have done some research on prefblog and got some information, but still do not know which prefs and "better" than others - other than some are rated BBB vs A, their yields differ and there are different types (rate-reset, etc..).


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## AltaRed (Jun 8, 2009)

On Prefblog, James provides the analysis on things like YTW, credit quality and where a new issue by a company rates next to other issues from the same issuer. It is up to the individual to determine their own strategy. He does make recommendations whenever there is an option at reset time to stay with the fixed reset, or to convert to the matching floating issue and anyone could do that on their own (rarely is there take up on the floaters). If you are interested in prefs, it would pay to follow prefblog daily for several months first. 

James also provides more direct advice and recommendations in his Prefletter (subscription basis). I subscribed for 2-3 years not too long ago and made purchases (and sales) based on his recommendations...but I now forget all those details.


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## Fain87 (Jan 20, 2018)

InvestingForMe said:


> Intact Financial Corp. (IFC.PR.G) **New Issue**
> 
> 4.90% Non-Cumulative, Redeemable, Rate Reset, Class A, Series 7, preferred shares


The low interest rate makes it not very enticing. Better gains out there. Even in Fixed-Income.


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## AltaRed (Jun 8, 2009)

Fain87 said:


> The low interest rate makes it not very enticing. Better gains out there. Even in Fixed-Income.


It might seem a bit on the low side but that dividend yield is equivalent to a much higher interest rate depending on one's tax bracket. Doesn't seem all that bad for Intact's Pfd-2 credit rating and a better deal that EMA's issue that James considers expensive.

James' comments at http://prefblog.com/?p=36685


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## james4beach (Nov 15, 2012)

That yield seems too low. Take a look at XHB, a portfolio of Canadian corporate bonds, average yield 4.2%. And those are bonds. Here you'd be taking equity risk so at just 4.9% that doesn't seem attractive to me. Maybe closer to 6% it could make sense.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> That yield seems too low. Take a look at XHB, a portfolio of Canadian corporate bonds, average yield 4.2%. And those are bonds. Here you'd be taking equity risk so at just 4.9% that doesn't seem attractive to me. Maybe closer to 6% it could make sense.


Wow, 6% is asking a lot. Intact enjoys a very good credit rating, so you have to pay for that. I think the 4.9% is right in line.

ltr


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## doctrine (Sep 30, 2011)

I would not take this deal, at all. Low yield and no guarantee of your rate despite the higher risk of a preferred share. But please don't take my word for it - look at where Intact's own 2011 preferred share issue stands that had similar terms: trading 25% below par, and yielding just 3.3%, after it got reset lower. That is hardly good income, tax-adjusted or not. 

Compare this to Emera's offering this week: http://investors.emera.com/Cache/1500110682.PDF?Y=&O=PDF&D=&FID=1500110682&T=&IID=4072693

Emera offers the same rate, 4.9%, but it has a guaranteed rate reset minimum of 4.9%. If interest rates drop, you won't get screwed. If they rise, you might get more, or perhaps you'll get redeemed in 5 years, depending on the interest rate situation. 

I would compare both to Transcanada's Series 13 (J) preferred share issues issued in 2016. They also had a 4.9% yield at a guaranteed mimimum of 4.9%. https://www.transcanada.com/en/anno...anscanada-announces-preferred-share-issuance/

These Transcanada preferred shares have never traded below par and continue to have a 5% premium to issue value, two years later. A great investment by a strong utility. 

Rate reset preferred shares are incredibly risky in a declining interest rate environment. In a rising rate environment, they will be recalled anyway. It's all risk and no reward over the ones that offer guaranteed minimum rates. Both will be probably recalled in an increasing rate environment, but you could lose a lot of money on the other in a declining interest rate environment - you might even make money in the short term with a TRP or EMA type minimum reset.


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## like_to_retire (Oct 9, 2016)

doctrine said:


> I would not take this deal, at all. Low yield and no guarantee of your rate despite the higher risk of a preferred share. But please don't take my word for it - look at where Intact's own 2011 preferred share issue stands that had similar terms: trading 25% below par, and yielding just 3.3%, after it got reset lower. That is hardly good income, tax-adjusted or not.
> 
> Compare this to Emera's offering this week: http://investors.emera.com/Cache/1500110682.PDF?Y=&O=PDF&D=&FID=1500110682&T=&IID=4072693
> 
> ...


Personally, I think rate resets are all in the issuers favour, having been burnt enough that I sold all mine. But that doesn't mean I think this one isn't a fair deal (if you want to risk buying a rate reset).

But, I feel you may be mixing ideas together that don't really connect. It's not Intact's 2011 pref share that is specifically bad. It's the overarching fact that most rate reset prefs got hit badly when interest rates dropped instead of rising as we all expected. We all got burnt. Low spreads suffered the worst because there was no chance of redemption. Lots of yields dropped by 40% at reset. It's not that Intact's pref stood out as specifically bad. Intact has a good credit rating.

For me, I don't know what the minimum feature is really worth. The market doesn't give it much. If interest rates rise, then the minimum is worthless, if interest rates drop, then they would redeem and reissue a new one at the lower prevailing market rates.

ltr


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## doctrine (Sep 30, 2011)

They're connected - all rate resets got burned yes, and it absolutely wasn't the intention. But the effect nevertheless is that those losses have permanently chased investors away from the product. Some market makers and issuers don't seem to care, but others do. This Intact one is particularly bad - there is no premium to the rate, especially given the risk free rate has risen quite a bit, and you remain exposed to a rate cut. And, like you say, if the rate does go up, it will get redeemed. 

The minimum is worth a lot. Almost all issues with a minimum are trading above par. That is good capital protection. Preferred shares losing 20-50% of their value is insane, with basically zero bankruptcies even. The only ones making money off rate resets are those who are buying them once they've dropped.


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## carson (Apr 28, 2011)

Intact has an AA- credit rating. %4.90 is a pretty standard rate for this level. EMA is Baa3 which is just above junk status. %4.90, even with the minimum rate reset, is too low for a company with that credit rating for me.

I do buy a lot of prefs but I didn't take part in either the Intact or EMA recent offerings. There are a few better options available on the market. Most of the good prices are long gone. Last year my prefs returned more than 15%.


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