# CVE.PR.C



## Montycor (Dec 23, 2020)

Hi 
I have a 5.6% position of the Cenovus prefered shares in my saving account. It has recovered very well in the last 6 months ,but its volatility makes me nervous.It is near its par value (25.00) now. I am thinking of selling when it reaches par.The dividend is 4.5%, I am not a big fan of prefs, because I dont understand them well. Any suggestions for me.

Thanks


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## Eder (Feb 16, 2011)

Sounds like you should sell them...use a limit though...thinly traded. Might take a few days to get rid of them. They most likely won't reach par till the 5 year goes up a full point.
Myself I would just clip the coupons forever if this is in a non registered account.


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## Montycor (Dec 23, 2020)

Thank you Eder for your info.If you dont mind what did you mean "till the 5 year goes up a full point"

Thanks


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## AltaRed (Jun 8, 2009)

GoC 5 year bond needs to get over 2%, perhaps as much as 2.5% to get some of these resets to par. All the 5 year fixed reset prefs come with a coupon rate tied to the 5 year Canada bond yield. Current GoC5 is about 1.3%.

Example: CVE.PR.C is, I think has a reset of Goc5+313bp. If the GoC5 is 2% at reset time, the new coupon yield would be 5.13%. Anything less than 5.5% coupon would likely result in a discount price (to $25 par) for the pref and anything more would be premium priced (higher than par) and subject to recall by Cenovus because that debt would be too rich. If they can recall a 5.5% coupon pref and re-issue a new one for 4.5%, they'd do it in a heartbeat. That is a reason why 5 year fixed reset prefs rarely exceed $25 for a market price, and if they do, it is because the reset date isn't for a few years yet.

Caution: I have not followed these prefs so my data is representative only. I have no idea how CVE prefs are being perceived in the market today.


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## Covariance (Oct 20, 2020)

According to the companies financial statements this one can also be converted by the investor into a floater: 90d T Bill +313 

does anyone have a link to the prospectus on know the reset date?


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## AltaRed (Jun 8, 2009)

https://canadianpreferredshares.ca/rank-cenovus-energy-preferreds/ 31 Dec 2024


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## Numbersman61 (Jan 26, 2015)

The floating rate conversion option has not been well received and most cases, insufficient shares are tendered so conversion does not occur. I no longer own any floating rate preferreds - thin trading primary reason. CVE.PR.C (formerly HSE.PR.C) - HSE.PR.C : No Conversion To Floating Reset « PrefBlog


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## Numbersman61 (Jan 26, 2015)

Montycor said:


> Hi
> I have a 5.6% position of the Cenovus prefered shares in my saving account. It has recovered very well in the last 6 months ,but its volatility makes me nervous.It is near its par value (25.00) now. I am thinking of selling when it reaches par.The dividend is 4.5%, I am not a big fan of prefs, because I dont understand them well. Any suggestions for me.
> 
> Thanks


The stock is trading at $23.60 - current yield 4.97%. With a reset spread of 313, I’m a buyer. I plan to switch from other preferreds.


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## P_I (Dec 2, 2011)

Montycor said:


> I am thinking of selling when it reaches par.The dividend is 4.5%, I am not a big fan of prefs, because I dont understand them well. Any suggestions for me.


If you don't understand preferred shares well then I'd wonder what was your investment thesis when you bought this issue? Has that thesis or reasoning changed? If so then without a doubt I'd sell them as soon as practical.

Preferred shares are complicated securities and generally require significant due diligence before purchasing. If you don't understand them well then I'd suggest avoiding them until such time as you've done your homework to understand them better and are comfortable owning them. 

Even then, I'd stick to the preferred shares of high quality and stable companies rather than the preferred shares of resource companies such as Cenovus (nee Husky, per HSE : Ticker Change to CVE « PrefBlog ).


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## AltaRed (Jun 8, 2009)

Numbersman61 said:


> The stock is trading at $23.60 - current yield 4.97%. With a reset spread of 313, I’m a buyer. I plan to switch from other preferreds.


Just recognize it may get called in Dec 2024 @$25, particularly if GoC5 is in the order of 2%. That wouldn't necessarily be a bad thing.


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## agent99 (Sep 11, 2013)

Numbersman61 said:


> The stock is trading at $23.60 - current yield 4.97%. With a reset spread of 313, I’m a buyer. I plan to switch from other preferreds.


I have some free cash due to other pfds being called and will also look at this one along with others.

Current price is $23.60, so still below par. This probably partly due to pfd3 rating - higher risk than some others. Reset date is 12/31/24, so, depending on your purchase price, I would consider holding. If you bought at a low price, your yield on cost must be good. Even so, maybe still consider taking your profit, provided you have something better to invest the gains in!

If it was called at the reset date, you will get the $25 par price. If not, it will reset at 3.13% + GOC5 rate (1.338% today)= 4.47% based on $25 par. Of course higher if you bought at a low price! We don't know what the GOC5 will be at end of 2024, but with the 3.13% spread, this pfd should be reasonably competitive with other pfds which will help maintain the price.

I have BIK.PR.A (P2L rating) bought at just over par and trading at $27 with 03/31/24 reset at 5.85% or 3.96%+GOC5 rate. I had put in a sell at 27.25 but cancelled because I would first need to find something better! Besides, it may not get called if interest rates increase by then.


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## P_I (Dec 2, 2011)

One other thought regarding the credit quality of this specific preferred share. What part of their asset allocation does the OP categorize preferred shares? They are generally considered a hybrid security, neither strictly equity nor fixed income. 

Personally I consider them more towards the fixed income asset allocation partially because I've run out of room in our registered accounts to shelter interest payments from fixed income assets. So we take some advantage of the dividend tax credit that comes along with preferred shares held in non-registered accounts. Because of their hybrid asset class and the fact that we take risk on the equity portion of our asset allocation, NOT the fixed income portion, I strictly stick with high credit quality, i.e. PFD-1 or PFD-2 and won't venture lower. 

Again I'd ask the OP what was your investment thesis when you bought this issue? Has that thesis or reasoning changed?


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## Numbersman61 (Jan 26, 2015)

agent99 said:


> I have some free cash due to other pfds being called and will also look at this one along with others.
> 
> Current price is $23.60, so still below par. This probably partly due to pfd3 rating - higher risk than some others. Reset date is 12/31/24, so, depending on your purchase price, I would consider holding. If you bought at a low price, your yield on cost must be good. Even so, maybe still consider taking your profit, provided you have something better to invest the gains in!
> 
> ...


I would be selling the BIK.PR.A. - look at the Yield to Worse case. It is around 2.55%. very high reset spread makes it a likely recall candidate.


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## agent99 (Sep 11, 2013)

Numbersman61 said:


> I would be selling the BIK.PR.A. - look at the Yield to Worse case. It is around 2.55%. very high reset spread makes it a likely recall candidate.


I agree that it may get called if interest rates are not much higher at reset date. I was tempted to take a $2.00 capital gain now and even submitted the order. But then I needed to find something else with equivalent risk and yield. 2.55% is at least better than a GIC


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## Numbersman61 (Jan 26, 2015)

agent99 said:


> I agree that it may get called if interest rates are not much higher at reset date. I was tempted to take a $2.00 capital gain now and even submitted the order. But then I needed to find something else with equivalent risk and yield. 2.55% is at least better than a GIC


I recall that a few years ago, many investors owned reset bank preferreds which were trading significantly over par. Some disappointed folks when the preferreds were redeemed at par.


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## agent99 (Sep 11, 2013)

Numbersman61 said:


> I recall that a few years ago, many investors owned reset bank preferreds which were trading significantly over par. Some disappointed folks when the preferreds were redeemed at par.


They should not have been disappointed unless they didn't understand how preferreds work. Not much different than buying premium bonds.


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## agent99 (Sep 11, 2013)

By the way, I bought a Cenovus preferred today. Not the one we discussed, but cve.pr.e. It resets a little later 3/31/2025 and has a spread of 3.57%. Something like 4.6% yield until then. Not great, but pickings are thin among preferreds these days. 

Not what I should be investing in late in my retirement, but it's hard to find anything remotely like fixed income that is suitable.


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## Numbersman61 (Jan 26, 2015)

agent99 said:


> By the way, I bought a Cenovus preferred today. Not the one we discussed, but cve.pr.e. It resets a little later 3/31/2025 and has a spread of 3.57%. Something like 4.6% yield until then. Not great, but pickings are thin among preferreds these days.
> 
> Not what I should be investing in late in my retirement, but it's hard to find anything remotely like fixed income that is suitable.


Since I just turned 80, I expect that I’m older than you; still have significant investment in rate resets.


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## AltaRed (Jun 8, 2009)

I plan to be entirely out of individual holdings such as prefs, GICs and bonds by the time I am 80 in preparation for a POA to have to take over should the need arise. POAs are not as remotely interested in managing portfolios in the same way, so might as well simplify at my own pace.


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## agent99 (Sep 11, 2013)

Numbersman61 said:


> Since I just turned 80, I expect that I’m older than you; still have significant investment in rate resets.



You suspect wrong 

By the way, if you plan on any travel, save up for your travel medical insurance - It does a big jump at 80!


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## Numbersman61 (Jan 26, 2015)

agent99 said:


> You suspect wrong
> 
> By the way, if you plan on any travel, save up for your travel medical insurance - It does a big jump at 80!


No travel plans - sold our condo in the Phoenix area one year ago. We do have out of country coverage through Federal Government (40 day limit each trip) thanks to my wife’s late husband service with the feds. Recently had my COVID booster shot.
Very pleased with increase in value of our rate reset preferreds.


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