March 8, 2016 10 am eastern

Laurentian Bank is out with a offering of five year rate reset shares this morning. Available through TD Direct and probably most of the other big bank brokerages. The yield is 5.65% and then resets to the five year Canada yield plus 5.13% in five years unless called in at $25 at that time. In the unlikely event hat Laurentian Bank gets into severe financial trouble (a triggering event) then these shares would convert to common shares at the market price of the common but with a floor price of $5.00 (So maximum 5 common shares per $25 pref in that unlikely event). These pref shares seem attractive based on the dividend. I would be a buyer if I had the spare cash.

I would have little or no expectation of a capital gain since they can be redeemed at $25 in five years by the company. (Possibly they could trade someone above $25 in certain circumstances, but not a lot above). They could fall in price if the outlook for Laurentian Bank becomes very poor or if five year Bank of Canada rates go even lower or negative. (I suppose, anything is possible but it is not something I would expect or worry about). Since the market yield on rate reset shares remains so high above the five year Canada this means that existing rate reset shares (with reset spreads closer to say 2.5% rather than 5%) which are trading down towards $15 will not likely rebound significantly any time soon. (Not everything in the markets works out as planned.)