TD Direct is out with an offering of a 6.0% non-convertible five year debenture from ECN Capital.
I’d prefer a convertible debenture both for the potential upside and because it would trade. Strangely, in this case TD has it under the category “convertible debentures” but further down the summary it clearly states it is not convertible.
If you buy this you have to be prepared to hold it for the full five year term. You might be able to sell it early but maybe not and if you do you will face a large bid/ask spread and likely have to sell below face value.
Looking at ECN Capital it seems to be a reasonably successful lender. I have a little bit of familiarity with it as it split off of a lender I briefly looked at some year ago and the name Steve Hudson that I see on its web site is a little bit familiar to me.
The company has a BBB(low) credit rating. That means it is a not a very strong credit but is at least investment grade. I believe these debentures (meaning bonds not secured by any particular assets) are a little step above junk bonds.
With this sort of thing, I think the key is diversity. The 6% is attractive but I don’t want to get over exposed to one issuer in case they do run into financial trouble.
I was hesitant but decided to put in an order for what amounts to 2% of my spouse’s RRSP. I want some fixed income and putting 2% of the RRSP into this debenture does not seem overly risky.
I also considered that this is a “bought deal” meaning that the brokers are confident they can sell it.
On the other hand I notice that the offer has been open for over four hours by the time I noticed it and that indicates that demand for it is not particularly heavy. Still, I expect it to sell out and I may well not get my full allocation. That could be annoying.
P.S. Sorry, this one closed just as I was finished writing this… It will be interesting to see if I get any. Again, if you are interested in new issues like this you pretty much have to register with your broker to get the alerts and then you have to act fast when they come around. Unfortunately there is very little time to think about these or analyse them.