TD Direct Investing has a new issue out, a 5.75% rate reset preferred share from Empire Life Insurance Company.
The other large bank discounts brokers are also likely offering this. These deals tend to sell out fairly quickly. If you want in on them you should register to receive alerts of new issues from your broker.
This will reset to 4.99% above the five year Canada bond in five years.
An hour or more after I saw the alert, this issue was still open.
Basically investors have little appetite for rate reset shares because many of us got burned by earlier rate reset shares that fell by a third or more in value after the five year Canada bond interest rates fell.
But those older rate reset shares were priced several years ago at spreads of more like 2.5% above the five year rate. These new ones are vastly higher.
Without getting into a lot of detail, and certainly without making any guarantees this new issue looks highly attractive to me, especially for those looking for income.
If the 5 year Canada bond is yielding zero in five years this will reset to pay 4.99%. So I am just not seeing a lot of downside there. And it is certainly quite possible that interest rates will finally rise.
There is always the possibility of credit losses (Empire Life goes broke or gets in financial difficulty). I have not researched its balance sheet but I suspect it is reasonably strong. A fact of life with new issues is that since they tend to be sold out fairly quickly there is usually no time to do much research. But in many cases, as in this case the name of the company is one that you may have heard of. I just took a quick look at their web site and as I expected their credit rating is high (it’s “A” for the issuer, A (low) for subordianted debt from DBRS) so I would not be concerned about them going broke.
In my view, Canadian investors as a population are not acting wisely when they refuse to invest in these newer rate reset preferred shares based on what happened to older issues with FAR lower spreads over the 5 year.