PFD.PR.A : Meeting Called

Charterhouse Preferred Share Index Corporation, which I reviewed last year, is introducing a rather odd shareholders’ resolution:

with respect to the Corporation, a special resolution approving an amendment to the Articles of Incorporation to permit the Corporation without obtaining approval of the Securityholders, to issue Securities at a price per Security that is less than the net asset value per Security at such time.

Their rationale for seeking such authority is:

The Manager is of the view, in respect of each Fund and the Corporation, that the issuance of Securities at a price which may be less than the net asset value per Security of the Fund or the Corporation may, in certain circumstances, be in the best interest of the Fund or Corporation and the Securityholders. For example, the ability to take advantage of certain investment opportunities may depend, in part, on the availability of additional capital to employ at opportune times. By providing the Funds and the Corporation with the ability to issue securities at less than net asset value, without the delay and cost of obtaining Securityholder approval, the Funds and the Corporation would have the ability to efficiently raise additional capital through, for instance, a rights offering, allowing the Funds and the Corporation to take advantage of these time-sensitive investment opportunities, thereby capturing additional returns for Securityholders.

Quite frankly, I’m puzzled. PFD.PR.A is an index fund. Just what “investment opportunities” do they expect to see? To quote from their web page:

The Charterhouse Preferred Share Index Corporation provides holders of the Preferred Shares with:

  1. cost-efficient exposure to an indexed portfolio (the “Portfolio”) that is representative of the universe of fixed rate preferred shares and preferred securities of Canadian issuers (“Portfolio Securities”) listed on the Toronto Stock Exchange (“TSX”); and
  2. return of capital distributions, paid quarterly

The meeting is set for June 11, full details and the management circular are available on SEDAR, under “Public Companies” – search for “Charterhouse Preferred Share Index Corporation”. If I were a shareholder, I’d have a lot of questions to ask about these “investment opportunities” and I would be voting against the resolution if I didn’t like the answers. My fear would be a rights offering priced significantly under market …. as of May 31, for instance, the NAV was $22.01 and the trading price was $21.70. Now, I’m not sure exactly what limits the TSX puts on rights offerings, but it seems to me that they could issue rights to shareholders allowing the purchase of more stock at $21.00. Now, in a perfectly efficient capital market, I’m basically indifferent as to whether I sell the rights or exercise them. We are not blessed with perfectly efficient capital markets, however, so commissions on the rights sales could leave me worse off, let alone my market risk on the sale.

Shareholders should be looking for answers on this one.

Hat-tip to a Canadian Moneysaver reader for bringing this to my attention!

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