POW.PR.C Goes Haywire

Assiduous Reader prefhound asks:

Any idea what is going on with POW.PR.C? It has gone up about $1 in the past two days. Is there some possibility of a call at $25.50?

If POW.PR.C, what about PWF.PR.I (currently callable at $25.75; $25.50 in April)? Is there a holding company vs sub difference here?

Both of these are nicely under the call price (unlike GWO.PR.X recently called while above the call price).

This is very strange. If we look at the POW PerpetualDiscount issues outstanding:

POW PerpetualDiscount Issues
Close, 2010-1-19
Ticker Dividend Quote Bid YTW Current Call Price
POW.PR.A 1.40 23.59-75 5.97% 25.00
POW.PR.B 1.3375 22.62-72 5.94% 25.25
POW.PR.C 1.45 25.16-50 5.54% 25.50
POW.PR.D 1.25 21.92-08 5.73% 26.00
Commencing
2010-10-31

The yields don’t show a pattern – there should normally be an increase in yields with proximity to par to counterbalance negative convexity. POW.PR.A is somewhat less liquid than the others, but not by so much as to warrant more than a beep or two in yield.

Today’s trading is kind of interesting. Between 12:29 and and 13:09 there were ten trades on the TSX with total volume of 7,500 shares, starting with the low price of 25.38 and ending with the high price of 25.45, all with RBC as the buyer.

Then Nesbitt went nuts. Nesbitt was on the buy side for thirty-eight of the last forty trades of the day, taking the price up to 25.53 before it closed with a quote of 25.16-50. All of these trades were retail size – the biggest single transaction was 400 shares and Nesbitt bought a total of 11,600 shares on the day at an average price of $25.446 (data from PC Quote Canada Inc.).

Trading on Pure was relatively inoccuous, trading 5,100 shares with an afternoon high of 25.53 (100 shares, bought by Nesbitt) before closing at the aren’t-you-glad-there-are-market-makers-on-the-TSX quote of 25.30-27.99, 5×20.

To me, it looks like some retail broker has had a brilliant idea and executed it. But you’ll have to ask him what the idea was!

Update, 2010-1-20: New commenter to_be_frank reminds me that POW.PR.C was recently added to TXPR and suggests:

For the same reason, W.PR.J and ENB.PR.A have recently declined by a substantial amount, because those issues were removed from the index. These positions take time to unwind in a relatively illiquid market.

I have examined this hypothesis in the post TXPR Rebalaning Effect on Market.

4 Responses to “POW.PR.C Goes Haywire”

  1. prefhound says:

    I sold my POW.PR.C yesterday and noticed that all the fills were tiny, but regular until the whole lot was gone. At one point the ask was about $28.50 and I went in well above the latest trade and eventually got filled (in bits). To me this seemed like the action of a big buyer perhaps trying to disguise him/herself.

    I am wondering if the big buyer could be Power Corporation itself, in anticipation of making a call (or perhaps somebody with big bucks doing the same in anticipation — a guess or inside knowledge).

    Aside from the technicalities here, do you think the fundamentals would make sense for Power to call? Could it be driven by advantages of holdco vs subsidiary regulatory rules?

    If it is Power, wouldn’t it make sense for them to buy PR.A & B with higher yields, or is there some other difference with POW.PR.C?

    I used my proceeds from selling POW.PR.C to buy PR.B and PWF.PR.I so I’m still in the Power family waiting to see what is going on. However, I’m dying to know what’s going on with POW.PR.C so I can decide whether to arb it against the others. The accrued dividend can’t be more than 10 cents, so anything above $25.60 seems a pretty safe short.

  2. jiHymas says:

    To me this seemed like the action of a big buyer perhaps trying to disguise him/herself.

    Well, neither of us have any evidence to support our hypotheses! But I will suggest that a big buyer seeking to disguise himself would go in with an iceberg bid order and take it up by a nickel a day – not lift the bid all afternoon in pieces, taking the price up $1 in two days.

    I am wondering if the big buyer could be Power Corporation itself, in anticipation of making a call

    I strongly doubt it. POW.PR.C has a coupon of 5.80% – one of its subsidiaries, IGM, recently issued at 5.90% and PWF issued at 5.80%.

    Looking at the other issues, it’s hard to see a new issue being done for less than 6.00%. If the Power Group as a whole calls anything in the next year, I’ll bet a nickel it’s GWO.PR.E – tha last retractible on their books.

    do you think the fundamentals would make sense for Power to call?

    No.

    Could it be driven by advantages of holdco vs subsidiary regulatory rules?

    POW is currently unregulated. That might change in the future, depending upon the reach of the rumoured regulation-at-the-consolidated level goes, but right now the regulators concentrate on GWL & CL, have very little influence over GWO and none on PWF & POW. The further up the ladder consolidated regulation goes, the more capital POW will need, not less.

  3. jiHymas says:

    I sold my POW.PR.C yesterday and noticed that all the fills were tiny, but regular until the whole lot was gone.

    Come to think of it, this could have been a time-weighted-average-price algorithm … in such a case it would have been an institutional buyer, albeit one with no brains at all.

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