Has anyone studied the prospectus for the A/B/C/D preferred shares? Series 1 and Series 2 - according to 2010 annual report - are redeemable by Yellow Media for *common shares*. Can someone here spell out the conversion terms for a redemption to common shares for Series 1 and 2 (A and B Preferreds)?
Series 3 and 5 (C and D Preferreds) probably have a similar conversion term, but the annual report is vaguer about it. Does anyone know what those terms are?
And I said it has 4.5 years until *retraction* which clearly is not the same as conversion.
The market, apparently, is pricing in a much higher chance of default over 4.5 years than over 1 years. Perhaps they subscribe to your theory of "don't read the prospectus" and are generally unaware of the conversion risk.
Sorry if I was not clear, but I meant you were not right about the strict *terms*: Preferred B does NOT have 4.5 years more. It has THREE months more until it is subject to the same Draconian conversion terms.
In terms of what worries the market, I would say the market is not in any place to judge whether Yellow a) will have the cash in 2012 to redeem Preferred shares for cash or b) will have any real discretion to do so even if they wanted to because of their fiduciary obligations to do what is best for Yellow, not for the Preferred A and B holders.
The relative A and B disparity in pricing looks like a classic Mr Market mistake.
No that's not right. The Preferred B may be converted into stock - on the same unfavorable terms - starting June 30, 2012. The Preferred A may be converted into stock starting March 31, 2012.
If anything, the B shares should be worth more, because overall their conversion (happening after the A conversion, probably) will cause less dilution.
Overall, the B shares seem priced correctly today. The A shares look to me to be massively overpriced.
"The big mystery for me right now is why are the Preferred B shares sold off severely, whereas the Preferred A shares are holding much higher values?"
it must be because the B-series has 4.5 years longer to live until retraction. I guess they are not too scared of forced conversion, but much more scared of YLO being solvent in 2017.
No one's perfect. :) They might simply a) have never considered a scenario where Yellow common shares are below $2; and b) have never read the prospectus with attention to critical detail.
Thanks for the information and commentary. I just wonder about Scotia McLeod, who on page 21 of their Guide to Preferred Shares (see link in my previous post), treated YLO.PR.A and PR.B as unexceptional (subject only to the creditworthiness of the issuer,not trickery in the prospectus). And David Baskin, who proclaimed the preferred A shares as a defensive position and a TOP PICK on national television, BNN Market Call Tonight, on June 16th, 2011. Why would such professionals not warn those who follow them?
David, the annual information document you posted has no legal standing here. See the actual prospectus I posted. Sedar is your friend for finding these, but I find Sedar very cumbersome to use and had to search for that quite a while.
I think the professional investment community would have understood the conversion issue and probably dumped these as soon as the shares started their major trip south in the last three months. The people who probably never understood this are the retail investors who bought it, and the completely clueless brokers who may have recommended it.
The big mystery for me right now is why are the Preferred B shares sold off severely, whereas the Preferred A shares are holding much higher values? Both of these are subject to the same rotten conversion rule.
Prospectus is here:
Start reading the last paragraph at the bottom of page one which bleeds onto the top of page two.