ECN Capital Preferred Shares Is Victim Of Collateral Damage

My latest article on Seeking Alpha is on the drop on value of ECN and its preferred shares on March 16th. It turns out that the drop in share prices has nothing to do with its fundamentals or any related bad news. Below is a short summary of the article. Full article at Seeking Alpha.


ECN Capital Preferred Shares Is Victim Of Collateral Damage

Reposted from Seeking Alpha
By Brian Langis

Summary

  • Both classes of preferred shares fell for unexplained reasons.
  • ECN preferred shares seem victim of collateral damage by the company’s association to Element Financial.
  • The recent selloff provides an interesting investing opportunity.
  • Both classes of preferred shares provide a yield of +7%. More upside once they reset.

 

ECN Capital (OTCPK:ECNCF) [TSX:ECN] is primarily traded on the Toronto Stock Exchange under the ticker ECN.

Note: Dollar amounts are in Canadian $ unless mentioned otherwise. USD-CAD 1.2839 Price of 1 USD in CAD as of March 23, 2018.

I just wanted to drop a short note on the ECN Capital (ECNCF, ECN.TO) preferred shares. Both classes of preferred shares have taken a hit on March 16, 2018. Why it happened is not exactly clear, and this article will dive into the possible causes. I’m not the first one to look at the unusual drop. KT Investments has his take on what happened to ECN Preferreds here. For a more in-depth analysis on ECN Capital, you can read my article here and the one by Montrealer.

In short, ECN is commercial finance company. ECN Capital operates in four verticals: Home Improvement Finance (Service Finance), Manufactured Housing Finance (Triad Financial Services), Rail Finance, and Aviation Finance. It is well managed and is led by Steve Hudson. Hudson’s focus on capital allocation has created value for shareholders, especially when he was the CEO of Element Fleet Management (OTC:ELEEF) (EFN.TO). Hudson eats his own cooking; he owns millions of shares of ECN. ECN is profitable and has plenty of assets to back the preferred shares.

The purpose of this article is to try to make sense of the drop of ECN Capital Preferred Shares Class A and C. ECN Capital Class A (ECN.PR.A) was trading above par back in November with a 52-week high of $26. It’s now down to $22.60. Class C was trading in the high $23 range for most of the year until recently. It’s now trading at $20.60 a share. ECN’s financials are fine, there wasn’t any bad news, and the rise in interest rates should benefit both classes of shares because of their fixed reset features. It’s worth pointing out that other fixed-resets preferred shares have been doing well. So what’s going on with the preferred?

First let’s look at the criteria of each class:

ECN Capital Class A – ECN.PR.A – Reset: Dec 30, 2021. (Issued November 2016) (Prospectus on SEDAR)

  • Shares Capital: 4,000,000 shares @ $25 for $100,000,000
  • 5 Yr Canada Gov Bond + 5.44%. Yield Floor: 6.50%
  • Price: $22.80
  • Current Yield: 7.17%
  • DBRS Rating: Pfd-3 (low)

ECN Capital Class C – ECN.PR.C – Reset June 30, 2022 (Issued May 2017) (Prospectus on SEDAR)

  • Share Capital: 4,000,000 shares @ $25 for $100,000,000
  • 5 Yr Canada Gov Bond + 5.19% Yield Floor: 6.25%
  • Price: $20.73
  • Current Yield: 7.51%
  • DBRS Rating: Pfd-3(low)

Both Class A and C took a tumble this month.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s