The Lemon Fool

https://otp.tools.investis.com/clients/ ... id=1830546

RSAB is under a tender offer.
£1.22

This looks like the start of the insurers cleaning up the prefs. Expect similar from Aviva.

There is a voting fee of 2% and you'll be entitled to accrued. The cancellation date is listed for 30th July 2024.
The voting fee looks like it will only be paid if the resolutions for cancellation are passed.
If the resolutions for cancellation are not passed, you still get to tender at 122p but you won't get the fee.

I strongly suspect this will go through.

Jwdool wrote:There is a voting fee of 2% and you'll be entitled to accrued. The cancellation date is listed for 30th July 2024.
I strongly suspect this will go through.

They've timed it quite well. Absent the anticipated rate cuts, the SP has fallen back so they'll save a few bob relative to a month ago.

V8

I have a few of these. I understand the carrot. is there a stick waiting for hold-outs?

bruncher wrote:I have a few of these. I understand the carrot. is there a stick waiting for hold-outs?

No voting fee.
Assuming it goes through, all shares will be cancelled at the tender price, whether tendered or not.

V8

If you vote. For or against you still get the vote fee if the resolution is approved.

It’s all a bit to opportunistic for my taste. When the interest rate cuts finally commence 122/124p will be reached anyway. And a yield of >6% will be quite acceptable.

I’ll be voting against

DampSeaweed wrote:If you vote. For or against you still get the vote fee if the resolution is approved.

It’s all a bit to opportunistic for my taste. When the interest rate cuts finally commence 122/124p will be reached anyway. And a yield of >6% will be quite acceptable.

I’ll be voting against

OMG if I had a pound for every time someone said something like this!

"When the interest rate cuts finally commence"

Exactly like 18 years ago, except now cuts are deemed inevitable whereas then rises were inevitable. Even if interest rates are cut, it may be because of credit concerns in which case credit spreads may be simultaneously blowing out. It does actually happen (see 2008).

GS

88V8 wrote:

bruncher wrote:I have a few of these. I understand the carrot. is there a stick waiting for hold-outs?

No voting fee.
Assuming it goes through, all shares will be cancelled at the tender price, whether tendered or not.

V8

Apologies to the professionals here, but I have a question. How is it that some tender offers allow holders to either accept or decline and keep the shares/bonds, whereas some tender offers are compulsory - either accept the offer or we'll take them anyway?

Have I misunderstood? For example, wasn't it the case that there was a tender offer for NWBD which some holders accepted and some declined - electing instead to keep the shares and they have been enjoying the regular income without further action?

Is it simply that every tender offer has different terms and that in this case the entire issue will be cancelled if there is a majority in favour? Is it solely a decision of the issuer?

If the Resolutions are passed at the General Meeting and the Reduction of Capital is implemented, the Offeror will not purchase any Preference Shares pursuant to the Tender Offer. Instead, all tendered Preference Shares (together with all other Preference Shares) will be cancelled by the Issuer pursuant to the Reduction of Capital, the Preference Shareholders will receive the Cancellation Amount and the Voting Fee (if applicable) on the Settlement Date, and the Issuer will arrange for the listing of the Preference Shares on the Official List of the United Kingdom Financial Conduct Authority and the admission of the Preference Shares to trading on the Main Market of the London Stock Exchange plc to be cancelled.

Does anyone know what percentage of RSAB holders need to vote in favour of the resolution for it to be imposed on all holders

Found it 75% need to vote in favour

So not a fait accompli, I'm surprised. I wonder whether it secured agreement on cancellation with the major holders of these prefs before making this offer/announcment?

From page 14 of the memorandum:

"Cancellation Resolution: the special resolution will pass if Shareholders (ordinary shareholders and/or
Preference Shareholders) representing at least 75 per cent. of the votes cast on the resolution in person
(including by corporate representative and/or via the Virtual Meeting Platform) or by proxy vote in
favour. As noted above, the Offeror holds 100 per cent. of the Issuer's ordinary shares. The Offeror intends
to withhold its vote on the Cancellation Resolution to ensure that it will only pass if voted in favour by
the requisite majority of Preference Shareholders."

wmb194 wrote:So not a fait accompli, I'm surprised. I wonder whether it secured agreement on cancellation with the major holders of these prefs before making this offer/announcment?

I'm sure they did.
It would be egg on face if the motion failed to pass.

bruncher wrote:Apologies to the professionals here, but I have a question. How is it that some tender offers allow holders to either accept or decline and keep the shares/bonds, whereas some tender offers are compulsory - either accept the offer or we'll take them anyway?
Have I misunderstood? For example, wasn't it the case that there was a tender offer for NWBD which some holders accepted and some declined - electing instead to keep the shares and they have been enjoying the regular income without further action?
Is it simply that every tender offer has different terms and that in this case the entire issue will be cancelled if there is a majority in favour? Is it solely a decision of the issuer?

I tendered some of my NWBD, kept some and have since added.

Yes, some offers are opportunistic from a wish to diminish what is now expensive capital, like NWBD, but Royal's and Aviva's to come reflect the Prefs' disqualification as solvency capital which makes them not only expensive but useless.
It is up to the issuer, subject I believe to the agreement of the FCA.

It seems that a few of us piled into Aviva yesterday... I added about 10% to my already overweight position.

V8

88V8 wrote:
Yes, some offers are opportunistic from a wish to diminish what is now expensive capital, like NWBD, but Royal's and Aviva's to come reflect the Prefs' disqualification as solvency capital which makes them not only expensive but useless.

It will be interesting to see how Aviva word their process, as they were the ones who claimed they could pay them off at par almost unilaterally. They were forced to back down on this assertion.

Jwdool wrote:https://otp.tools.investis.com/clients/uk/rsa1/rns/regulatory-story.aspx?cid=739&newsid=1830546

“This looks like the start of the insurers cleaning up the prefs. Expect similar from Aviva”

And Ella ?

Of the remaining major prefs, the only ones relevant to the RSAB tender are:

AVA, AVB, GACB, GACA (All under Aviva plc)

The issue pertains to the way in which insurer solvency capital operates. It is no surprise, therefore, that the prices of those notes are higher.

The RSAB terminal yield will be around 6.1%, if Aviva follow RSAB (and I expect they will), then the prices should firm from here. Currently they are trading around 6.39% (AV.A) to 6.57% (GACA), although interestingly, the General Accident prefs are structurally senior to the AVA/B. The reason why the AVA/B notes are trading with lower yield is a mix of investors preference to buy securities nearer par, and a misunderstanding of the structure.

I'd suggest the tender price for GACA will be around 150p, i.e. around 14% higher than today. If the market takes the securities higher, then Aviva might have to pay more e.g. 155-160p to get 75% support.

The other prefs, e.g. banks (NWBD, SANB/SAN/ STAB/ STAC/ LLPC/ LLPD/ LLPE) won't be affected other than to go up as investors seek alternatives. The same is true for ELLA/ INVR/ NTEA. I'd suggest the best of the bunch is probably NTEA - given the solidity of the company (Buffet is the major shareholder). I'd suggest we are also likely to see buying in PIBS as a near alternative - obvious names include MBSP/ MBSR/ NOTP/ WBS for the higher yielding of the bunch. PIBS, like the insurer prefs, have now been excluded for capital purposes (they are Tier 2, not CET1 or even Tier 1) - so expect calls/ tenders on those over the next year or so.

Jwdool wrote:Of the remaining major prefs, the only ones relevant to the RSAB tender are:

AVA, AVB, GACB, GACA (All under Aviva plc)

The issue pertains to the way in which insurer solvency capital operates. It is no surprise, therefore, that the prices of those notes are higher.

The RSAB terminal yield will be around 6.1%, if Aviva follow RSAB (and I expect they will), then the prices should firm from here. Currently they are trading around 6.39% (AV.A) to 6.57% (GACA), although interestingly, the General Accident prefs are structurally senior to the AVA/B. The reason why the AVA/B notes are trading with lower yield is a mix of investors preference to buy securities nearer par, and a misunderstanding of the structure.

I'd suggest the tender price for GACA will be around 150p, i.e. around 14% higher than today. If the market takes the securities higher, then Aviva might have to pay more e.g. 155-160p to get 75% support.

The other prefs, e.g. banks (NWBD, SANB/SAN/ STAB/ STAC/ LLPC/ LLPD/ LLPE) won't be affected other than to go up as investors seek alternatives. The same is true for ELLA/ INVR/ NTEA. I'd suggest the best of the bunch is probably NTEA - given the solidity of the company (Buffet is the major shareholder). I'd suggest we are also likely to see buying in PIBS as a near alternative - obvious names include MBSP/ MBSR/ NOTP/ WBS for the higher yielding of the bunch. PIBS, like the insurer prefs, have now been excluded for capital purposes (they are Tier 2, not CET1 or even Tier 1) - so expect calls/ tenders on those over the next year or so.

Just curious, why you list ELLA with INVR and NTEA rather than with insurers Aviva and Royal Sun Alliance?

Apologies - you may be right. I've never really paid too much attention to ELLA, given they are non-cum and poorer credit than the Aviva prefs. I don't see why they won't be cancelled in the same way.

bruncher wrote:

88V8 wrote:No voting fee.
Assuming it goes through, all shares will be cancelled at the tender price, whether tendered or not.

V8

Apologies to the professionals here, but I have a question. How is it that some tender offers allow holders to either accept or decline and keep the shares/bonds, whereas some tender offers are compulsory - either accept the offer or we'll take them anyway?

The terms of some issues might require an offer for all the shares IIRC.

Apart from that most issuers don't want a small rump remaining, they'd rather clear out the entire issue. OTOH if they fail to get authorisation to purchase holdout shares it is still in their interests to purchase all the shares tendered so that the cost of securing the remainder is reduced.

Have I misunderstood? For example, wasn't it the case that there was a tender offer for NWBD which some holders accepted and some declined - electing instead to keep the shares and they have been enjoying the regular income without further action?

They're "enjoying the income" as you call it at a yield of 4.8% and sitting on a loss of 30% relative to the tender price, and still carrying all the risk of a share investment. If that is enjoyable then I guess we have differing concepts of what investing is for!

Is it simply that every tender offer has different terms and that in this case the entire issue will be cancelled if there is a majority in favour? Is it solely a decision of the issuer?

The terms of the shares are an important consideration. But I think the retail-investor thinking on this bulletin board is mostly upside down. A tender offer should be welcome to investors and I think it should be obvious that savvy/large holders do welcome them and vote overwhelmingly in favour. But there is an odd view prevalent here that "the income is my right" and people resent giving up their shares no matter the price or risk of holding on to them (NWBD being a case in point). A perpetual instrument is less favourable than a dated one, I don't know how anyone with a basic knowledge of bond maths and investing theory could dispute that. So when an issuer offers to buy its shares, to me the default position is to welcome the liquidity -- but you will find few retail punters who agree.

EDIT: Aviva another great example for different reasons: investors became so confident in these very risky assets that they drove market prices to stupid levels, then were upset at the thought of "only" receiving their liquidation preference.

Perhaps it is this backwards thinking that has muddied the reasoning for you?

GS

GoSeigen wrote:The terms of the shares are an important consideration. But I think the retail-investor thinking on this bulletin board is mostly upside down. A tender offer should be welcome to investors and I think it should be obvious that savvy/large holders do welcome them and vote overwhelmingly in favour. But there is an odd view prevalent here that "the income is my right" and people resent giving up their shares no matter the price or risk of holding on to them (NWBD being a case in point). A perpetual instrument is less favourable than a dated one, I don't know how anyone with a basic knowledge of bond maths and investing theory could dispute that. So when an issuer offers to buy its shares, to me the default position is to welcome the liquidity -- but you will find few retail punters who agree.

EDIT: Aviva another great example for different reasons: investors became so confident in these very risky assets that they drove market prices to stupid levels, then were upset at the thought of "only" receiving their liquidation preference.

Perhaps it is this backwards thinking that has muddied the reasoning for you?

You make some fair points here, but most retail investors think more about yield on cost than current yield. It's also the hassle and risk of having to find something else to replace the income. Savvy/large holders are more positively disposed because either they have dedicated staff assigned to the task, or they actually like it. A lot of retail investors just want to plug their cash in and get paid so they can go off and do something else they find more interesting instead.

Fwiw, I'll be voting in favour of the tender because I see the economic advantages to me of doing so, but I'm not savvy (nor large) and researching alternatives is going to be a bit of an unwelcome palaver, nonetheless.

GoSeigen wrote:

bruncher wrote:...wasn't it the case that there was a tender offer for NWBD which some holders accepted and some declined - electing instead to keep the shares and they have been enjoying the regular income without further action?

They're "enjoying the income" as you call it at a yield of 4.8% and sitting on a loss of 30% relative to the tender price, and still carrying all the risk of a share investment....

EDIT: Aviva another great example for different reasons: investors became so confident in these very risky assets that they drove market prices to stupid levels, then were upset at the thought of "only" receiving their liquidation preference.

I think the current yield on NWBD is 6.5% so not too shabby. It was about 4.8% on the tender iirc?

As the readily investible retail universe shrinks, no doubt the remaining options will be chased up.
I bought a few more GACA this morning.

The PIBS... as flagged by JWDool ... I have only bought sparingly as most of my investments are tax-exposed and the interest of course attracts a higher tax rate than divis on the Prefs. No doubt Labour plan to correct this anomaly

V8