Nat.west 9%pf Discussion Threads

[nisbet] 22/6/2021 09:58

If you look at the terms of all of the Aviva issues, you will see that the assets of Aviva are directly linked and form part of the original prospectuses.


The term “preference221; not only refers to priority and certainty with regard to the dividend payment but also in terms of claim over assets in a liquidation/ distressed situation.


I would point out that General Accident Prefs are within the share capital of Aviva although I’m not sure why Aviva did not change the name when it acquired the company in the 1990’s. Of course, the Aviva Prefs were formally Commercial Union issues and the name was changed when it become a wholly-owned subsidiary. The absence of name change for GAFLAC might indicate a subtle difference in the status of the issue. I am trying to locate a copy of the General Accident Pref.prospectuses.


Finally, I should add that Aviva was created by the merger of 3 companies…..Commercial Union, General Accident and Norwich Union. Also, Preference issues are equity and not debt so the term creditors does not apply.

[nicholasblake] 22/6/2021 09:36

Cevian would be supportive of cancellation at par. But Aviva probably safe whilst big UK pref holders are also still big Ord holders. Aviva can do General Accident at par any times they wish.

[williamcooper104] 22/6/2021 09:21

Just added to General accident prefs With all the activism, return of cash, a market bid for the prefs could be on the cards My concern over aviva is a takeover by say an Apollo - who are looking to bulk up in European insurance assets and do not have the best reputation for playing nice with creditors - to say the least. I don't think even an Apollo would try to pull of the redeem at par trick, but could see them moving assets out of an acquired aviva such that the credit risk on the prefs went up Institutional ord holders owning prefs plus management realising value makes a PR bid less likely IMO

[nisbet] 22/6/2021 09:05

Interesting trade reported early this morning 532,000 at 176.5521. No other side to the transaction so it’s probably facilitated by execution away from the London Stock Exchange.

[nisbet] 21/6/2021 13:47

They will be watching the Nat West outcome very closely. Any proactive move will depend, inter alia, on the strength of the balance sheet and available resources.


The reason I have bought a significant holding in Aviva Prefs. is that the company has already shown that it wants to remove these securities from the balance sheet and with around £7bn raised from the disposal of several its overseas activities, will soon be replete with cash.


The two Aviva issues together with the two General Accident issues have an aggregate nominal value of around £500m. However, it will take something like a 100%-plus premium over nominal value to succeed.

[nickieg] 21/6/2021 11:53

Have been able to revoke my acceptance of the NWBD tender offer so now clear to wait to see it they come up with a sweeter deal. Will continue to hold my Lloyds and Santander. Maybe they're watching the NatWest offer with some interest.

[dbadvn] 20/6/2021 10:03

NBlake,

Thanks, could not recall but that’s why I went big on them 10 years ago.

No intention of selling any unless an offer with a 2 upfront comes along.

[boystown] 20/6/2021 08:51

Does it make any sense for anyone to accept the tender offer? A 5.142% yield at 175p still isn't bad for shares that can't be redeemed without turkeys voting for Christmas???

[nicholasblake] 20/6/2021 08:17

DB, NWBD and BWRA are the only listed Prefs where the articles (which are the contract between the company and the shareholders) mandate that class meetings are required for a return of capital (including cancellation) of the Prefs.

[dbadvn] 19/6/2021 22:23

During the financial crisis I learned that anything is possible.

We even had the farcical situation whereby one of the banks (RBS or Lloyds ?) claimed that they had indeed written the words in a bond prospectus but that they were mistaken and did not mean it! The 200 years of precedent was clear - to bad you wrote it , you stick to it. The Supreme Court disagreed and they got away with it....

NWBD is the most protected pref out there , but if some banker sees a way out of it they will go for it.

They don’t have any reputation left to defend.

[nicholasblake] 19/6/2021 21:42

Nisbet, Cancellation is a return of capital. That can be achieved by a vote of 75% of all shareholders, ords and Prefs. Aviva rights in a wind up/return of capital are 100p.

[williamcooper104] 19/6/2021 21:37

My guess is that it may not create a legal precedent - but it certainly adds weight to the reputional case for not doing it

[williamcooper104] 19/6/2021 21:36

The legal points are secondary to the huge reputional risk; they won't do it Sure if a Apollo or Cerebus bought Aviva (and they both own insurance assets) there's a greater risk; but even then I can't see them pulling the plug

[nisbet] 19/6/2021 20:53

I've done better than that, I've read the original prospectuses which refer to the circumstances under which they can cancel at par.If consensus opinion was that it was even the remotest of possibilities the premiums over par of all preference shares would be considerably lower. The market is a wonderful discounting mechanism

[nicholasblake] 19/6/2021 20:25

Your argument has no legal merit.

I explained that big pref holders were able to block aborted cancellation.

The rest is window dressing, and any emotional weight would disappear on a takeover.

Suggest you read Go Seigen on Lemon Fool if you wish to uderstand the detail.

HAGW!

[nisbet] 19/6/2021 20:23

By the way National Westminster Bank is now owned by the Royal Bank of Scotland and there has been no attempt to repeat the Aviva shenanigans of two years ago. I would respectfully suggest that the tender offer has probably created a legal precedent.

[nisbet] 19/6/2021 20:13

Aviva had in mind to cancel Prefs at par and in the process created outrage. The Commercial Union Preference issues were bought in good faith by shareholders on the basis of being held in perpetuity (i.e. irredeemable).The motto of the London Stock Exchange is Dictum Meum Pactum (My Word Is My Bond). When blue chip companies attempt to stray from the traditions which have been sacrosanct for over 200 years, heads will roll and there will be severe consequences. To attempt to weasel out of contractual commitments by legal loopholes was met with consternation by virtually the whole of the City of London.Just in case you've forgotten, Aviva withdrew this threat, apologised and ended up offering to pay disadvantaged shareholders circa £18m compensation. They're hardly going to try it again!

[nicholasblake] 19/6/2021 20:11

Unless you subscribed in the original offering there is no possible mis-selling ground. The protection pro tem is that big pref holders hold enough ords that they have more than 25% of shareholder vote, and can veto cancellation.

If Aviva were to be taken over that protection would be lost.

Caveat emptor.

[williamcooper104] 19/6/2021 19:39

The mis-selling (it's legally possible to redeem at par but the prefs were not sold on that basis), political fall out last time,sacking of the last CEO, greater ESG focus than a few years ago I cannot see it happening, I added last time it was threatened

[nicholasblake] 19/6/2021 19:34

The Trouble is that if the Aviva ords ever come to be owned by different shareholders to the Prefs they can be cancelled at par without a separate class meeting of the Prefs.

[williamcooper104] 19/6/2021 08:59

I've held the aviva prefs for years - wouldn't sell them for less than a 4.5 yield - eg c 15 percent premium I'm saying that I'm more than happy just to keep them As they are after tax divis I recieve them into a limited company with no tax to pay So my actual return (or rather replacement return reinvesting into bonds) is around 6.5

[nickieg] 19/6/2021 08:54

Apprecate your response nisbet. Yes, it makes a lot of sense for other companies with high yielding prefs to clear them out, even if its only to deal with the tax element. If they swapped for a bond yielding the same coupon, they'd at least save the tax. I would expect UK to follow similar rules to the EU since, at the end of the day, most of the world wants to see global accounting standrds.

Not heard back yet from broker. Will chase Monday first thing.

[nisbet] 18/6/2021 19:13

There were another 30 transactions reported this evening post 7pm. Two purchases at 175p mopped them up. It certainly looks like an institution will buy anything being offered.

[nisbet] 18/6/2021 19:00

In terms of Tier 1 capital, it is an EU directive that this type of capital will no longer be permitted. It remains to be seen whether the U.K. will continue to apply similar rules in order to achieve some sort of equivalence.

The more important issue is one of cost of capital. Most of these Preference shares were issued at a time of high interest rates, hence the expensive coupons relative to today’s interest rates. Their issuance was also at a time when many financial institutions were in financial distress.

What also burdens the companies which still have these securities within their balance sheets is that the coupon payments are out of net profits and therefore not offsettable against corporation tax. This means that a 9% coupon for a company with a corporation tax charge of 20% would have a real cost of coupon of 11.25% (9% divided by 0.8).

I am a substantial holder of both Aviva preference stocks and I believe the company will make an offer to shareholders within the next 6-9 months. The marginal acceptance of the Nat West tender will send a loud and clear message to the Aviva BOD.

Finally, you should insist on removing your acceptance from the tender.

[nickieg] 18/6/2021 18:18

Not posted here before but I hold circa 20k of these. I think I may have jumped to early as I've already communicated my acceptance to my broker. I have messaged asking if at this late stage I can revoke, so wait to hear.

A bit off topic but my question is more general in regard to other prefs I'm holding. With the move to exclude prefs from Tier 1 capital in 2026, is it likely that other institutions will seek to buy out their prefs? Of course offers could take forms other than pure cash but I'd be interested to know what others think.

I hold substantially larger chunks of Lloyds and Santander and have, in the past, held Aviva and may do so again now they've been taught a lesson.

Thanks for any thoughts.