BP Preference Shares - BP.A and BP.B

[GoSeigen]

I've often taken a look at the BP preference shares but like others, never been tempted to dive in. Given the price falls I've had another look despite the fact that I consider FI in general is still priced too high to be really confident about it.


First some facts. BP.A (8% 1sp prf) and BP.B (9% 2nd prf) are not equivalent. BP.A is far superior IMV and this is to some extent reflected in a lower yield. The reason BP.A is better is that it ranks senior to both BP.B and to the huge hybrid note issue mentioned by a previous poster which is pari-passu with the B. Far from being diluted, the BP.A prefs are shielded by a large equity buffer and the B prefs and 4.25% notes ranking below them.

The Reduction of Capital issue is tricky, but it appears to me that holders of both series are protected from Reduction of Capital at par value (when market price is above par) because they have the right to vote on a special resolution to abandon their preference (Art. 7.1(ii)). There is also a right to a special resolution to consent to (or otherwise reject presumably) a Capital Reduction scheme. So it seems to me that the possibility of a below-market Capital Reduction is remote. OTOH if the price falls below par shareholders may be amenable to a capital reduction at par and in that case BP.A might be repaid but BP.B probably not given that they are pari passu with the huge Notes issue. Can't see that overall this is a big issue in terms of valuation.

Regards current price, at 6.7% yield I'm not yet tempted to buy. I prefer the 11-12% offered by the likes of INVR (prf) and WBS (PIBS). But like others, with further falls I might go for some BP.A if/when I have cash available.


GS

[Swanmore22]

Tks for heirachy clarification GS,

Am still deploying BOI proceeds and have been looking at BP prefs.
There is a decent offer online , good for at least 100000 ,in both issues.
A is offered at 119.6 and B at 130.3

It has been there for some time.months, and has recently nudged lower.

From trades reported on LSE :
In Sep "A" traded volume was 800 000 shares, twice the combined amount of July and August. Sep by far the largest volume month in past yr.
" " B " " " 1,000,000 shares 6.4x " " " " " " " " " " "

So an institutional seller taking time and judging by the individual trade sizes mostly taken down by retail.
Not sure what the online bids are worth but i doubt they will be good for more than 10000, and will the phone brokers find better?

Does it matter who is selling and why ?
Not really, all relevant information is available and has also been discussed on this page.
If one is happy with current price/yld and not concerned about potential illiquidity, then I can see that buying a first tranche now may suit.

I have also been looking at the 4.25% Perp callable June 2027 mentioned in this thread, current indication 90p.
Have not called in for pricing but these should be fairly liquid.
Its a £1.25bn issue with decent resets and a good chance of a call.
The first of the larger $ perps is callable in June 2025.

Both pref and perp are offering some value, but not enough yet for me to pull the trigger.

Swan

[OldBoyReturns]

As with INVR there appears to be a large seller clearing out their holding. I do not have any specific information but one of the few large holders of retail denominated prefs and PIBS in recent times has been Eden Tree in its fixed income funds. I know there has been a change of fund manager so perhaps the new manager has decided not to move out of prefs and PIBS.

[Borderline]

I would not have thought BP as an oil company fitted with EdenTree’s stated aim.

“EdenTree are pioneers in responsible and sustainable investing, having launched one of the first ethical equity funds in the UK, in March 1988.”

Even my wife won’t let me buy BP!

[Swanmore22]

Tks for replies re sellers identity

I called Link the Registrar today, 0800 701107, with a request for ownership breakdown on the prefs and got as far as leaving a request to be sent
up to a higher level.
If they will not disclose direct then i will ask broker to make an approach.

Should list be forthcoming, it will be out of date but should show the largest holders.

Swan

[hostye]

Yes, definitely seems there has been an institutional seller in the background over past few months. I would suspect the seller has been forced to offload to match their funds ethical/ESG criteria.
Prices of both BP prefs have stabilised over recent weeks and it definitely seems retail investors are using this as a rare buying opportunity. Unfortunately we dont know the extent of the sellers size but once they are done I think there will be very few other sellers and the prices should recover.
Despite a slightly lower yield, I prefer the BP.A given they rank senior to BP.B and the $12bn of hybrids, its difficult to find this information on seniority but if you take a look at page S-21 of this $ hybrid prospectus its mentioned there. https://www.sec.gov/Archives/edgar/data ... d424b5.htm
Both are cumulative and a nice diversification away from the financial prefs. BP seem to be printing money right now and the equity is perfoming very well too.

[GoSeigen]

Despite a slightly lower yield, I prefer the BP.A given they rank senior to BP.B and the $12bn of hybrids, its difficult to find this information on seniority [...]

It's right there in the Articles of Association, clause 6.1.



GS

[hostye]

Agreed the articles contain some information on seniority although the latest Articles I have are from 2018 before the Hybrids were issued in 2020 so not exactly clear where they stand over hybrids (maybe I missed something though). Maybe there are more recent Articles of Association you have? Anyway I posted the link to the Hybrids as it specifically states the fact. Hopefully maybe helpful to some.

[GoSeigen]

Agreed the articles contain some information on seniority although the latest Articles I have are from 2018 before the Hybrids were issued in 2020 so not exactly clear where they stand over hybrids (maybe I missed something though). Maybe there are more recent Articles of Association you have? Anyway I posted the link to the Hybrids as it specifically states the fact. Hopefully maybe helpful to some.

The 2018 Articles contain the latest amendments. The hybrids are debt, not shares; they constitute a contract between the company and its creditors and therefore do not concern the shareholders, which is why they are absent from the Articles.

The hybrid documentation will give information as to their seniority (as you've noted), as will rating agency reports, e.g. this one from Fitch.


GS

[hostye]

Both seem to be trending higher now. Offer side prices up about 5 points this week.
If there was a seller over the past month or two it appears that they may now be done.

[Walkeia]

Thanks to all posters for this excellent thread. This week I bought BP.A sub-123 until the marker maker wouldn’t offer me any more; quotes came back ‘unavailable to offer’ before deciding to take a further clip of BP.B sub 132.5. Was very surprised at the liquidity I got in these given only 12m or so in issue. I’d like to buy more but won’t chase and will be watching long dated gilt yields from here.

[shaunm]

Interesting article in the FT online -
Govts brace for fiscal reckoning from Bond Markets
https://on.ft.com/46XGhr7 (this link to the article can be used 3 times)

Two good days (Thursday & Friday 3rd Nov) for Fixed Income securities as a result of USA / UK holding interest rate rises
My gut feeling is that we will see a "pause" for increasing bank rates, but that "Quantitive Tightening" will continue
Will be watching the monthly Gilt sales (QT) by the Bank of England
https://www.bankofengland.co.uk/markets ... usage-data