The Lemon Fool

Help! I'm going round in circles on these.

What are these Prefs paying at the moment and are they callable?

I think the prospectus is this: https://www.rns-pdf.londonstockexchange ... 0-3-12.pdf
Certainly it refers to 10 3/8ths and 8 5/8ths which match SAN & SANB.

"The Preference Dividend in respect of each New Santander UK Preference Share shall also include an amount (if any) equal to any dividend exceeding £100 paid or declared on each Santander UK Ordinary Share in the period from (and including) the Issue Date to (but excluding) 1 May 2010, if (and only if) Santander UK has repaid all of its Parity Obligations on or prior to 1 May 2010.

From (and including) 24 May 2010 to (but excluding) the First Call Date, and if declared, non-cumulative preferential dividends will accrue on the New Santander UK Preference Shares at a rate of 6.222 per cent. per annum on a principal amount equal to £1,000 per New Santander UK Preference Share. Each such Preference Dividend will, if declared, be payable annually in arrear on 24 May in each year. Subject as provided herein, the first such Preference Dividend Payment Date will be 24 May 2011 and the last such Preference Dividend Payment Date will be the First Call Date.

From (and including) the First Call Date and thereafter, noncumulative preferential dividends will accrue on the New Santander UK Preference Shares at a rate, reset quarterly, of 1.13 per cent. per annum above LIBOR on a principal amount equal to £1,000 per New Santander UK Preference Share, and, if declared, will be payable in quarterly instalments in arrear on 24 August, 24 November, 24 February and 24 May in each year. Subject as provided herein, the first such Preference Dividend Payment Date will be 24 August 2019."

The first call date is 24/05/19 and that has passed. I cannot find the second and subseqent call dates altough it must be in the prospectus somewhere or maybe I have to read the old A&L or Abbey National original documents to find that.

I tried looking at Santander's website too to see the dividend declaration but couldn't their site is very large for fixed income investors.

It looks like it's paying 1.13% per quarter over Libor (but which Libor - 5 year I guess but that's a guess) but my sense is that seems wrong looking at the share price. There again by reference to LLPE maybe it isn't.

Gan020 wrote:
It looks like it's paying 1.13% per quarter over Libor (but which Libor - 5 year I guess but that's a guess) but my sense is that seems wrong looking at the share price. There again by reference to LLPE maybe it isn't.

There isn't a 5 year Libor. I haven't looked but most probable will be 3 month.

The FT website says they yield 5.85%.

They are preference shares and pay a fixed income. They are perpetual and can't be called. They could be cancelled but that whole other discussion. Both are due to pay this month and they pay twice a year.

SANTANDER UK PLC 10.375 NON CUM PRF GBP1 (SAN) - pays 10.375% per year on it's face value (£1) so 10.375p per share

SANTANDER UK PLC 8.625G NONCUM PRF GBP1 (SANB) - pays 8.625% on it's face value (£1) so 8.625p per share

Since they cost more than £1 yield is less than this.

I hold both

Not the right prospectus!

I don't hold any more, but I have the prospectuses in my Onedrive account. Hopefully I am not breaking any rules sharing these links:

https://1drv.ms/b/s!AkjrLh8d472Q1wJlDMq ... w?e=J6Jo6b
https://1drv.ms/b/s!AkjrLh8d472Q1kxO7qX ... g?e=q7GdC2

The Articles are important as well. I am not sure whether these are up to date.

https://1drv.ms/b/s!AkjrLh8d472Qgcg84yD ... Q?e=xSTQqC

I suggest that anyone who wants the documents should download them as I may move them elsewhere which would probably break the links.

In brief, both prefs pay the full amount in the respective names, but there is an unusual clause which used to reduce the coupon due to the old dividend tax credit system. Osborne did away with this and so the full amount is now paid. Something similar could of course come back...

Sorry, wrong Articles! Here are the Articles for Santander UK plc:

https://1drv.ms/b/s!AkjrLh8d472Qgcg-0eO ... A?e=n4E76R

hiriskpaul wrote:Not the right prospectus!

Hurrah. Puzzle solved. Now I have more prospectus's or is that prospecti to read.

Many thanks

A quick Google produced these as the latest Articles: https://www.santander.co.uk/assets/s3fs ... iation.pdf

SAN looking around 100bp cheap to SANB

SANB. Santan 8.625 pref currently 125.00 offer price - adjusted yield circa. 7.03%
SAN. Santan 10.625 pref currently 130.65 offer price - adjusted yield circa. 8.12%

Switching looks interesting for this sort of yield pick up. Historically the 10.625 have traded around 20-25 points in price above the 8.625.

hostye wrote:SAN looking around 100bp cheap to SANB

SANB. Santan 8.625 pref currently 125.00 offer price - adjusted yield circa. 7.03%
SAN. Santan 10.625 pref currently 130.65 offer price - adjusted yield circa. 8.12%

Switching looks interesting for this sort of yield pick up. Historically the 10.625 have traded around 20-25 points in price above the 8.625.

SAN is 10 3/8 % ...10.375 or a coupon of 7.94%.

Yes sorry typo 10.375 coupon is correct. They trade on a clean price so have 99 days of accrued included in the price of 130.65 which equates to an adjusted yield of circa 8.12%. I agree 7.94% you mentioned is basic yield but you should factor in accrued to calculate these correctly

hostye wrote:Yes sorry typo 10.375 coupon is correct. They trade on a clean price so have 99 days of accrued included in the price of 130.65 which equates to an adjusted yield of circa 8.12%. I agree 7.94% you mentioned is basic yield but you should factor in accrued to calculate these correctly

Thanks..something I need to look into regarding accruals.

Is it a case of ?

(A) 10.375/130.65 x 100% = 7.94%

plus

(B) 99/365 * 10.375 = 2.81p

2.81p / 130.65 *100% = 0.21 %

Then add 7.94% + 0.21% = 8.15%

(The 99 days accrual, looks to be measured from the last XD of 9/3/23 to 16/06/23).

They don’t accrue .

Holts wrote:They don’t accrue .

They are non-cumulative, but they do do accrue the dividend on a daily basis until dividend is paid.

Certainly if they are not paid it is relevant.

Holts wrote:Certainly if they are not paid it is relevant.

I'm starting to learn about the various classes (4?) of preference shares. I believe 'Holts' refers to the difference between 'cumulative ' and 'non cumulative ' prefs.

With the non-cumulative version , the issuer might skip a divi and there is no entitlement to receive it at a later date. With the cumulative version, the company must pay the missed dividend. The investor pays more for a "must pay " cumulative pref share.

Accrual and Dirty Price
Then there is 'accrual'. This is the bit I'm unsure of, what it is and how it works! I've seen the term "dirty price"

https://communications.canaccordgenuity ... erview.pdf

"Prefs are dealt "dirty price" i.e. with accrued dividend in the dealing price"

[Conversely- Permanent Interest Bearing shares, PIBs " clean price".]

If one buys at a dirty price does it imply that the underlying yield for the share is slightly lower?

Back to my original post the 10.375 look cheap to the 8.625 at current prices. They are both very similar, same issuer, same payment dates, etc. Just a bigger dividend on the 10.375 vs 8.825. At these levels you can sell the 8.625 and buy the 10.375 and earn yourself approx 100bp pa - No brainer

hostye wrote:Back to my original post the 10.375 look cheap to the 8.625 at current prices. They are both very similar, same issuer, same payment dates, etc. Just a bigger dividend on the 10.375 vs 8.825. At these levels you can sell the 8.625 and buy the 10.375 and earn yourself approx 100bp pa - No brainer

Agree the 100bps spread is wide but there's a good reason - all these prefs have a, however remote, chance of par "call" (through cancellation rather than an explicit issuer call) embedded, whether through existing terms, articles or the possibility of majority decisions/amendments thereof, especially given they've lost their use as capital instruments so are now just expensive debt for the issuers. The higher above par an instrument trades, the higher the economic risk of a cancellation at par. Now you may think that risk (the "Aviva scenario") is overpriced in SAN/B at 100bps, and i agree, but it's not a no brainer - nothing ever is.Put it another way - at some point between 100bps and 0bps anyone would happily switch from high to low divs in order to mitigate the par redemption/cancellation risk.

I am aware of that risk re trading above par. But 125 vs 130.65 would be painful either way. I think unlikely it will ever happen as Santander would have taken that opportunity already when both prefs were trading 30-50 points higher than current levels. I seem to recall that Santander secured permission to purchase their own prefs in the open market at the prevailing price.......I would imagine they have already explored the option of par redemption but decided there legal terms were not strong enough as in the case of Aviva

I think around 60% plus have already been bought back, how does that affect the outlook?