Bell Canada strip bonds
For a complete overview of the processing for special situations, such as the one that was proposed for Bell, see Entitlements. The material on this page is simply a summary of the process that CDS would have used as it applies to the Bell strip bonds, should the deal proceed as planned. (Note: This information is taken from material on the CDS public website augmented by personal knowledge.)Calculation of the entitlement amount
- Bell or its agent will announce the rate per $1,000 face value that the holders of each bond issue will be entitled to receive.
- For bonds that were stripped through a trustee (such as CIBC Mellon), the trustee will calculate the amount due to each strip bond issue, generally on the basis of the Government of Canada yield curve.
- For bonds that were stripped through CDS, CDS will calculate the amount due to each strip bond issue, on the basis of the market value of each strip bond issue as of a determination date. However, there are some Bell issues stripped through CDS where the Government of Canada yield curve will be used for this calculation. The description of these issues includes "TR" on the CDS system. The "TR" may or may not be shown on client statements from an investment dealer or custodian bank. The "TR" indicates that the calculation will be done by a trustee, not CDS.
- In all cases, the amounts are calculated by using what the lawyers call "proportionate economic interest". In plain English, this means that the holders of all strip bonds related to a stripped underlying bond will get a share of the proceeds, with the share being determined by current market yields (either for Government of Canada bonds or the Bell strips).
- Once the amount for each issue is determined, then a rate for each $1 or
$1,000 in each strip bond issue is calculated by dividing the total amount due
to that issue by the total face value of the strip bonds outstanding in that
issue.
Payment of the entitlement amount
If you hold the Bell strips through an investment dealer or custodian bank or trust company, then your account will automatically be credited for the proceeds on or about the payment date.
If you hold a physical certificate for Bell strips created through a trustee, then you must actually deliver the certificate to the trustee for payment. Your bank or investment dealer may agree to do this on your behalf. For redemption of the physical certificate, there may be a special form (e.g., a "Letter of Transmittal") to be completed for the trustee. If so, complete that form and include it when delivering the certificate.
NOTE: If you are delivering the certificate, I recommend that you either personally deliver it or use a courier and get receipts for the delivery. If using a courier, you should insure the package. Also, make a photocopy of the certificate, in case it gets lost during delivery.
Potential concerns
Some holders of the underlying bonds have expressed concerns about the impact of the Bell restructuring on the value of their bonds. Since there is an impact on the bonds, there will be a corresponding impact on the value of the strip bonds.
The IDA strip bonds information statement, which all purchasers of strip bonds in Canada are supposed to receive with their first purchase, makes a brief reference to the potential for early redemption of bonds and specifically recommends against purchasing strips where the strip bond is payable after a potential redemption date.
"In some cases the Underlying Bonds are redeemable or callable prior to maturity. Purchasers of strip bonds or strip bond packages relating to interest payments to be made in respect of Underlying Bonds that are redeemable or callable should satisfy themselves that such interest payments do not relate to interest payment dates that may occur after the Underlying Bond's earliest call or redemption date."
The IDA information statement also indicates that the strip bonds may have their rights limited by the applicable custodial arrangements.
This statement was updated a couple of times since the first Bell strip bonds were issued. Some of the wording in the section on custodial arrangements was updated to reflect my suggestions as the market evolved.
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