TD Waterhouse
provides access to hundreds of new issues per year. The term 'new
issue' describes any security that is being offered to the public
for the first time by a company. New issues include IPOs (Initial
Public Offerings) as well as secondary or treasury offerings, and
include, among others, common shares, preferred shares, income
trusts, and fixed income products.
A ACCRUED INTEREST
Interest that is due on a bond or other fixed income security since
the last interest payment was made. This often occurs for bonds
purchased on the secondary market, since bonds usually pay interest
every six months, but the interest is accrued by the bondholders
every day. When a bond is sold, the buyer pays the seller the
market price plus the accrued interest. The buyer will receive the
full interest payment at the next pay date.
ACCUMULATED DIVIDEND
A dividend that is due, but not yet paid, to a preferred
shareholder.
ALLOTMENT
The amount of securities assigned to each of the participants in a
new issue syndicate.
BBEST EFFORTS
For clients buying new issues, best efforts are made to fill a
client's order based on the actual number of shares available from
the brokerage firm. Share allocations may also be set by the issuer
so that a maximum number of clients can participate in the issue.
BOUGHT DEAL
In securities underwriting, this is a firm commitment by an
underwriter or underwriting group to purchase an entire issue
outright from the issuing company. Typically, the underwriters put
up a portion of their own capital and borrow the rest from a
commercial bank. Then all members of the underwriting group resell
the issue to the public at a pre-set price.
CCASH-ON-CASH YIELD
Yield is based on a similar pattern to that of a mortgage-backed
security. The yield consists of an interest and a capital
component. This is typically seen on investments such as trust
units. The investment decreases over the life of the unit as the
asset pool is used up. Upon maturity, the remaining assets are sold
and paid out to the unit holders.
COMMON SHARES
Shares representing an ownership interest in a corporation. Holders
of Common Shares have the right to receive remaining property of
the corporation upon dissolution, after all other claims are
satisfied. They, therefore, assume the risk of the business failing
and the potential gain, if the share value of the business
increases. They also elect the board of directors that controls the
company.
CONTEXT OF THE MARKET
When a new issue is priced in the CONTEXT OF THE MARKET it means
the exact price is not known during the marketing period. When the
issue is priced, it will be priced according to the market price of
the stock on a set date or range of dates. The exact price will be
available the day after pricing occurs.
CONTRACTING DATE
The date when expressions of interests for a new issue are
officially processed by
TD Waterhouse
into clients' accounts. A trade confirmation is printed and sent to
the client, along with a final prospectus (if applicable).
CONVERTIBLE SECURITIES
Corporate securities (usually preferred stock or bonds) that are
exchangeable by the owner for a fixed number of shares of common
stock at a stipulated price. Convertible securities are usually
bought by investors who want higher income than available from
common stock combined with greater potential appreciation than
available from regular bonds.
CONVERSION PRICE
The price at which convertible securities, such as bonds and
preferred stock, can be converted into common stock at a set
conversion ratio. For example, if the conversion ratio is 25 to 1,
and you own a $1000 face value convertible bond, then the
conversion price is $40 per share.
CONVERSION VALUE
Using the above example, the value of 25 shares at the current
price per share of $32.00. Since the bond has a higher face value,
it is better not to convert.
CONVERSION RATIO
The conversion ratio determines the number of shares of common
stock for which a convertible security can be exchanged. The
conversion ratio is determined upon issuance of the security and
it's typically protected against dilution from stock splits, but
not from secondary offerings. To determine conversion ratio, divide
$1,000 par value by the conversion price.
CREDIT RATING
Assessment of a corporation's credit history and ability to pay its
obligations. There are two major credit agencies serving the
Canadian marketplace: Standard and Poor's and Dominion Bond Rating
Service.
STANDARD AND POOR'S| Preferred Shares: |
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Credit-Enhanced
Preferred Shares: | P-1+ |
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| Highest
Quality: | P-1 |
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| Good
Quality: | P-2 |
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| Medium
Quality: | P-3 |
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| Lower
Quality: | P-4 |
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| Poor
Quality: | P-5 |
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| Suspended | Suspended |
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The term "suspended" indicates that the issuer
is experiencing severe financial or operating difficulties of which
the outcome is uncertain. DOMINION BOND RATING SERVICE (DBRS)| Preferred Shares: |
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| Superior Credit
Quality: | Pfd-1 |
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| Satisfactory
Credit Quality: | Pfd-2 |
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| Adequate Credit
Quality: | Pfd-3 |
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| Speculative: | Pfd-4 |
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| Highly
Speculative: | Pfd-5 |
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| In Arrears | "D" |
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High and Low designations after a rating indicate the relative
asset quality status of the fund within a rating category. DOMINION BOND RATING SERVICE (DBRS)| Bonds: |
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| Highest Credit
Quality: | AAA |
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| Superior Credit
Quality: | AA |
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|
Satisfactory: | A |
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| Adequate Credit
Quality: | BBB |
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| Speculative: | BB |
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| Highly
Speculative: | B |
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| Very
Speculative: | CCC |
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| Extremely
Speculative: | CC |
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| Extremely
Speculative: | C |
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| In default of
principal, interest, or both | D |
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CUMULATIVE DIVIDEND
A provision requiring that unpaid accumulated dividends on
preferred shares must be paid before dividends on any common
shares.
EEXCHANGE TRADED FUNDS (ETFs)
ETFs are similar to conventional mutual funds in that they provide
investors with an affordable way to invest in a diversified basket
of securities. But unlike conventional mutual funds, which can only
be bought or sold at a price fixed at the end of each trading day,
ETFs are listed on a stock exchange and can be traded throughout
the day at changing market prices. In addition, you can buy ETFs on
margin, as well as sell them short. ETFs also have a lower
management expense ratio (MER) than conventional mutual funds and
are more tax efficient because there is less buying and selling of
the underlying portfolio.
EXPRESSION OF INTEREST
An expression of interest is a FIRM order to purchase a specific
number of shares in a New Issue. Once you place an Expression of
Interest, you are obligated to purchase that number of shares of
the new issues, if available.
FFINAL PROSPECTUS
A legal document describing securities being offered for sale to
the public which is filed with the applicable provincial securities
regulators in jurisdictions where the issue was sold and which
supercedes the preliminary prospectus. It details material
information about the corporation and the new issue and must be
given to each first-time buyer of the new issue.
FLOW-THROUGH SHARES
A tax incentive investment. The Canada Customs and Revenue Agency
(CCRA) allows an individual investor to buy flow-through shares in
Canadian exploration and mining companies and register an expense
on their taxes for a "Canadian Exploration Expense
(CEE)." This deduction can be at 100% of the investment or
less, depending on the terms of the issue. Investors are entitled
to deduct these expenses from all other income and then start at an
adjusted cost base of zero or higher on the shares, depending on
the investment. When the investors sell the shares, they take the
difference between the sales price and the adjusted cost base as a
capital gain (or loss) for tax purposes. Points to keep in mind
with this type of issue:
- Investors should invest only if they are
comfortable with the underlying stock and not just because of the
tax benefits
- Shares may be issued at a premium to
current market prices if they are not restricted from sale for a
designated period
- Shares may be issued at par with current
market prices if the issuer is a junior issuer and the shares will
be restricted
As this type of investment has tax considerations, clients
should consult with their tax consultant or tax advisor before
investing. Example: An investor buys a flow-through share in XYZ Oil &
Gas. The price is $10.00 and he/she is allowed a 100% write-off on
taxes. The investor then sells it for $12.00 the next year. What
would be the tax implication? - Immediate tax deduction of $10.00 as CEE
is deductible against current income (tax savings).
- Investor now has a $0.00 cost base.
- Realizes a gain of $12.00, taxed as
capital gains.
GGREENSHOE
Similar to an over-allotment option, this is a clause in an
underwriting agreement that states that, if demand is high,
additional shares may be authorized for distribution. These shares
are distributed to selling group participants by the underwriters
in the initial allotment, so brokers such as
TD Waterhouse
will have already received any additional shares prior to these
announcements in the press.
HHIGH YIELD DEBT
High risk debt issued by companies with little or no collateral or
liquidation value, little or no sales and earnings track records or
by those with a questionable credit history. To compensate for this
higher risk, the bonds are issued with a high coupon rate. They are
usually issued by corporations without solid sales and earnings
track records or by those with a questionable credit history. Also
known as Junk Bonds.
IIF, AS, AND WHEN ISSUED
Indicates a conditional transaction in a security that is
authorized for issuance, but not yet issued. This type of
transaction is finalized only on the settlement date.
INITIAL PUBLIC OFFERING (IPO)
A company's new issue of securities offered to the public for
investment for the first time.
INSTALLMENT RECEIPT
The purchaser agrees to pay the full issue price of a security by a
set series of installment payments over time. The receipts trade on
the open market. By purchasing a receipt, the new buyer accepts the
obligation to pay the next installment(s) on the security. The
number of installments, period between installments, and dollar
amounts of each installment will vary from issue to issue.
Installment receipts often pay the same dividend as the fully paid
security, providing the income seeking investor with a leveraged
yield on the underlying security.
LLEAD UNDERWRITER
The originating investment banking firm of an underwriting group
organized for the purchase and distribution of a new issue of
securities. The lead underwriter acts as agent for the group in
purchasing, carrying and distributing the issue, as well as
complying with all federal and provincial requirements. It also
forms the selling group, determines the allocation of the
securities to each member, make sales to the selling group at a
specified discount from the offering price, engage in open market
transactions during the underwriting period to stabilize the market
price of the security, and borrows from the syndicate account to
cover costs.
LIMITED PARTNERSHIPS
Organizations made up of a general partner and limited partners.
The general partner is responsible for managing the project.
Limited partners invest their money, but are not involved in
day-to-day management and have limited liability (they usually
cannot lose more than their capital contribution). There are tax
advantages to a limited partnership holding, since the partners are
allowed to deduct a certain percentage of the
partnership’s operating expenditures from their taxable
income. Limited partnerships are typically used for investment in
real estate, oil and gas and equipment leasing, but may also be
used to finance movies, research and development and other
projects.
LINKED NOTES
A security whose return is "linked" or based on the
return of an underlying security or index. The issuer ensures the
holders a return equal to the return of the underlying investment,
less administrative charges and fees. The principle may or may not
be guaranteed, and the credit worthiness of the security is based
on that of the issuer and not that of the underlying
"linked" security.
MMARKETED DEAL
The usual scenario for a New Issue where the issue is marketed over
a period of several days or weeks.
MARKETING PERIOD
The period where the syndicate is actively selling an issue. During
this time, which often lasts several weeks, potential investors
have access to the preliminary prospectus and may place an
expression of interest.
OOVERSUBSCRIBED
The term used to describe how much demand exceeds supply for an
issue. For instance, an issue is said to be '3 times
oversubscribed' if expressions of interest are 3 times greater than
the stock available.
PPARI PASSU
Means "in equal proportion." It usually refers to
equally ranking issues of a company's preferred shares.
PREFERRED SECURITIES
Not to be confused with Preferred Shares (see below). Subordinated
debt structured to trade like preferred shares. Preferred
securities are exchange-traded and usually pay quarterly interest
income. The term to maturity is typically quite long (usually 49 to
99 years). The coupon is typically higher than comparable fixed
income securities.
PREFERRED SHARES
A type of capital stock that pays dividends at a rate set at the
time of issuance. Dividend payments to preferred holders must be
made before common share dividends can be paid. Preferred shares
usually do not have voting rights.
Cumulative Preferred Shares
A preferred share that has a provision stipulating if one or more
dividends are omitted (in arrears) because of insufficient earnings
or other reasons, the dividends will accumulate until they are paid
to shareholders. Cumulative preferred share dividends have
seniority over common share dividends--that is, a common share
dividend cannot be paid until all cumulative preferred dividend
payments are current.
Non-Cumulative Preferred Shares
Preferred share on which unpaid dividends do not accrue. Unpaid
dividends, for the most part, will never be paid. This contrasts
with cumulative preferred shares in which unpaid dividends
accumulate until paid to shareholders.
Retractable Preferred Shares
A feature of some preferred shares which grants the holder the
option, under specified conditions, to redeem the security on a
stated date, usually at a stated price.
Callable Preferred Shares
A feature of some preferred shares which grants the issuer the
right to redeem, under specified conditions, preferred shares at a
stated time and at a stated price.
PRELIMINARY PROSPECTUS
The first document filed with regulators and released to
prospective investors by an underwriter of a new issue. The
document offers financial details about the issue but may not
contain all the information that will appear in the final
prospectus; parts of the document may be changed before the final
prospectus is issued. The preliminary prospectus must state that
commitment for the purchase and sales of securities cannot be made
until a receipt for the final prospectus has been issued.
PRICING DATE
This is the date set by the underwriters to determine the final
terms of the offering. For instance, this is when the final price
is set, the yield is finalized and the total size of the offering
is announced. This usually occurs approximately one week before the
final settlement date.
PRIVATE PLACEMENT
A security issued to large institutional investors and
sophisticated individuals. Requirements for filing a prospectus,
detailed disclosure and public notice may be waived, thereby
reducing the cost of floating an issue. These investments may be
illiquid because the investor is often prohibited from selling the
security for a stated period of time. Minimum investment thresholds
exist for individual investor participation and individual
participation may be subject to further regulatory restrictions.
RREAL ESTATE INVESTMENT TRUST (REIT)
A trust which manages a portfolio of real estate to earn profits
for shareholders and is usually publicly traded. Modeled on
investment companies, REITs may make investments in a diverse array
of real estate from shopping centres and office buildings to
apartment complexes and hotels. REITs can be a mixture of equity
and debt investments. Equity REITs take equity positions in real
estate and shareholders receive income from rents received from
properties and receive capital gains as buildings are sold at a
profit. Mortgage REITs specialize in lending money to building
developers and pass interest income to shareholders.
REDEMPTION (OR CALL) PROVISION
A provision granting the issuer of bonds or preferred shares the
right to buy back all or part of an issue prior to the maturity
date.
RETRACTION PROVISION
A provision granting the holder of a bond or preferred share the
right to sell the security back to the issuer at a specified price
and at a specified time.
RIGHTS
A security granted to shareholders of a corporation to subscribe
for additional shares of common stock from the company, usually at
a discount for a limited period of time. Rights are usually
transferable and may be traded in the open market.
ROYALTY TRUST UNITS
Royalty Trust Units are a "flow through" type of
investment, similar to an interest in a limited partnership. The
trust unit holds a variety of assets, such as natural resources,
commodities, or real estate and earns cash flow from these
investments. The net cash flow (cash flow minus the administration
costs) is passed on to the unit holders in the form of interest and
dividends.
A portion of this income is treated as a return of capital, and
receives preferential tax treatment. Returns on these units is
typically higher than current returns for fixed income products
like GIC's and government and provincial bonds, however, these
units are an equity investment. The value of the trust units will
fluctuate based on the value of the underlying asset base,
prevailing interest rates and market forces.
SSECONDARY OFFERING
The public sale of previously issued securities held by large
investors, usually corporations, institutions, or other affiliated
persons. Usually handled by investment bankers acting alone or as a
syndicate. They purchase the shares from the seller at an agreed
price, then resell them at a higher price to the public through a
selling group. Do not confuse this with a Treasury Offering, which
is the company itself selling additional shares of a security that
has already been issued (i.e. issue of additional shares to raise
capital).
SECURED
A security that is backed by a pledge of collateral.
SELLING GROUP
A group of dealers appointed by the lead underwriter (on behalf of
the underwriting group) to market a new or secondary issue to the
public. The selling group is the distribution arm of the deal.
Members may or may not be part of the underwriting group.
SETTLEMENT DATE
This is the date set by the issuer and the lead underwriter for the
purchasers of the securities to take delivery and pay for those
securities. Members of the selling group may close their books well
in advance of this period. Also known in the industry as the
closing date.
SPLIT SHARES
There are typically two types. One holds a portfolio of securities,
similar to a closed-end mutual fund, designed to invest in a
specific group of companies or an industry (i.e. banks, oil and gas
firms, telecommunications, etc). The other holds an individual
security. Both of these styles, however, use the same structure to
create 2 classes of securities which are "split"
into Preferred Shares and Capital Shares. The Preferred
shareholders receive only the dividends from the underlying
portfolio, whereas the Capital shareholders usually only receive
the capital appreciation in the underlying portfolio (and sometimes
the increases in the dividends). Both of these securities provide a
leveraged investment on either the dividend (Preferred Shares) or
the capital gain (Capital Shares).
STABILITY RATING
Standard and Poor's has created a Canadian Income Fund Stability
Rating Scale. Income Funds are ranked based on several criteria,
including the fund's underlying business model and the
sustainability and variability in distributable cash flow
generation in the medium to long term.
| Rating: | Level of cash
distribution relative to other rated Canadian Income
Funds: |
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| SR-1 | Highest |
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| SR-2 | Very High |
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| SR-3 | High |
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| SR-4 | Moderate |
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| SR-5 | Marginal |
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| SR-6 | Low |
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| SR-7 | Very Low |
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STRUCTURED TRUSTS
This category of new issues describes trusts that are managed by
professional money managers. Proceeds of an issue are invested in a
portfolio of income trusts in an effort to diversify risk and to
provide unitholders with a steady income stream. Other features may
include capital repayment at maturity, opportunities for redemption
without commission, a stated maturity date and TSX listing.
SYNDICATE
A group of investment dealers who underwrite and distribute a new
issue of securities, whether it be an IPO, treasury, or secondary
offering.
TTREASURY OFFERING
Issuance of additional shares of an already existing class of
security by the company's treasury, as a means of raising capital.
This type of offering has the adverse affect of diluting the
earnings on the existing shares.
TRUST UNIT
A security structured to pay the investor regular distributions of
income (typically, quarterly or monthly) from the income generated
by the trust. The trust typically owns corporate securities that
provide a stable, predictable cash flow that is distributed to unit
holders.
UUNIT
Typically, a security that combines a common or preferred share and
a specific number of warrants or rights offered at a single
combined price. Upon settlement, components of the unit often
separate and trade as individual securities.
UNSECURED
A security that is not backed by collateral, but by the general
credit worthiness of the issuer.
WWARRANTS
Similar to long term options, they give the holder the right to
convert the warrant at a set price, into a set number of shares of
the associated stock. They are often issued with newly issued
common stock or bonds as an inducement or
"sweetener" for investors to buy the issue. This
combination is called a unit.
WHEN ISSUED BASIS
Refers to the trading of new issue securities on an exchange before
actual settlement and/or official trading is scheduled to begin. If
there is enough demand for an issue, the lead underwriter may
decide to trade the shares on the market on an "if and when
issued basis." A security trading on a "When
Issued" basis will typically have a ".W"
suffix attached to it's trading symbol. On the actual settlement
date, the ".W" is removed.
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