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Analysis••By Canadian Preferred Shares

Investors Choose Fixed Over Floating: TransAlta Conversion Results

# Investors Choose Fixed Over Floating: TransAlta Conversion Results

TransAlta Corporation (TSX:TA) announced the results of its preferred share conversion election on March 17, 2026. The message from investors was clear: fixed-rate is preferred over floating.

The Conversion Results

TransAlta has two series of preferred shares that can convert between each other:

  • Series A (TA.PR.D) - Rate Reset preferreds (fixed dividend that resets every 5 years)

  • Series B (TA.PR.E) - Floating Rate preferreds (dividend adjusts quarterly)

    • #

    What Happened

    | Series | Outstanding | Converting | Direction |
    |--------|-------------|------------|----------|
    | Series A (Fixed) | 9,629,913 | 0 | None converting to floating |
    | Series B (Float) | 2,370,087 | 1,148,549 | Converting to fixed |

    Key insight: Not a single Series A holder wanted to switch to floating. But nearly half of Series B holders chose to convert to fixed.

    Why Investors Prefer Fixed

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    1. Rate Uncertainty

    With the Bank of Canada holding at 2.25% amid Middle East conflict uncertainty, investors are seeking income predictability. Floating rate preferreds offer no yield certainty.

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    2. Rate Reset Math

    TransAlta Series A resets at:

    5-Year GOC Yield + Spread

    With the 5-year Government of Canada bond at approximately 2.95%, and TransAlta's spread, the reset yield will likely be in the 6%+ range. This is attractive compared to the floating rate alternative.

    #

    3. Yield Advantage

    In a low-rate environment, fixed-rate preferreds often yield more than floating rate issues:

  • Fixed reset yield: ~6%+ at current rates

  • Floating rate yield: Lower, tied to short-term rates

    • #

    4. Capital Stability

    Fixed-rate preferreds tend to have more stable prices when rates are stable or declining. Floating rate issues can see more volatility.

    What This Tells Us About Market Sentiment

    The TransAlta conversion results reflect broader market themes:

    #

    Investors Are Positioning for Rate Stability

    By choosing fixed over floating, investors are effectively betting that:

  • Rates won't spike dramatically higher

  • Current yields are acceptable for the long term

  • Income certainty is more valuable than upside from rising rates

    • #

    Floating Rate Preferreds Face Headwinds

    This isn't just a TransAlta phenomenon. Across the market:

  • Floating rate preferreds trade at discounts to fixed-rate equivalents

  • Conversion elections favor fixed when given the choice

  • New floating rate issues are rare - issuers see limited demand

    • #

    Credit Quality Matters

    TransAlta is an energy company with solid fundamentals. The fact that even a relatively strong issuer sees no demand for its floating preferreds suggests structural issues with the floating rate format.

    Implications for Your Portfolio

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    If You Own Floating Rate Preferreds

    Consider whether the floating rate structure serves your goals:

  • Are you betting on rising rates? If so, are you being compensated for the risk?

  • Compare yields - Is the floating yield higher than equivalent fixed issues?

  • Assess conversion rights - Can you convert to fixed?

    • #

    If You're Looking for Income

    Rate reset preferreds currently offer:

  • Predictable income for 5-year periods

  • Higher yields than bonds of similar credit quality

  • Potential capital appreciation if rates fall

    • Use our Preferreds Screener to filter for rate reset issues and compare their spreads.

    Looking Forward

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    More Conversions Coming

    Several other issuers have conversion dates approaching:

  • BCE - Series AM/AN conversions March 31

  • Other utilities - Watch for announcements

    • #

    Market Expectations

    The market is currently pricing in rate stability through 2026. If the Bank of Canada resumes cutting, fixed-rate resets become even more attractive as they lock in yields.

    Conclusion

    The TransAlta conversion results are a clear signal: Canadian preferred share investors prefer fixed income certainty over floating rate variability.

    This preference reflects:
    1. A low, stable rate environment
    2. Desire for predictable income
    3. Market skepticism about dramatic rate increases

    For income investors, rate reset preferreds remain the vehicle of choice. Use PreferredSharesData.com to find the best reset spreads and manage your portfolio in this environment.