Canadian Income Funds Dead In The Water?

I was initially encouraged to read in a Globe and Mail article that financing deals were getting done in the income trust sector. In a Nov. 10 piece ‘Income trusts coming to grips with new tax regime,’ Willis and Erman write:

“The fact that the deals got done, even at a lower price, raised morale in the trust sector … as a sign that trusts can still raise money and grow, belying fears that all income funds would be dead in the water....”

But all four trusts cited in the article as examples of successful financing resorted to convertible debentures. Weren’t they the last resort, ‘Hail Mary’ financing of the dot.coms during the tech bust of the early 2000s?

Hedge funds bought the convertibles and then shorted the company’s equity to hedge downside or finance a bearish bet on the demise of the firm. The convertible financing, in short, was often a precursor to a downward spiral in the price of a company’s equity.

True, it’s expensive to short trust units. But with finances in a fragile state and distributions susceptible to cuts, the convertibles will reduce costs for those itching to short sell. And if a trust with a convertible does suspend distributions, it could be open season.