Archive for September, 2011

September 29, 2011

Thursday, September 29th, 2011

I’m speechless:

Stock traders are more egocentric and prone to lying than psychopaths, according to new research submitted to the Journal of Economic Psychology.

But psychopaths are better at getting what they want.

“Traders go out of their way to destroy the competition, even if they don’t get any economic benefit as a result,” says Thomas Noll, who conducted the research as part of his executive MBA at the University of St. Gallen in Switzerland.

Faced with a hypothetical choice between co-operating for everyone’s benefit and getting a predictable reward or cheating and possibly getting more for themselves, traders were more likely than psychopaths to cheat, said Noll.

As a result, psychopaths, who broke the rules occasionally, won the most, ordinary people, who almost always played by the rules and who co-operated, came in second, while traders, who didn’t care how their actions affected anyone else, cheated the most and won the least.

The story’s all over the ‘Net. I believe the source article, in German, is this one. The last paragraph of the Star article quoted above makes it sound like the game chosen was some version of Prisoners’ Dilemma. If that’s the case, and assuming that the game was set up like most others of that ilk, it seems unfair to refer to what is normally called “betrayal” as cheating – it’s a strategy, with some word or other attached to it, that’s all. Additionally, and again assuming that it’s a relatively normal PD-type game, one could just as easily call the betrayal/cheating choice one of risk minimization, in which case we’re no longer surprised that traders made the least amount of money, are we?

Another one bites the dust!

New Zealand lost its AAA grades on local-currency debt at Fitch Ratings and Standard & Poor’s, which both cited concerns about the nation’s fiscal burden. Benchmark government yields rose the most this year.

The outlook is stable after the long-term local-currency rating was reduced one level to AA+ and the foreign-currency rating was cut to AA from AA+, S&P said in a statement, matching actions announced yesterday by Fitch.

New Zealand’s net external debt of 83 percent of gross domestic product in U.S. dollar terms at the end of last year compares with the median of 10 percent for AA-rated nations, Fitch said. The current-account deficit, the widest measure of trade because it includes services and investment income, is likely to widen to 4.9 percent of GDP in 2012 and to 5.5 percent the following year, Fitch said.

“New Zealand’s high level of net external debt is an outlier among rated peers — a key vulnerability that is likely to persist as the current account deficit is projected to widen again,” Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch, said in the statement. Even so, the country “remains well-placed among the world’s highly-rated sovereign credits.”

The Canadian preferred share market was down today, with PerpetualDiscounts losing 21bp, FixedResets off 8bp andDeemedRetractibles down 1bp. Volatility was good. Volume was very low.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.2372 % 2,083.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.2372 % 3,133.0
Floater 3.12 % 3.44 % 54,144 18.65 3 -0.2372 % 2,249.2
OpRet 4.85 % 2.59 % 59,208 1.60 8 -0.0097 % 2,442.8
SplitShare 5.40 % -0.46 % 52,323 0.41 4 -0.2186 % 2,483.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0097 % 2,233.7
Perpetual-Premium 5.65 % 4.60 % 110,999 0.57 16 -0.0210 % 2,119.0
Perpetual-Discount 5.33 % 5.33 % 110,003 14.77 14 -0.2108 % 2,240.4
FixedReset 5.16 % 3.29 % 202,377 2.65 60 -0.0764 % 2,320.7
Deemed-Retractible 5.07 % 4.59 % 233,470 4.14 46 -0.0131 % 2,190.2
Performance Highlights
Issue Index Change Notes
CIU.PR.B FixedReset -3.14 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.50
Bid-YTW : 4.54 %
BAM.PR.J OpRet -2.18 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 26.07
Bid-YTW : 4.66 %
FTS.PR.F Perpetual-Discount -1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-29
Maturity Price : 24.06
Evaluated at bid price : 24.35
Bid-YTW : 5.07 %
BNA.PR.E SplitShare -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 22.81
Bid-YTW : 6.70 %
FTS.PR.E OpRet 1.02 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.78
Bid-YTW : 2.55 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.S FixedReset 144,985 RBC crossed blocks of 96,400 and 43,900, both at 26.00.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 3.05 %
BNS.PR.R FixedReset 95,305 TD crossed blocks of 79,000 and 12,000, both at 26.17.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.12
Bid-YTW : 3.29 %
CU.PR.C FixedReset 43,350 RBC crossed 10,000 at 25.40, then 20,000 at 25.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-29
Maturity Price : 23.25
Evaluated at bid price : 25.40
Bid-YTW : 3.64 %
BMO.PR.J Deemed-Retractible 32,706 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 4.47 %
CM.PR.G Perpetual-Premium 25,465 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-01
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 5.31 %
BMO.PR.Q FixedReset 22,920 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 3.26 %
There were 20 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CIU.PR.B FixedReset Quote: 26.50 – 27.50
Spot Rate : 1.0000
Average : 0.6446

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.50
Bid-YTW : 4.54 %

BAM.PR.J OpRet Quote: 26.07 – 26.90
Spot Rate : 0.8300
Average : 0.5915

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 26.07
Bid-YTW : 4.66 %

FTS.PR.F Perpetual-Discount Quote: 24.35 – 24.85
Spot Rate : 0.5000
Average : 0.3710

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-29
Maturity Price : 24.06
Evaluated at bid price : 24.35
Bid-YTW : 5.07 %

ELF.PR.G Perpetual-Discount Quote: 21.15 – 21.71
Spot Rate : 0.5600
Average : 0.4635

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-29
Maturity Price : 21.15
Evaluated at bid price : 21.15
Bid-YTW : 5.63 %

ELF.PR.F Perpetual-Discount Quote: 22.62 – 22.96
Spot Rate : 0.3400
Average : 0.2449

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-29
Maturity Price : 22.33
Evaluated at bid price : 22.62
Bid-YTW : 5.86 %

SLF.PR.F FixedReset Quote: 26.26 – 26.51
Spot Rate : 0.2500
Average : 0.1628

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.26
Bid-YTW : 4.08 %

BBO.PR.A Gets Bigger

Thursday, September 29th, 2011

Claymore Investments has announced:

that Big Bank Big Oil Split Corp. (the “Company”) has completed its previously announced follow‐on offering (the “Offering”) of 1,546,550 preferred shares (the “Preferred Shares”) of the Company at a price of $10.20 per Preferred Share (of which 146,550 were sold pursuant to the exercise of the over‐allotment option) and 1,546,550 capital shares (the “Capital Shares”) of the Company at a price of $9.95 per Capital Share (of which 146,550 were sold pursuant to the exercise of the over‐allotment option) for total gross proceeds of $31,162,982.50 pursuant to a short form prospectus dated September 22, 2011.

The Capital Shares and Preferred Shares trade on the Toronto Stock Exchange under the symbols “BBO” and “BBO.PR.A” respectively. The Company invests in a portfolio (the “Portfolio”) of common shares of the six big Canadian banks and the ten biggest (by market capitalization) Canadian oil and gas companies utilizing a split share structure. The Company invests in the Portfolio on an equal‐weighted basis and provides a low fee exposure to the underlying sectors. The Preferred Shares are rated Pfd‐2 (low) by DBRS Ltd. The Company may write covered call options and cash covered put options on the Portfolio in order to generate additional returns.

The investment objectives for the Preferred Shares are: (i) to provide holders with fixed cumulative preferential quarterly cash distributions in the amount of $0.13125 per Preferred Share; and (ii) to return the original issue price of $10.00 per Preferred Share to holders on December 30, 2016. The investment objectives for the Capital Shares are: (i) to provide holders with regular monthly cash distributions, which are currently $0.09 per Capital Share; and (ii) to provide holders with the opportunity for growth in the net asset value per Capital Share.

The Offering was made on a best efforts agency basis in each of the provinces and territories in Canada through a syndicate of investment dealers co‐led by TD Securities Inc. and CIBC World Markets Inc. and including GMP Securities L.P., RBC Dominion Securities Inc., Scotia Capital Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc., Canaccord Genuity Corp., HSBC Securities (Canada) Inc., Raymond James Ltd., Desjardins Securities Inc., Macquarie Private Wealth Inc., Dundee Securities Ltd., Mackie Research Capital Corporation, and Rothenberg Capital Management Inc.

The offering was discussed on PrefBlog in the post BBO.PR.A To Get Bigger Via Treasury Offering

The additional 1.5-million-odd shares basically doubles the size of the fund. BBO.PR.A is not currently tracked by HIMIPref™, but I’m going to have to start thinking about it!

September 28, 2011

Wednesday, September 28th, 2011

Three cheers, everybody! We’re saved! Spain and Italy have saved the world!

Italian and Spanish financial market regulators extended temporary bans on short selling of financial shares that were introduced last month in a bid to stem market volatility.

The European Securities and Markets Authority announced the extension by the two countries in an e-mailed statement. The Spanish ban will remain “until the market conditions allow it” to be lifted, the country’s financial regulator said in an e- mailed statement. Italy’s restriction, and another enacted by France in August, will both last until Nov. 11.

Amazingly, Europe is still in disarray:

The European Commission is resisting a push to impose bigger writedowns on banks’ holdings of Greek government debt than those agreed on at a July 21 summit, a European official said.

The commission, the European Union’s executive body, opposes ideas being floated by some government officials to get banks to accept bigger so-called haircuts and doesn’t want to have talks about any such attempt, the official said on condition of anonymity because the deliberations are private. Germany and the Netherlands are leading a drive by as many as seven euro-area countries for more private-sector involvement in the second Greek package, the Financial Times reported today.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.6165 % 2,088.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.6165 % 3,140.4
Floater 3.11 % 3.43 % 56,322 18.68 3 0.6165 % 2,254.6
OpRet 4.85 % 3.18 % 59,998 1.60 8 0.0486 % 2,443.0
SplitShare 5.39 % -0.46 % 52,695 0.42 4 -0.2285 % 2,488.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0486 % 2,233.9
Perpetual-Premium 5.65 % 4.39 % 111,975 0.57 16 0.0478 % 2,119.4
Perpetual-Discount 5.32 % 5.37 % 111,526 14.79 14 -0.0079 % 2,245.1
FixedReset 5.15 % 3.29 % 203,648 2.65 60 0.0315 % 2,322.5
Deemed-Retractible 5.07 % 4.60 % 236,548 5.89 46 -0.0175 % 2,190.5
Performance Highlights
Issue Index Change Notes
MFC.PR.B Deemed-Retractible -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.70
Bid-YTW : 6.47 %
FTS.PR.H FixedReset -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-28
Maturity Price : 23.32
Evaluated at bid price : 25.10
Bid-YTW : 2.93 %
GWO.PR.J FixedReset -1.18 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 4.14 %
BAM.PR.N Perpetual-Discount -1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-28
Maturity Price : 21.46
Evaluated at bid price : 21.75
Bid-YTW : 5.48 %
PWF.PR.A Floater 1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-28
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 2.64 %
BAM.PR.J OpRet 1.52 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-31
Maturity Price : 26.00
Evaluated at bid price : 26.65
Bid-YTW : 4.15 %
NA.PR.N FixedReset 3.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.44 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.I FixedReset 183,112 Nesbit crossed 27,200 at 26.25, then crossed blocks of 40,000 and 105,000 at 26.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 3.22 %
CM.PR.G Perpetual-Premium 129,661 TD crossed 116,500 at 24.95.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-01
Maturity Price : 25.00
Evaluated at bid price : 24.93
Bid-YTW : 5.34 %
TD.PR.I FixedReset 84,000 RBC crossed 50,000 at 27.30; TD crossed 28,900 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 27.30
Bid-YTW : 3.23 %
RY.PR.T FixedReset 56,556 RBC crossed 25,000 at 27.25. Desjardins crossed 30,000 at 27.30.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 27.20
Bid-YTW : 3.29 %
BNS.PR.L Deemed-Retractible 49,280 Nesbitt bought 12,900 from RBC at 25.24. TD crossed 25,000 at 25.18.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-04-27
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.50 %
BMO.PR.J Deemed-Retractible 26,398 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.21
Bid-YTW : 4.42 %
There were 26 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
NA.PR.K Deemed-Retractible Quote: 25.65 – 26.00
Spot Rate : 0.3500
Average : 0.2074

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-10-28
Maturity Price : 25.25
Evaluated at bid price : 25.65
Bid-YTW : -4.87 %

TD.PR.O Deemed-Retractible Quote: 25.56 – 25.92
Spot Rate : 0.3600
Average : 0.2211

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-31
Maturity Price : 25.25
Evaluated at bid price : 25.56
Bid-YTW : 4.59 %

TRP.PR.A FixedReset Quote: 25.81 – 26.15
Spot Rate : 0.3400
Average : 0.2024

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-28
Maturity Price : 23.59
Evaluated at bid price : 25.81
Bid-YTW : 3.25 %

IAG.PR.F Deemed-Retractible Quote: 25.75 – 26.20
Spot Rate : 0.4500
Average : 0.3271

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 5.55 %

ELF.PR.G Perpetual-Discount Quote: 21.25 – 21.72
Spot Rate : 0.4700
Average : 0.3577

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-28
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 5.71 %

BAM.PR.J OpRet Quote: 26.65 – 27.09
Spot Rate : 0.4400
Average : 0.3300

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-31
Maturity Price : 26.00
Evaluated at bid price : 26.65
Bid-YTW : 4.15 %

BAM.PR.G to Reset to 3.80%

Wednesday, September 28th, 2011

See updates, below

I have heard from a non-authoritative source that:

4. The series 9 Preferred Shares curently pay a fixed annual dividend of 4.35% applied to $25.00 per share, payable quarterly. the final quarterly dividend payable at this rate of 40.271875 per share in Canadian funds is payable on November 1, 2011 to shareholders of record 15, 2011.

5. After November 1, 2011, the Series 9 Preferred shares will pay, on a quaterly basis, as and when declared by the Board of Directors of the Corporation, a fixed annual dividend of $0.95 per share in Canadian funds for the following five years, representing a yield of 3.80% applied to $25.00 per share.

However I see nothing on the Brookfield website about this, nor is there anything on SEDAR. A rate of 3.80% would be very generous compared with my estimate of 3.12% for BCE.PR.T (which will be finalized in mid-October).

I have sent an inquiry to the company.

The issue is convertable to and from BAM.PR.E on 2011-11-1

Update, 2011-9-29: The company directed me to a web page with all the information. The Notice of Conversion Privilege for BAM.PR.G‘s Point 5 reads in full:


Click for Big

Click for Big

DBRS Downgrades YLO Prefs Four Notches to Pfd-4(low) Trend Negative

Wednesday, September 28th, 2011

Yellow Media’s press release of this morning (discussed previously) has had some immediate consequences!

DBRS has announced that it:

has today downgraded the ratings of Yellow Media Inc. (Yellow Media or the Company), including the Medium-Term Notes to BB from BBB, its Exchangeable Subordinated Debentures to B (high) from BBB (low) and its Commercial Paper to R-4 from R-2 (high). The trends remain Negative. As part of our leveraged finance rating methodology, DBRS has also assigned an Issuer Rating of BB to Yellow Media and a recovery rating of RR4 to the Medium-Term Notes (indicating expected recovery of 30% to 50%) and an RR6 to the Exchangeable Subordinated Debentures (indicating expected recovery of 0% to 10%).

The downgrade reflects increased concern regarding the timing, execution and success of Yellow Media’s transition from print to digital and a meaningful reduction of the Company’s financial flexibility. DBRS notes that as part of Yellow Media’s goodwill impairment testing that was announced today, the Company indicated that EBITDA will be pressured as a result of the accelerated transition from print to digital, which raises uncertainty regarding the timing and ability of digital to offset the ongoing pressure on print. The uncertainty and lack of visibility around the Company’s progress on this transition continue to mount. As a result, DBRS expects revenue and EBITDA could be meaningfully less than DBRS had previously anticipated.

Secondly, DBRS believes Yellow Media’s financial flexibility and liquidity have been significantly reduced despite completing $700 million of debt reduction in Q3 2011 (gross debt-to-EBITDA was approximately 3.0 times at June 30, 2011). This is reflected by the fact that the Company’s credit facility was reduced from $1 billion to $500 million, while maintaining a February 2013 maturity, and that it has reduced access to the capital markets with a significantly higher cost of capital.

DBRS notes that these factors have accelerated since DBRS’s previous downgrade on August 4, 2011, which included changing the trend to Negative from Stable. As such, the Company’s credit risk profile is no longer consistent with an investment-grade credit rating. The Negative trend on August 4, 2011, reflected risks associated with executing the digital transition, generating reasonable levels of EBITDA and cash flow from operations and maintaining an adequate level of financial flexibility.

Today’s action follows Yellow Media’s announcement that a non-cash goodwill impairment charge of $2.9 billion will be taken in Q3 2011; that its common dividend will be eliminated following its October 17, 2011, payment; and that it will be making a number of amendments to its credit facility, including reducing it to $500 million.

The Negative trend reflects the following: (1) heightened uncertainty surrounding Yellow Media’s business profile as print pressure accelerates and the timing and scale of digital growth remain unknown; (2) concerns related to the execution of its digital strategy; (3) DBRS’s concern that the transforming businesses’ income and the capacity to generate cash flow from operations may not be sufficient to support Yellow Media’s evolving capital structure; and (4) the Company’s reduced ability in terms of financial flexibility to manage through this transition.

There has been no announcement of a rating change from S&P (yet!).

YLO has four issues of preferred shares outstanding: YLO.PR.A & YLO.PR.B (retractible) and YLO.PR.C & YLO.PR.D (FixedReset).

Update: S&P has spoken:

Standard & Poor’s Ratings Services today said that the ratings on Montreal-based classified directory publisher Yellow Media Inc. (BB+/Stable/–) and its related entities are unchanged following the company’s announcement today to take a C$2.9 billion noncash goodwill impairment charge to earnings in the quarter ended Sept. 30, 2011, eliminate future dividends on its common shares, and amend its bank credit facilities.

Given our current expectations for funds from operations in the next 12-18 months, our assumption of about C$200 million of availability under the company’s C$250 million operating revolver due Feb. 18, 2013, modest capital requirements, and minimal mandatory debt repayments in 2012, we view Yellow Media’s liquidity as adequate, as per our definitions. We expect the company to remain compliant with its revised financial covenants in the next 12 months.

Ratings remain at P-4(high) for preferreds and BB+ local long-term.

YLO: Banks Tighten the Screws

Wednesday, September 28th, 2011

Yellow Media Inc. has announced (bolding added):

  • Company will record a goodwill impairment charge of $2.9 billion
  • Company eliminates future dividends on its common shares
  • Company agrees to amend credit agreement following recent downgrade to its credit ratings
  • Company decisively reduces debt while maintaining adequate liquidity
  • Company is focused on executing its 360 Solution digital strategy

Montreal (Quebec), September 28, 2011 – As announced in the second quarter, Yellow Media Inc. (TSX: YLO) determined that, depending on the outcome of the review of its strategic and operating plans, the fair value of the Company’s assets may be determined to be less than their carrying value. As a result, the Company tested the goodwill and other long-lived assets related to its business for potential impairment. The impairment testing has now been completed and, as a result, the Company will record a goodwill impairment charge of $2.9 billion in net earnings for the period ending September 30, 2011.

This impairment charge is a non-cash item and does not affect the Company’s operations, its liquidity or cash flow from operating activities, its bank credit agreement or its note indentures. This charge will be reflected in the Company’s financial statements for the period ending September 30, 2011. It is the result of a combination of factors, including the decrease in the Company’s common share price and the pressure on EBITDA due to the accelerated transition from print to online, the uncertainties, if or when, new product introductions will compensate for the declining trend in print revenues and the lower margins from recent business acquisitions.

“We are decisively taking action to reduce our debt. The Board, the management team and all our employees are focused on the successful transformation of Yellow Media toward a digital media company through the execution of our 360 Solution strategy,” said Marc P. Tellier, President and CEO of Yellow Media.

Dividends on Common Shares to be Eliminated

The Yellow Media Board of Directors has determined that it is in the best interest of the Company to eliminate future dividends on its common shares. This decision is in compliance with the amendments that the Company has agreed to make to its principal credit agreement and will improve its financial profile and capital position. The $0.025 dividend per common share that was previously declared by the Company and announced on August 4, 2011 remains payable on October 17, 2011 to shareholders of record at the close of business on September 30, 2011. The cash retained from the elimination of dividends will be used to reduce indebtedness.

Yellow Media is committed to improving its financial position through further debt reduction by pursuing a prudent financial policy and by maintaining a capital structure that provides flexibility through diverse funding sources and timing of its debt maturities. Management’s current focus is to reinforce the Company’s financial foundation upon which to execute Yellow Media’s digital transformation. Yellow Media expects to achieve stronger credit protection measures through sustained cash flow generation and deleveraging of its balance sheet.

With the debt repayment announced today, the Company will have reduced its total indebtedness by approximately $700 million during the quarter (representing the amount of net proceeds from the previously announced sale of Trader Corporation), including the repayment of $238 million principal amount of Medium Term Notes.

Amendments to Existing Credit Agreement

As a result of the recent downgrade of its credit ratings, Yellow Media and its lenders have agreed to amend the terms of its principal $1 billion senior unsecured credit facility, which currently consists of a $750 million revolving term loan and a $250 million non-revolving term loan, each maturing on February 18, 2013. Yellow Media has agreed with the unanimous support of the banks forming part of the syndicate of lenders under the principal credit facility to repay a total amount of $500 million of its bank indebtedness and to reduce the committed size of the revolving term loan from $750 million to $250 million. The committed size of the non-revolving term loan remains unchanged. As a result, upon the effective date of the amendments, the new principal $500 million senior unsecured credit facility will consist of a $250 million revolving tranche and a $250 million non-revolving tranche, each maturing on February 18, 2013.

The Company has agreed to make quarterly payments of $25 million on the non-revolving term loan commencing in January 2012. Pursuant to the amendments, Yellow Media has also agreed to suspend future dividends on its common shares, except for the scheduled dividend payment on October 17, 2011.

Upon the downgrade of its credit ratings announced on August 4, 2011, Yellow Media became subject to a restriction contained in its credit agreement that limits the aggregate amount of excess cash that can be paid as dividends and for the repurchase of securities during any trailing 12-month period. As part of the amendments, Yellow Media is receiving a waiver of this distribution restriction in respect of the prior 12-month period.

A copy of the second amended and restated credit agreement will be available on www.sedar.com.

Whoosh! There’s nothing on SEDAR yet, but presumably it will be there by the weekend.

The impairment is trivial – YLO’s balance sheet has never been worth anything. As I remarked in the August PrefLetter, the business is all about relationships and turning those relationships into cash – it’s always been the statement of cash flows that has been important. If it were not for everything else in the release, the writedown could be dismissed as an effort by the new CFO (introduced on September 6) to put her mark on the company. But there were other things in the release…

What is important is that not only has the size of the revolving term loan been reduced to $250-million from $750-million, but that YLO has agreed to pay down the term loan in advance, in $25-million installments. Further, they do not appear to have got anything in exchange for these concessions – a longer term on the facilities would have been nice.

I remarked in PrefLetter that the important thing to watch for was any signs that the company might be losing access to the capital markets. Well … an important thing may have just happened.

It is also somewhat scary that they’ve eliminated the dividend. I’ve been saying since the 11Q2 report that the best thing that happened to preferred share and debt holders was the downgrade, as that forced a dividend cut under the old credit agreement – only a CEO educated at Lower Canada College or a sell-side analyst could possibly have thought the old rate was sustainable and the downgrade forced a little dose of reality into the company’s opium dreams. But total elimination? That’s a very stringent condition.

I don’t think the preferred dividend is at risk – companies will typically only eliminate their preferred dividends when they’re actually standing on the steps of bankruptcy court and cash flow is still positive. However, the probabilities of conversion of YLO.PR.A and YLO.PR.B into common at the earliest opportunity (March 2012 for the former; June 2012 for the latter) have now risen quite sharply.

The next big step is the 11Q3 results. The note about the “declining trend in print revenues and the lower margins from recent business acquisitions” makes it possible to speculate that revenues have fallen off a cliff.

In addition to the two retractibles, YLO.PR.A and YLO.PR.B, the company has two FixedResets outstanding, YLO.PR.C and YLO.PR.D, which are not convertible into common.

September 27, 2011

Tuesday, September 27th, 2011

Follow the leader, part 1:

Research In Motion Ltd. (RIMM), the maker of the BlackBerry smartphone struggling to revive falling sales, surged as much as 7.4 percent on speculation that activist investor Carl Icahn is buying a stake in the company.

Follow the leader, part 2:

Warren Buffett’s determination that Berkshire Hathaway Inc. (BRK/A) shares are cheap enough to buy back may mean the Standard & Poor’s 500 Index is also a bargain.

Some Wisconsin school districts bought an investment that went down – even after they leveraged their investment by nearly 6x! Fear not, gentle readers, the SEC is Putting Things Right:

According to the SEC’s order instituting administrative proceedings, RBC Capital marketed and sold to trusts created by the school districts $200 million of credit-linked notes that were tied to the performance of synthetic collateralized debt obligations (CDOs). The school districts contributed $37.3 million of district funds to the investments with the remainder of the investment coming from funds borrowed by the trusts. The sales took place despite significant concerns within RBC Capital about the suitability of the product for municipalities like the school districts. Additionally, RBC Capital’s marketing materials failed to adequately explain the risks associated with the investments.

RBC Capital agreed to settle the SEC’s charges by paying a total of $30.4 million that will be distributed in varying amounts to the school districts through a Fair Fund.

The SEC also wants to ensure that nasty old volatility isn’t too volatile:

The Securities and Exchange Commission began an overhaul of rules adopted after the Crash of 1987 designed to shut down the stock market during periods of volatility, proposing that curbs be triggered when the Standard & Poor’s 500 Index falls 7 percent.

The changes would switch the index used for the circuit breakers to the S&P 500 from the Dow Jones Industrial Average, according to proposals submitted by U.S. equities exchanges and the Financial Industry Regulatory Authority. The duration of the halts, which also pause trading in stock futures, would be shortened, according to a summary of the proposals from the SEC.

S&P 500 declines of 7 percent, 13 percent and 20 percent from the prior day’s close would set off halts across all markets, narrowing the current thresholds of 10 percent, 20 percent and 30 percent, according to the SEC.

Regulators are sticking to their guns on capital surcharges:

Global regulators may make adjustments to how they calculate capital surcharges for the world’s biggest banks after largely agreeing to maintain plans for levies of as much as 2.5 percent at meetings today in Basel, Switzerland, according to three people familiar with the talks.

The Basel Committee on Banking Supervision today discussed how to respond to criticisms from banks including BNP Paribas SA and Citigroup Inc. (C) that the measures are flawed and may stymie the financial system’s recovery, according to the people, who couldn’t be identified because the discussions are private.

Regulators at the meeting acknowledged that some complaints made by lenders on the method for calculating the surcharges may be partly valid and require further study, two of the people said. Surcharges would be applied to as many as 28 banks if the current proposals were already in place, the Basel committee has said.

Under the surcharge proposals, lenders whose failure could send shock waves throughout the financial system would face stricter minimum capital requirements of 1 to 2.5 percentage points of core reserves. This would be on top of an already- announced tripling in the amount of core capital that all internationally active banks must hold.

The levies would be calculated using a methodology based on banks’ size, interconnectedness, complexity, global reach, and the ability of other firms to take over their activities if they fail.

Readers will remember that I favour capital surcharges, but not one that is directed solely at a defined list of Globally Significant Financial Institutions. Apply it to all banks on a progressive basis is my position.

Greece managed to avert immediate disaster:

Greek Prime Minister George Papandreou won parliamentary backing for a property tax to meet deficit-reduction targets required to avoid default.

Papandreou’s Socialist Pasok party won the vote in Athens late today by 155 to 142 after Finance Minister Evangelos Venizelos told Greeks they face economic collapse if they don’t plug a budget gap that is exceeding the target set in a bailout, putting an 8 billion-euro ($11 billion) aid payment due next month at risk.

The property levy, to be collected via electricity bills, will provide an annual yield of 1.1 percent of GDP.

Venizelos also announced an additional 20 percent wage cut, on top of 15 percent for the civil service and 25 percent in the wider public sector. Pensions are being reduced 4 percent on average, in addition to previous cuts of 10 percent. A lowering of the tax-free threshold to 5,000 euros will mean higher taxes for all Greeks.

More than 74 percent of 1,002 Greeks polled by Rass for To Paron newspaper opposed the property tax. The poll also showed that 59 percent believed Papandreou’s government won’t be able to avert a default. The survey had a 3.1 percentage point margin of error. Papandreou’s government trails the opposition party in all polls.

As far as I can tell, the official position right now is that Greece won’t default as long as investors take sufficient completely voluntary write-downs:

Financial stocks pared gains as the Financial Times reported that some euro-area countries are demanding private creditors take bigger writedowns on their Greek bond holdings.

The Financial Times reported that as many as seven of the 17 nations using the euro believe private creditors should absorb bigger losses on their Greek bond holdings, a division that may threaten an agreement reached with private investors in July. The paper cited unnamed senior European officials.

Richard Fisher of the Dallas Fed gave a speech explaining his dissent on Operation Twist:

In the interest of time, I will not dwell on the decision to reinvest proceeds in the agency and mortgage-backed markets. Since the beginning of this year, the spreads between mortgage-backs and Treasuries have been widening and have accelerated, especially lately, to levels last seen in early 2009. This decision, while not expected by the markets, was acceptable for me as a tactical way to provide limited assistance to the mortgage market at little cost. The decision to embark on an “Operation Twist,” however, was a strategic decision where I did not feel the benefits outweighed what I perceived to be the costs. So, I will dwell on that difficult decision.

The FOMC seeks to drive down the cost of capital for businesses in order to induce them to invest more in expansion and create more jobs. Implicitly, the program may also lift short-term rates, albeit mildly given the expectation that rates at the short end will remain at “exceptionally low levels” through mid-2013, perhaps providing some relief to money market funds that, in searching for yields sufficient to cover their costs, have been invested in foreign bank paper now considered by many analysts to be somewhat toxic.

The Dallas Fed tracks 178 items in the consumer basket through a constantly updated series dating back to 1977. Using this data, we calculate what we call a “trimmed mean” analysis of personal consumption expenditures (PCE) in order to ascertain the level of inflation affecting real consumers. This is my preferred compass for charting the direction of inflation. It presently suggests that headline inflation will decline from its current level—just shy of 3 percent as measured by the PCE and 3.75 percent as measured by the Consumer Price Index—to 2 percent, a level that the majority of the committee believes a tolerable target. Thus, while I remain on constant watch for signs of inflationary impulses, I believe the most urgent issue is job creation and the reduction of the scourge of unemployment.

I believe, however, that there is significant risk that the policies recently undertaken by the FOMC are likely to prove ineffective and might well be working against job creation.

Before every FOMC meeting, I survey a select group of 30 or so private business and banking operators, imparting no information about monetary policy but listening carefully to their perspectives on developments in the economy as seen at the ground level. For weeks leading up to the meeting, there was speculation in the financial markets and in the press that an Operation Twist was being contemplated. I received an earful of opinions on these rumors. What I gleaned from those conversations was as follows:

Embarking on an Operation Twist would provide an even greater incentive for the average citizen with savings to further hoard those savings for fear that the FOMC would be signaling the economy is in worse shape than they thought. They might view an Operation Twist as setting the stage for a new round of monetary accommodation―a QE3, if you will. Such a program was considered redundant by business operators given their surplus of undeployed cash holdings and bankers’ already plentiful excess reserves. In addition, such a program might frighten consumers by further driving down the yields they earn on their savings and/or lead to long-term inflation that would erode the value of those savings;

The earning power of banks, both large and small, would come under additional pressure by suppressing the spread between what they can earn by lending at longer-term tenors and what they pay on the shorter-term deposits they take in;
Pension funds would have to reassess their potential returns, with the consequence that public and private direct-benefit plans would have to set aside greater reserves that might otherwise have gone to investments stimulating job creation;
Expanding the holdings of the Fed’s book of longer-term debt would likely compound the complexity of future policy decisions. Perversely, the stronger the economy, the greater the losses the Fed would incur as interest rates rise in response and the prices of those longer-term holdings depreciate. The political incentive to hold rates down might then become stronger precisely when we want to initiate tighter monetary policy. This concern, of course, would be a good news/bad news issue: The good news is that it would stem from a stronger economy; the bad is that might hurt our maneuverability and, in doing so, might undermine confidence in the Fed to conduct policy independently.

One other factor gave me pause and that was, and remains, the moral hazard of being too accommodative. For years, I have been arguing that monetary policy cannot solve the problem of substandard economic performance unless it is complemented by fiscal policy and regulatory reform that encourages the private sector to put to work the affordable and abundant liquidity we are able to create as the nation’s monetary authority.

I’ve decided that Fisher is my favourite FOMC member:

Federal Reserve Bank of Dallas President Richard Fisher said the central bank’s independence is under attack from both ends of the political spectrum in Congress, and he singled out two of the critics by name.

“We are being attacked from the right and from the left, and I don’t see much difference between a certain congressman from Texas named Ron Paul and a certain congressman from Massachusetts named Barney Frank,” Fisher said in response to audience questions after a speech in Dallas. Paul is a Republican and Frank is a Democrat.

“I don’t see any difference between them,” Fisher said, referring to Frank and Paul. “They believe we have too much independence. They believe that Congress should be in charge of monetary policy.”

There has been an odd credit rating action on BMO covered bonds:

  • We have affirmed at ‘AAA’ our ratings on Bank of Montreal Global Public Sector Covered Bond Programme and all series issued under it.
  • The outlook for all of the covered bonds issued under the program is stable.
  • We have subsequently withdrawn our ratings on Bank of Montreal’s covered bond program and all the series issued under it, at the issuer’s request.


Today’s rating actions follow a review of the most current asset and cash flow information the issuer has provided to us. The data we analyzed were as of July 31, 2011. As of that date, the cover pool comprised approximately C$7.263 billion of mortgage assets. There are currently three series of covered bonds outstanding in an equivalent amount of approximately C$5.066 billion.

As a result of this analysis, we have determined the maximum potential rating uplift for BMO’s covered bond program to be six notches above BMO’s long-term issuer credit rating of ‘A+’. This is based on a program categorization of “2″ and an ALMM classification of “low”.

This seems very odd; but I can’t find any discussion of this move anywhere.

Happy news for 53-year-olds:

In a cross section of prime borrowers, middle-aged adults made fewer financial mistakes than either younger or older adults. We conclude that financial mistakes follow a U-shaped pattern, with the cost-minimizing performance occurring around age 53.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts winning 9bp, FixedResets down 4bp and DeemedRetractibles up 8bp. These figures might lead one to expect volatility to be low, but one might be wrong! Volume was low, but RBC scored a shut-out for the blocks reported.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -1.4504 % 2,075.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.4504 % 3,121.2
Floater 3.13 % 3.42 % 57,210 18.69 3 -1.4504 % 2,240.7
OpRet 4.85 % 3.03 % 60,143 1.61 8 -0.1699 % 2,441.9
SplitShare 5.38 % -0.46 % 53,342 0.42 4 0.0416 % 2,494.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1699 % 2,232.9
Perpetual-Premium 5.64 % 4.51 % 112,945 1.06 16 0.0641 % 2,118.4
Perpetual-Discount 5.31 % 5.37 % 111,735 14.82 14 0.0932 % 2,245.3
FixedReset 5.15 % 3.33 % 206,578 2.66 60 -0.0401 % 2,321.8
Deemed-Retractible 5.07 % 4.61 % 236,711 7.76 46 0.0754 % 2,190.9
Performance Highlights
Issue Index Change Notes
PWF.PR.A Floater -3.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-27
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 2.68 %
NA.PR.N FixedReset -3.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 3.82 %
MFC.PR.B Deemed-Retractible -1.26 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.96
Bid-YTW : 6.32 %
BNS.PR.Z FixedReset -1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 3.38 %
BAM.PR.J OpRet -1.13 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 4.53 %
FTS.PR.C OpRet -1.08 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2013-08-31
Maturity Price : 25.00
Evaluated at bid price : 25.57
Bid-YTW : 4.45 %
PWF.PR.M FixedReset -1.03 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.80
Bid-YTW : 3.22 %
GWO.PR.I Deemed-Retractible 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.83
Bid-YTW : 5.65 %
GWO.PR.G Deemed-Retractible 1.67 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.90
Bid-YTW : 5.28 %
Volume Highlights
Issue Index Shares
Traded
Notes
IFC.PR.C FixedReset 92,415 RBC crossed blocks of 68,300 and 11,700, both at 25.05.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.02
Bid-YTW : 4.13 %
CM.PR.G Perpetual-Premium 53,802 RBC crossed blocks of 10,000 and 15,000, both at 24.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-27
Maturity Price : 24.56
Evaluated at bid price : 24.88
Bid-YTW : 5.41 %
TD.PR.N OpRet 43,100 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-04-30
Maturity Price : 25.25
Evaluated at bid price : 25.72
Bid-YTW : 2.57 %
CU.PR.C FixedReset 42,335 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-27
Maturity Price : 23.25
Evaluated at bid price : 25.40
Bid-YTW : 3.64 %
RY.PR.W Perpetual-Discount 25,965 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-27
Maturity Price : 24.47
Evaluated at bid price : 24.80
Bid-YTW : 4.98 %
CM.PR.D Perpetual-Premium 23,330 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 3.78 %
There were 24 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.A Floater Quote: 19.70 – 21.50
Spot Rate : 1.8000
Average : 1.5141

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-27
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 2.68 %

FTS.PR.C OpRet Quote: 25.57 – 26.00
Spot Rate : 0.4300
Average : 0.2983

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2013-08-31
Maturity Price : 25.00
Evaluated at bid price : 25.57
Bid-YTW : 4.45 %

NA.PR.N FixedReset Quote: 25.20 – 25.75
Spot Rate : 0.5500
Average : 0.4414

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 3.82 %

BNS.PR.Z FixedReset Quote: 24.71 – 25.10
Spot Rate : 0.3900
Average : 0.2864

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 3.38 %

NA.PR.L Deemed-Retractible Quote: 25.35 – 25.58
Spot Rate : 0.2300
Average : 0.1445

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 4.77 %

BNA.PR.C SplitShare Quote: 21.16 – 21.44
Spot Rate : 0.2800
Average : 0.2019

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 21.16
Bid-YTW : 7.17 %

Annuity Rate Data is Back!

Tuesday, September 27th, 2011

Last June, I made the sad announcement that CANNEX Annuity Rate Data No Longer Available.

It’s back! Annuity Rate Data is now published on-line by the Globe & Mail; a link to these data is posted in the right-hand navigation panel, under “Quotes (Delayed)”.

September 26, 2011

Monday, September 26th, 2011

Julie Dickson gave a speech to the Economic Club of Canada titled The Lasting Impact of the Crisis on the Global Financial System but said nothing new.

One of the lessons of the Flash Crash was that dealer capital, which would make markets with a time horizon of a week, was being replaced with much more evanescent High Frequency Trading capital, which has an intra-day time horizon. This was strongly deprecated at the time. We may therefore look on with admiration at the latest proposals to implement the Volcker Rule:

U.S. banks would have to change the way they compensate traders involved in market-making activities under one of the proposed restrictions of the so-called Volcker rule, according to a draft circulating among regulators.

The rule, which aims to ban most proprietary trading by banks with federally insured deposits, would exempt trades related to market-making as long as the activity met at least seven standards, or principles. One principle would be that traders get paid from fees and the spread of the transactions rather than the appreciation or profit from their positions, according to a copy of the draft reviewed by Bloomberg News.

A forced change to pay structure “could have the effect of driving people out of the regulated industry to the unregulated industry,” said Douglas Landy, a partner at Allen & Overy LLP who once worked at the Federal Reserve Bank of New York.

The regulators could, if they so desired, seek to re-sharpen the lines between investing and trading by imposing surcharges on aged positions in the trading book. But that wouldn’t sound so tough.

It might be the right thing to do, to move longer-term market-making out of the banks and into the hedge funds. I don’t know. My problem is that I don’t think anybody else knows, either. Or cares. Except maybe Dealbreaker.

TransAlta Corporation, proud issuer of TA.PR.D, was confirmed at Pfd-3 by DBRS:

DBRS has today confirmed the ratings of TransAlta Corporation’s (TAC or the Company) Unsecured Debt/Medium-Term Notes and Preferred Shares at BBB and Pfd-3, respectively, both with Stable trends. The confirmation reflects the Company’s strong cash flow generated by its generation facilities, which are subject to legislatively mandated Alberta power purchase agreements (APPAs), longer-term power contracts on its non-regulated facilities and its diversified generation portfolio.

TAC’s credit profile and ratings are supported by its highly contracted diversified portfolio of assets. TAC currently has approximately 70% of its capacity contracted over the next seven years, with over 95% contracted for 2011 and up to 90% for 2012, in line with its stated objective of having at least 75% of its capacity under medium- and long-term contracts with creditworthy counterparties, thus reducing the Company’s cash flow volatility. DBRS remains comfortable with this strategy as it allows TAC to participate in any upside potential to improving market conditions.

As the Company starts to generate more cash flow from new assets placed in service in 2011 and 2012, DBRS expects that on a normal course basis, the Company’s adjusted net debt-to-capital should remain below 50% and cash flow-to-debt will remain in the 25% range, levels that DBRS considers adequate for the rating, given the largely contracted fleet. The Company had $2.0 billion in committed credit facilities as of June 30, 2011, of which $0.8 billion was available.

At this time, DBRS remains comfortable with the Company’s disciplined growth strategy, financial flexibility and adequate liquidity. It is expected that TAC will maintain a low-to-moderate risk profile, underpinned by a more diversified and contracted portfolio of assets. DBRS expects the Company to continue to finance growth in line with its credit metrics.

Gold did not do well:

Gold fell, capping the biggest three-session slump since 1983, and silver closed below $30 an ounce on investor sales to cover losses in other assets.

Gold futures for December delivery fell $45, or 2.7 percent, to settle at $1,594.80 an ounce at 1:36 p.m. on the Comex in New York, extending the three-session slide to 12 percent, the most since March 1983. Earlier, the price plunged as much as $104.80 to $1,535, the lowest for a most-active contract since July 8. The all-time high earlier this month was $1,923.70.

In October 2008, gold tumbled 18 percent as the most-severe slump since the Great Depression spurred losses in global equity and commodity markets. The metal jumped 23 percent in the next two months.

Silver futures for December delivery fell 12.5 cents, or 0.4 percent, to $29.976. Earlier, the price touched $26.15, the lowest since Nov. 18. In electronic trading after the settlement, the metal topped $30. On April 25, the price reached a 31-year high of $49.845 on April 25.

On Sept. 23, CME Group Inc., the owner of the Comex, trading margins on gold futures by 21 percent and boosted the minimum cash deposit for silver by 16 percent, effective today.

The Canadian preferred share market put in a good day’s work, with PerpetualDiscounts up 10bp, FixedResets gaining 8bp and DeemedRetractibles winning 14bp. Volatility was quite good, but volume was light.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.5122 % 2,105.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.5122 % 3,167.1
Floater 3.09 % 3.43 % 57,604 18.68 3 0.5122 % 2,273.7
OpRet 4.84 % 3.07 % 60,277 1.61 8 -0.0437 % 2,446.0
SplitShare 5.38 % -0.45 % 53,104 0.42 4 0.1763 % 2,493.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0437 % 2,236.7
Perpetual-Premium 5.64 % 5.00 % 115,273 1.92 16 0.0472 % 2,117.1
Perpetual-Discount 5.32 % 5.37 % 111,766 14.83 14 0.1023 % 2,243.2
FixedReset 5.15 % 3.29 % 207,540 2.66 60 0.0825 % 2,322.7
Deemed-Retractible 5.07 % 4.63 % 236,393 7.78 46 0.1402 % 2,189.2
Performance Highlights
Issue Index Change Notes
GWO.PR.G Deemed-Retractible -1.45 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.49
Bid-YTW : 5.49 %
CIU.PR.A Perpetual-Discount -1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-26
Maturity Price : 23.35
Evaluated at bid price : 23.80
Bid-YTW : 4.85 %
BAM.PR.T FixedReset -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-26
Maturity Price : 22.87
Evaluated at bid price : 24.30
Bid-YTW : 3.95 %
PWF.PR.M FixedReset 1.08 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 27.08
Bid-YTW : 2.74 %
FTS.PR.F Perpetual-Discount 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-26
Maturity Price : 24.36
Evaluated at bid price : 24.65
Bid-YTW : 5.00 %
GWO.PR.H Deemed-Retractible 1.46 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.60
Bid-YTW : 5.60 %
NA.PR.O FixedReset 1.70 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-15
Maturity Price : 25.00
Evaluated at bid price : 27.56
Bid-YTW : 2.50 %
PWF.PR.A Floater 1.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-26
Maturity Price : 20.51
Evaluated at bid price : 20.51
Bid-YTW : 2.58 %
Volume Highlights
Issue Index Shares
Traded
Notes
NA.PR.N FixedReset 677,500 TD crossed 677,300 at 26.00. Nice ticket!
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.02
Bid-YTW : 3.43 %
TD.PR.N OpRet 95,000 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-10-26
Maturity Price : 25.50
Evaluated at bid price : 25.73
Bid-YTW : 2.09 %
CU.PR.C FixedReset 69,850 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-26
Maturity Price : 23.23
Evaluated at bid price : 25.34
Bid-YTW : 3.65 %
BNS.PR.N Deemed-Retractible 39,653 Nesbitt crossed 23,200 at 26.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-28
Maturity Price : 25.50
Evaluated at bid price : 26.05
Bid-YTW : 4.73 %
SLF.PR.E Deemed-Retractible 25,370 TD crossed 20,000 at 21.50.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.38
Bid-YTW : 6.47 %
BMO.PR.Q FixedReset 24,930 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.07
Bid-YTW : 3.24 %
There were 21 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.G Deemed-Retractible Quote: 24.49 – 25.00
Spot Rate : 0.5100
Average : 0.3473

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.49
Bid-YTW : 5.49 %

IAG.PR.C FixedReset Quote: 26.10 – 26.90
Spot Rate : 0.8000
Average : 0.6606

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 4.14 %

BAM.PR.T FixedReset Quote: 24.30 – 24.60
Spot Rate : 0.3000
Average : 0.1959

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-26
Maturity Price : 22.87
Evaluated at bid price : 24.30
Bid-YTW : 3.95 %

BAM.PR.M Perpetual-Discount Quote: 22.00 – 22.40
Spot Rate : 0.4000
Average : 0.3031

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-26
Maturity Price : 21.67
Evaluated at bid price : 22.00
Bid-YTW : 5.41 %

CIU.PR.A Perpetual-Discount Quote: 23.80 – 24.15
Spot Rate : 0.3500
Average : 0.2559

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-26
Maturity Price : 23.35
Evaluated at bid price : 23.80
Bid-YTW : 4.85 %

RY.PR.H Deemed-Retractible Quote: 27.00 – 27.24
Spot Rate : 0.2400
Average : 0.1589

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-24
Maturity Price : 26.00
Evaluated at bid price : 27.00
Bid-YTW : 3.34 %

September 23, 2011

Sunday, September 25th, 2011

Sorry about the lateness, folks, but the Shaw Festival was calling my name this weekend.

It was a rotten day for the Canadian preferred share market, with PerpetualDiscounts down 17bp, FixedResets off 16bp and DeemedRetractibles losing 36bp. Volatility reflected the market move; volume was average.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.7143 % 2,095.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.7143 % 3,151.0
Floater 3.10 % 3.42 % 53,494 18.71 3 0.7143 % 2,262.1
OpRet 4.84 % 3.13 % 60,530 1.62 8 -0.2276 % 2,447.1
SplitShare 5.39 % 1.66 % 51,528 0.43 4 -0.2848 % 2,488.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2276 % 2,237.6
Perpetual-Premium 5.63 % 4.34 % 115,373 1.06 16 0.0616 % 2,116.1
Perpetual-Discount 5.32 % 5.37 % 111,466 14.84 14 -0.1653 % 2,240.9
FixedReset 5.15 % 3.29 % 207,607 2.63 60 -0.1607 % 2,320.8
Deemed-Retractible 5.07 % 4.67 % 237,729 7.97 46 -0.3565 % 2,186.2
Performance Highlights
Issue Index Change Notes
NA.PR.O FixedReset -2.20 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-15
Maturity Price : 25.00
Evaluated at bid price : 27.10
Bid-YTW : 3.26 %
SLF.PR.E Deemed-Retractible -1.79 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.36
Bid-YTW : 6.48 %
SLF.PR.F FixedReset -1.78 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.47
Bid-YTW : 3.73 %
SLF.PR.D Deemed-Retractible -1.77 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.06
Bid-YTW : 6.60 %
MFC.PR.E FixedReset -1.65 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.67
Bid-YTW : 4.68 %
FTS.PR.F Perpetual-Discount -1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-23
Maturity Price : 24.06
Evaluated at bid price : 24.35
Bid-YTW : 5.06 %
IAG.PR.C FixedReset -1.47 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.21
Bid-YTW : 3.93 %
BAM.PR.J OpRet -1.38 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 26.43
Bid-YTW : 4.39 %
MFC.PR.D FixedReset -1.34 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.53
Bid-YTW : 4.28 %
SLF.PR.B Deemed-Retractible -1.31 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.60
Bid-YTW : 6.09 %
GWO.PR.J FixedReset -1.28 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 3.75 %
HSB.PR.D Deemed-Retractible -1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 5.27 %
SLF.PR.A Deemed-Retractible -1.14 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.50
Bid-YTW : 6.09 %
RY.PR.B Deemed-Retractible -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 4.72 %
SLF.PR.H FixedReset 1.44 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.60
Bid-YTW : 4.03 %
SLF.PR.G FixedReset 1.50 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 3.42 %
PWF.PR.A Floater 2.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-23
Maturity Price : 20.11
Evaluated at bid price : 20.11
Bid-YTW : 2.63 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.N OpRet 122,250 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-10-23
Maturity Price : 25.50
Evaluated at bid price : 25.72
Bid-YTW : 2.11 %
TD.PR.M OpRet 104,296 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-10-23
Maturity Price : 25.50
Evaluated at bid price : 25.72
Bid-YTW : 2.39 %
BNS.PR.O Deemed-Retractible 93,520 Desjardins crossed 84,300 at 26.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-04-26
Maturity Price : 26.00
Evaluated at bid price : 26.75
Bid-YTW : 4.05 %
MFC.PR.A OpRet 92,760 RBC crossed 19,000 at 25.00 and 20,500 at 25.03.
YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 25.14
Bid-YTW : 3.99 %
TRP.PR.A FixedReset 80,693 Scotia crossed 50,000 at 25.90; RBC crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-23
Maturity Price : 23.60
Evaluated at bid price : 25.85
Bid-YTW : 3.30 %
TD.PR.A FixedReset 52,000 Desjardins crossed 50,000 at 26.16.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.11
Bid-YTW : 3.36 %
There were 32 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
NA.PR.O FixedReset Quote: 27.10 – 27.85
Spot Rate : 0.7500
Average : 0.4848

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-15
Maturity Price : 25.00
Evaluated at bid price : 27.10
Bid-YTW : 3.26 %

BAM.PR.J OpRet Quote: 26.43 – 27.10
Spot Rate : 0.6700
Average : 0.4220

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 26.43
Bid-YTW : 4.39 %

MFC.PR.C Deemed-Retractible Quote: 21.53 – 22.08
Spot Rate : 0.5500
Average : 0.3384

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.53
Bid-YTW : 6.40 %

MFC.PR.D FixedReset Quote: 26.53 – 26.97
Spot Rate : 0.4400
Average : 0.2562

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.53
Bid-YTW : 4.28 %

IAG.PR.C FixedReset Quote: 26.21 – 26.90
Spot Rate : 0.6900
Average : 0.5078

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.21
Bid-YTW : 3.93 %

GWO.PR.J FixedReset Quote: 26.20 – 26.74
Spot Rate : 0.5400
Average : 0.3731

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 3.75 %