Archive for April, 2012

April 30, 2012

Monday, April 30th, 2012

The TMX / Maple deal is still alive:

The group of 13 financial institutions that’s seeking to buy the TMX Group Inc. … plans to extend its offer today, according to sources.

All 13 members of the so-called Maple Group are expected to remain in the consortium at this time, these sources said.

The decision follows on the heels of weeks of uncertainty, during which some members of the group were considering abandoning the effort. The group had become increasingly discouraged by its long quest to win over the Competition Bureau, and until late last week a number of members said it looked like there was a good chance the deal would not succeed.

But the group subsequently received an update from the Bureau that was interpreted as a signal that the deal once again has a better chance of success.

The Bureau said last year that it had “serious concerns” with the offer. Late last week it suggested that its concerns could be “substantially mitigated” by rules that the Ontario Securities Commission is considering applying to the merged company if the deal goes through.

Isn’t that great? An enormous, bank-controlled, tightly-regulated company that will perforce employ a large number of ex-regulators. A perfect solution … for some.

In fact, I suspect that the group has got a nod-and-wink go-ahead:

The bidding consortium, known as Maple Group Acquisition Corp., has struck agreements to acquire the competing Alpha trading system, TMX’s largest rival, as well as the trade clearing institution CDS Group. Those deals came together over the weekend, according to sources.

Just as importantly, Maple has also received assurances that regulators, including the Competition Bureau, will finish considering its offer within a reasonable time frame.

The Europeans aren’t the only ones facing higher borrowing costs:

Illinois’s last general-obligation sale was on March 13 for $575 million, with 10-year securities priced to yield 1.51 percentage points above benchmark tax-exempts, according to data compiled by Bloomberg. That’s 0.34 percentage points below tomorrow’s tentative pricing plan, or a difference of 22.5 percent.

The state has the lowest-funded pension in the U.S., with assets equal to 45.5 percent of projected obligations, Bloomberg data show. Its backlog of unpaid bills to vendors and Medicaid obligations is more than $9 billion.

The Bank of Canada has released a working paper by Eleonora Granziera & Sharon Kozicki titled House Price Dynamics: Fundamentals and Expectations:

We investigate whether expectations that are not fully rational have the potential to explain the evolution of house prices and the price-to-rent ratio in the United States. First, a Lucas type asset-pricing model solved under rational expectations is used to derive a fundamental value for house prices and the price-rent ratio. Although the model can explain the sample average of the price-rent ratio, it does not generate the volatility and persistence observed in the data. Then, we consider an intrinsic bubble model and two models of extrapolative expectations developed by Lansing (2006, 2010) in applications to stock prices: one that features a constant extrapolation parameter and one in which the extrapolation coefficient depends on the dividend growth process. We show that these last two models are equally good at matching sample moments of the data. However, a counterfactual experiment shows that only the extrapolative expectation model with time-varying extrapolation coefficient is consistent with the run up in house prices observed over the 2000-2006 period and the subsequent sharp downturn.

Mr Vítor Constâncio, Vice-President of the European Central Bank, gave a speech titled “Towards better regulation of the shadow banking system” at the European Commission Conference in Brussels, 27 April 2012, which lauded central clearing:

During the crisis, the volume of repos declined with the exception of a few market segments. The reduction in outstanding repo values was however less pronounced for CCP-cleared repos than for other repo segments. It is well known that some CCPs actually saw an increase in their business at a time when counterparty-risk adverse market participants turned to safer avenues.

The good performance of CCPs could be explained by the fact that it addresses effectively most of the vulnerabilities which affected repo markets during the 2008 crisis. When cash lenders withdrew from the market due to misperceptions of the credit and liquidity risk, CCP-cleared repos were significantly less affected. Amidst a general decline of repo market trading at the peak of the crisis, some euro area CCPs actually saw an increase of volumes.

This happened because CCPs provide effective protection against counterparty risk by interposing themselves between the original repo parties. From a financial stability perspective, properly supervised and overseen CCPs act as a firewall against the propagation of default shocks and can mitigate counterparty credit risk, enhance market transparency, facilitate collateral liquidation, and foster standardisation of repo terms and eligible collateral. There is also the advantage that policy makers can monitor the cleared repo markets since CCPs are regulated institutions.

Therefore, moving repo clearing to CCP seems to be the appropriate solution which by the way is already gaining ground in Europe, having already attained half of the market.

He did not address the question of single-point failure.

Spain is in a double-dip:

Stocks and commodities fell, while the euro weakened for a third day against the yen, as reports showed Spain entered its second recession since 2009 and U.S. business activity cooled. Treasuries and German bunds advanced.

Spain’s gross domestic product fell 0.3 percent in the first quarter, the government said today as it struggles to narrow a budget deficit by 3.2 percentage points of GDP. U.S. consumer spending rose 0.3 percent in March, according to Commerce Department data, while an Institute for Supply Management-Chicago Inc. report showed business activity expanded in April (SPX) at the slowest pace since 2009.

The Canadian preferred share market ended the month on a strong note, with PerpetualPremiums up 13bp, FixedResets gaining 3bp and DeemedRetractibles winning 17bp. Volatility picked up a little, with PerpetualDiscounts dominating the winners. Volume was average.

PerpetualDiscounts now yield 5.08%, equivalent to 6.60% interest at the standard conversion factor of 1.3x. Long corporates now yield about 4.6% – oh, all right, maybe a hairsbreadth under – so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 200bp, a sharp tightening from the 220bp reported April 25.

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 0.4383 % 2,521.2
FixedFloater 4.44 % 3.80 % 32,256 17.76 1 -0.4651 % 3,551.2
Floater 2.86 % 2.89 % 45,017 19.99 3 0.4383 % 2,722.3
OpRet 4.74 % 2.74 % 54,175 1.13 5 0.1760 % 2,513.1
SplitShare 5.25 % 5.11 % 67,655 2.00 4 -0.0198 % 2,692.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1760 % 2,298.0
Perpetual-Premium 5.46 % 0.67 % 76,277 0.09 23 0.1292 % 2,225.4
Perpetual-Discount 5.13 % 5.08 % 148,060 15.31 10 0.5611 % 2,430.4
FixedReset 5.02 % 3.07 % 195,152 2.17 67 0.0252 % 2,401.1
Deemed-Retractible 4.96 % 3.69 % 188,454 1.59 46 0.1703 % 2,317.0
Performance Highlights
Issue Index Change Notes
IAG.PR.F Deemed-Retractible -1.23 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.69
Bid-YTW : 5.54 %
BAM.PR.N Perpetual-Discount 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-30
Maturity Price : 23.01
Evaluated at bid price : 23.45
Bid-YTW : 5.10 %
BAM.PR.C Floater 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-30
Maturity Price : 18.25
Evaluated at bid price : 18.25
Bid-YTW : 2.89 %
ELF.PR.G Perpetual-Discount 1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-30
Maturity Price : 22.41
Evaluated at bid price : 22.75
Bid-YTW : 5.25 %
BAM.PR.M Perpetual-Discount 2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-30
Maturity Price : 23.29
Evaluated at bid price : 23.56
Bid-YTW : 5.08 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.Z FixedReset 47,161 TD crossed 30,000 at 25.15.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 3.21 %
RY.PR.A Deemed-Retractible 43,581 Nesbitt crossed 27,700 at 25.65.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-06-23
Maturity Price : 25.75
Evaluated at bid price : 25.75
Bid-YTW : 2.41 %
CM.PR.E Perpetual-Premium 39,400 Desjardins crossed 29,400 at 25.95.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-30
Maturity Price : 25.25
Evaluated at bid price : 25.90
Bid-YTW : -23.86 %
MFC.PR.G FixedReset 32,954 Nesbitt crossed 26,700 at 25.65.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-19
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 4.00 %
CM.PR.K FixedReset 32,069 Scotia crossed 25,000 at 26.35.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 3.06 %
ENB.PR.F FixedReset 29,393 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 3.56 %
There were 33 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.G FixedFloater Quote: 21.40 – 22.00
Spot Rate : 0.6000
Average : 0.4262

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-30
Maturity Price : 22.25
Evaluated at bid price : 21.40
Bid-YTW : 3.80 %

IAG.PR.F Deemed-Retractible Quote: 25.69 – 26.44
Spot Rate : 0.7500
Average : 0.6025

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.69
Bid-YTW : 5.54 %

W.PR.H Perpetual-Premium Quote: 25.35 – 25.73
Spot Rate : 0.3800
Average : 0.2366

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-01-15
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 3.83 %

IAG.PR.E Deemed-Retractible Quote: 26.10 – 26.50
Spot Rate : 0.4000
Average : 0.2900

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 5.33 %

BMO.PR.J Deemed-Retractible Quote: 25.71 – 25.93
Spot Rate : 0.2200
Average : 0.1470

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.71
Bid-YTW : 3.63 %

GWO.PR.H Deemed-Retractible Quote: 24.72 – 24.99
Spot Rate : 0.2700
Average : 0.1973

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.72
Bid-YTW : 5.08 %

April 27, 2012

Saturday, April 28th, 2012

Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, had some words of interest regarding MMFs at the European Commission High Level Conference, Brussels, 27 April 2012:

Money funds do not use committed lines of credit from banks. Claims on money funds have, in effect, become monetary assets in the hands of savers. In parts of the world, especially the US, they are treated like current accounts. Given the restrictions on their asset holdings, they resemble narrow banks, in mutual-fund clothing. But for a normal mutual fund, as an open-ended investment vehicle, the value of investments in it fluctuates with the value of the vehicle’s asset portfolio. By contrast, most money funds hold themselves out as offering par under any circumstances; when they “break the buck”, they must unwind. Their investors run at that prospect; and so the funds themselves are flighty investors. Compared to most types of shadow banking, money funds do not borrow – in the usual sense. But by promising par, they are in effect incurring debt-like obligations. And they can be exposed to leverage. At least in the run up to the crisis, some invested in levered paper, some of it in what amounted to Russian Doll shadow banking – a money fund buys short-term ABCP backed by CDOs, etc.
What I suggest here is that:
  • Money Market Funds should be required to choose between being
    • Variable Net Asset Value (NAV) funds or Constant NAV funds
    • Any remaining CNAV funds should be subject to capital requirements of some kind
    • All should be subject to “gates” or other measures that can be used to delay withdrawals, to make runs less likely

That package would not completely prevent runs; regular mutual funds can suffer runs. But it would make them somewhat less brittle.

Bank loan concentration risk is becoming an issue:

The largest U.S. banks, including JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS), told the Federal Reserve that a limit on their credit exposure is unnecessary and “fundamentally flawed.”

The Fed’s proposed rules on single-counterparty credit limits would have a negative impact on banks, their customers and the U.S. economy, according to a letter sent to the central bank today by five banking trade groups, including the Clearing House Association.

In December, the Fed proposed tougher standards to supervise the largest banks whose collapse could jeopardize the economy. The central bank set a limit of 10 percent for credit risk between a company considered systemically important and counterparty when each has more than $500 billion in total assets.

The 10 percent credit risk limit is more restrictive than that contained in the Dodd-Frank financial overhaul law, which allowed for a 25 percent limit.

The Fed did not explain why it changed the credit risk limit to 10 percent for the largest banks. The Dodd-Frank act allows the Fed to make the change if it determines it is necessary to “mitigate risks to the financial stability.” The banks argue the Fed should first try the 25 percent limit and, if it proves inadequate, adopt the 10 percent limit.

It seems to me that this would benefit from a mathematical treatment. The banking rules are calibrated to allow for the chances of insolvency of a bank based on a mathematical model of asset values that assume independence of counterparty default. With a single major counterparty, then the risk becomes a lot chunkier since the correlation of counterparty A defaulting with counterparty A defaulting is, by definition, 1.0.

Spend-Every-Penny will continue to flog a dead horse:

Finance Minister Jim Flaherty has drawn a line in the sand for the first time in his for a national securities regulator, setting a one-year deadline before he walks away.

Mr. Flaherty has long fought for a national regulator, making it one of his signature goals since became finance minister. But he suffered a setback in December when the Supreme Court of Canada ruled such a plan would be unconstitutional by infringing on provincial independence.

Mr. Flaherty vowed to continue his quest for at least some form of a regulator, even if its mandate is not as far-reaching as the first proposal. On Friday, he said there is only a finite amount of time to strike a deal.

Who knows? An opt-in system, like the HST could work. Another plan is for willing provinces to merge their securities commissions. A fully-national regulator has always been a pipe-dream – but today’s Conservatives are a rather contemptible group.

DBRS has confirmed TA at Pfd-3 Stable:

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 (1) the Company’s high level of contracted output with reasonable fuel hedging positions and (2) increased geographical and fuel diversification. These strengths have lowered TAC’s business risk level to below the industry average. A well-hedged portfolio and/or contractual position are key to reducing the volatility of earnings and cash flow as power generators generally operate in competitive environments where profitability varies with commodity pricing (both output and inputs) and production volumes. TAC’s contracted output is expected to remain high, at over 65% of net generating capacity, at least until Alberta purchase power arrangements (APPA) expire in 2020.

TAC faces a number of other challenges, including aging coal plants in Alberta, which could continue to result in a high level of unplanned outages as evidenced by the Sundance coal-fired generation Unit 1 and Unit 2 shutdown since December 2010. The ultimate outcome of the Sundance arbitration process remains uncertain. An unfavourable resolution of this matter (i.e., accrued penalties and repair costs) could have material financial impacts. The Company has limited financial flexibility to withstand any adverse events due to its high leverage and dividend payout ratio. Any further significant increase in leverage could cause TAC’s credit risk profile to deteriorate to a level that is no longer commensurate with the current BBB rating. DBRS expects TAC to fund the majority of any unexpected material costs primarily with equity (including preferred shares and the dividend re-investment program) to maintain its current leverage level.

It was a day of modest gains for the Canadian preferred share market, with PerpetualPremiums gaining 8bp, FixedResets up 6bp and DeemedRetractibles winning 12bp. Volatility picked up, but there is no clear pattern in the Performance Highlights table, beyond a tilt to winners. 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 -0.3639 % 2,510.2
FixedFloater 4.42 % 3.78 % 31,944 17.80 1 2.3810 % 3,567.8
Floater 2.88 % 2.89 % 46,502 19.99 3 -0.3639 % 2,710.4
OpRet 4.75 % 2.75 % 50,166 1.11 5 -0.1985 % 2,508.6
SplitShare 5.25 % 3.35 % 70,425 0.64 4 -0.1977 % 2,692.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1985 % 2,293.9
Perpetual-Premium 5.47 % 0.61 % 76,824 0.10 23 0.0842 % 2,222.5
Perpetual-Discount 5.16 % 5.16 % 149,318 15.17 10 0.4351 % 2,416.8
FixedReset 5.02 % 3.08 % 190,787 2.23 67 0.0642 % 2,400.5
Deemed-Retractible 4.97 % 3.75 % 193,283 2.80 46 0.1193 % 2,313.1
Performance Highlights
Issue Index Change Notes
NA.PR.O FixedReset -1.11 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-15
Maturity Price : 25.00
Evaluated at bid price : 26.70
Bid-YTW : 2.54 %
BAM.PR.C Floater -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-27
Maturity Price : 18.02
Evaluated at bid price : 18.02
Bid-YTW : 2.93 %
BMO.PR.Q FixedReset 1.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.46
Bid-YTW : 3.06 %
BAM.PR.N Perpetual-Discount 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-27
Maturity Price : 22.77
Evaluated at bid price : 23.17
Bid-YTW : 5.16 %
ELF.PR.G Perpetual-Discount 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-27
Maturity Price : 21.94
Evaluated at bid price : 22.31
Bid-YTW : 5.35 %
BAM.PR.G FixedFloater 2.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-27
Maturity Price : 22.31
Evaluated at bid price : 21.50
Bid-YTW : 3.78 %
Volume Highlights
Issue Index Shares
Traded
Notes
HSB.PR.E FixedReset 104,050 Desjardins crossed 100,000 at 27.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 27.12
Bid-YTW : 2.80 %
CM.PR.E Perpetual-Premium 31,312 TD crossed 25,000 at 25.88.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-27
Maturity Price : 25.25
Evaluated at bid price : 25.86
Bid-YTW : -22.69 %
BAM.PF.A FixedReset 29,300 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-27
Maturity Price : 23.20
Evaluated at bid price : 25.33
Bid-YTW : 4.37 %
HSB.PR.C Deemed-Retractible 26,320 Desjardins crossed 26,000 at 25.70.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-30
Maturity Price : 25.25
Evaluated at bid price : 25.52
Bid-YTW : 4.45 %
MFC.PR.C Deemed-Retractible 23,361 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.18
Bid-YTW : 5.57 %
BNS.PR.L Deemed-Retractible 18,863 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-04-28
Maturity Price : 25.25
Evaluated at bid price : 25.81
Bid-YTW : 3.68 %
There were 16 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.F Deemed-Retractible Quote: 25.72 – 26.39
Spot Rate : 0.6700
Average : 0.4299

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-27
Maturity Price : 25.25
Evaluated at bid price : 25.72
Bid-YTW : -11.27 %

BAM.PR.B Floater Quote: 18.49 – 18.99
Spot Rate : 0.5000
Average : 0.3405

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-27
Maturity Price : 18.49
Evaluated at bid price : 18.49
Bid-YTW : 2.86 %

BNS.PR.Q FixedReset Quote: 25.61 – 25.98
Spot Rate : 0.3700
Average : 0.2356

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.61
Bid-YTW : 3.29 %

NA.PR.O FixedReset Quote: 26.70 – 27.06
Spot Rate : 0.3600
Average : 0.2325

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-15
Maturity Price : 25.00
Evaluated at bid price : 26.70
Bid-YTW : 2.54 %

BMO.PR.H Deemed-Retractible Quote: 25.61 – 25.96
Spot Rate : 0.3500
Average : 0.2255

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.61
Bid-YTW : 1.83 %

TD.PR.R Deemed-Retractible Quote: 26.67 – 26.86
Spot Rate : 0.1900
Average : 0.1078

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-04-30
Maturity Price : 26.00
Evaluated at bid price : 26.67
Bid-YTW : 2.73 %

April 26, 2012

Thursday, April 26th, 2012

OSFI’s empire has expanded:

Canada’s primary lender of taxpayer-backed mortgages is coming under tighter oversight, as new legislation will require Canada Mortgage and Housing Corp. to report to the national banking regulator.

One of the most anticipated aspects relates to the government’s decision to change the oversight structure for CMHC, which is expected to see its portfolio of mortgages grow well beyond $500-billion this year.

Under the current structure, CMHC is primarily overseen by Human Resources Minister Diane Finley. The budget legislation would give the finance minister a greater role in oversight and would make the Office of the Superintendant of Financial Institutions the main watchdog for CMHC.

The covered bond legislation didn’t get as much attention, but DBRS commented:

The federal government today announced a legislative framework for governing covered bonds in Canada. There are no rating implications as a result of this announcement. As anticipated, the legislation does not allow any insured mortgages to be included as covered bond collateral. The legislation, which will also require Canada Mortgage & Housing Corp. (CMHC) to establish and maintain a registry for covered bonds, better defines who can issue covered bonds (banks and co-operative credit societies), and specifies bankruptcy and insolvency protection for covered bonds. There was also no mention of whether the current 4% regulatory limit on covered bonds will change.

Because many of the principles in the legislative framework were anticipated, there were a significant number of covered bond issuances by Canadian banks since the beginning of calendar 2012. At the end of March 2012, $63 billion was outstanding versus $50 billion at December 2011, with Bank of Nova Scotia being the most active, accounting for $5.5 billion of the change. Given the solid reputation of Canadian banks globally, the increased funding diversification and access to new buyers of debt, almost all of the issuances during this time period were U.S. dollar denominated. Given that several of the banks still have insured mortgages, DBRS believes some of the Canadian banks will continue to fund using these instruments before the bill receives royal assent.

Moody’s cut Ontario:

Moody’s Investors Service has today downgraded the Province of Ontario’s issuer and debt ratings to Aa2 with stable outlook from Aa1 with negative outlook, affecting approximately CAD202 billion in debt securities.

“The downgrade of Ontario’s rating reflects the growing debt burden and the risks surrounding the province achieving its medium-term fiscal plan given the subdued growth outlook, extended timeframe back to balance and ambitious expenditure targets,” said Moody’s Assistant Vice President Jennifer Wong, lead analyst for the Province of Ontario.

Expense growth targets appear particularly ambitious in light of growth in expenses averaging 7% annually in the five years to 2011-12 and continued pressures on health expenses, the province’s largest expense item, due to demographic pressures.

DBRS took a more sanguine view:

DBRS has today confirmed the long and short-term debt ratings of the Province of Ontario (Ontario or the Province) at AA (low) and R-1 (middle), both with a Stable trend. Overall, DBRS views the continuation of the fiscal recovery plan and the increasing emphasis on cost containment as an encouraging step in the right direction. However, as demonstrated by the recent budget negotiations, the political environment remains fragile and DBRS believes that implementing the tough measures required to achieve fiscal targets and limit debt growth will be very challenging and will require a significant pickup in fiscal resolve.

Ontario’s debt trajectory remains largely consistent with last year’s plan. In 2011-12, DBRS-adjusted debt is estimated to have grown by 9.3%, resulting in a debt-to-GDP ratio of 39.2%, the third-highest among all provinces. Debt growth is expected to slow in 2012-13, with the debt-to-GDP ratio forecast to reach 41.3% before eventually reaching a peak of somewhat below 45% within the next two to three years. However, DBRS cautions that this is dependent on the Province achieving its fiscal targets, which entail considerable execution risk, especially given the constraints of a minority government.

S&P cut Spain:

Spain’s sovereign credit rating was cut to BBB+ from A by Standard & Poor’s on concern the nation will have to provide further fiscal support to the banking sector as the economy contracts.

“Spain’s budget trajectory will likely deteriorate against a background of economic contraction,” S&P wrote in the statement. “At the same time, we see an increasing likelihood that Spain’s government will need to provide further fiscal support to the banking sector. As a consequence, we believe there are heightened risks that Spain’s net general govern debt could rise further.”

Yields on 10-year Spanish bonds surpassed 6 percent on seven trading days this month, boosting concern that borrowing costs may reach levels that prompted bailouts for Greece, Ireland and Portugal. The rate was 5.83 percent.

Towers Watson produced their Pension Finance Watch for March:

The Towers Watson Pension Index tracks the performance of a hypothetical pension plan invested in a 60% equity/40% fixed income portfolio. This portfolio recorded a 1.3% return for March. We also track two other investment portfolios with different levels of equity exposure. Monthly returns on the 80% and 40% equity portfolios were 1.9% and 0.7%.

Similar to bond prices, values for pension obligations move in the opposite direction of interest rates. Our liability index (based on projected benefit obligations) decreased 2.3% for March, reflecting the offsetting impacts of interest accumulation and the increase in the discount rate.

The changes in asset and liability values resulted in a 3.6% increase in the Towers Watson Pension Index to 66.2.

The index reflects the PBO funded ratio (market value of assets/projected benefit obligation) for a benchmark pension plan. The asset value changes from month to month based on the investment performance of the 60% equity portfolio, assumed contributions and benefit payments. Liability values increase with benefit accruals and interest cost, offset by benefit payments, and are adjusted to reflect changes in financial assumptions.

The index was hovering around 90% as recently as mid-2008.

Telus has squared its rot for a good boo-hoo-hoo:

Telus Corp. … is weighing whether to use a legal tactic to prevent a U.S. hedge fund from exercising its voting power to defeat the company’s share-consolidation plan.

Telus is trying to eliminate its dual-share structure and give non-voting shareholders a vote. But New York-based Mason, which has amassed roughly 18.7 per cent of Telus’s common voting shares, is trying to defeat the plan – a stance that has fuelled an escalating fight between the money manager and the company.

But while the fund purports to champion the interests of the voting class, Telus has accused it of being an opportunistic investor out to earn a quick buck by using a trading strategy that exploits the historical price gap between the two classes of shares.

I think that it’s scandalous that the securities of a Canadian company be used as a vehicle to earn a quick buck! This is Canada, for heaven’s sake! Our country, where we play cooperative games with our dollies!

It was a mildly positive day for the Canadian preferred share market, with PerpetualPremiums flat, FixedResets up 5bp and DeemedRetractibles winning 10bp. Volatility remained low. Volume was quite 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 0.6041 % 2,519.4
FixedFloater 4.52 % 3.87 % 32,031 17.60 1 -0.4739 % 3,484.9
Floater 2.87 % 2.89 % 46,953 20.00 3 0.6041 % 2,720.3
OpRet 4.74 % 2.67 % 52,245 1.11 5 0.2219 % 2,513.6
SplitShare 5.24 % -0.14 % 73,308 0.64 4 -0.0099 % 2,698.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2219 % 2,298.5
Perpetual-Premium 5.47 % 2.12 % 77,527 0.10 23 -0.0026 % 2,220.7
Perpetual-Discount 5.19 % 5.22 % 151,189 15.07 10 -0.1200 % 2,406.4
FixedReset 5.02 % 3.08 % 193,000 2.18 67 0.0493 % 2,399.0
Deemed-Retractible 4.97 % 3.78 % 195,402 1.98 46 0.0968 % 2,310.4
Performance Highlights
Issue Index Change Notes
ELF.PR.G Perpetual-Discount -2.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-26
Maturity Price : 21.72
Evaluated at bid price : 22.00
Bid-YTW : 5.43 %
IAG.PR.E Deemed-Retractible 1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.23
Bid-YTW : 5.44 %
IAG.PR.A Deemed-Retractible 1.63 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.68
Bid-YTW : 5.37 %
BAM.PR.C Floater 2.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-26
Maturity Price : 18.21
Evaluated at bid price : 18.21
Bid-YTW : 2.90 %
Volume Highlights
Issue Index Shares
Traded
Notes
ENB.PR.H FixedReset 87,418 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-26
Maturity Price : 23.23
Evaluated at bid price : 25.41
Bid-YTW : 3.63 %
CM.PR.M FixedReset 77,117 RBC crossed 25,000 at 27.25; Nesbitt crossed 50,000 at 27.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 27.10
Bid-YTW : 2.64 %
RY.PR.R FixedReset 67,015 RBC crossed blocks of 50,000 and 10,000, both at 26.30.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 26.36
Bid-YTW : 2.92 %
BNS.PR.T FixedReset 59,360 RBC crossed 50,000 at 26.62.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-25
Maturity Price : 25.00
Evaluated at bid price : 26.56
Bid-YTW : 3.00 %
CM.PR.L FixedReset 58,520 Nesbitt crossed 50,000 at 27.01.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.90
Bid-YTW : 2.57 %
TRP.PR.A FixedReset 51,968 RBC crossed blocks of 25,000 and 18,700, both at 26.05.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 3.02 %
There were 19 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
FTS.PR.C OpRet Quote: 25.75 – 26.94
Spot Rate : 1.1900
Average : 0.8444

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-06-01
Maturity Price : 25.25
Evaluated at bid price : 25.75
Bid-YTW : -6.10 %

ELF.PR.G Perpetual-Discount Quote: 22.00 – 22.91
Spot Rate : 0.9100
Average : 0.6154

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-26
Maturity Price : 21.72
Evaluated at bid price : 22.00
Bid-YTW : 5.43 %

BMO.PR.P FixedReset Quote: 26.80 – 27.15
Spot Rate : 0.3500
Average : 0.2154

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.80
Bid-YTW : 3.08 %

IGM.PR.B Perpetual-Premium Quote: 25.90 – 26.30
Spot Rate : 0.4000
Average : 0.3211

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 5.28 %

IAG.PR.C FixedReset Quote: 26.16 – 26.50
Spot Rate : 0.3400
Average : 0.2738

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.16
Bid-YTW : 3.62 %

GWO.PR.F Deemed-Retractible Quote: 25.70 – 25.93
Spot Rate : 0.2300
Average : 0.1666

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-26
Maturity Price : 25.25
Evaluated at bid price : 25.70
Bid-YTW : -10.56 %

April 25, 2012

Wednesday, April 25th, 2012

Looks like a double-dip in the UK:

The U.K. economy shrank in the first quarter as Britain slid into its first double-dip recession since the 1970s, forcing Prime Minister David Cameron to defend his spending cuts in Parliament.

Gross domestic product fell 0.2 percent from the fourth quarter of 2011, when it declined 0.3 percent, the Office for National Statistics said today in London. The median of 40 estimates in a Bloomberg News survey was for an increase of 0.1 percent. A technical recession is defined as two straight quarters of contraction.

But the EU has a plan!

Bankers (SX7P) face a backlash from European Union lawmakers determined to cut their bonuses as part of a quest to reshape lenders as utilities like water and electricity providers rather than money-making machines.

The European Parliament is proposing an array of amendments to a draft law implementing capital rules by the Basel Committee on Banking Supervision to attack the bonus culture legislators partly blame for bringing the region’s economy to the brink of collapse. A vote is set for May 8.

I don’t think anybody’s given any thought about the potential consequences for capital markets.

US housing is getting some good press:

Data released yesterday showing better-than-estimated new- home sales and a slowdown in price declines are bolstering optimism that the market is poised for a sustainable recovery. Economists including Bank of Tokyo-Mitsubishi UFJ’s Chris Rupkey, Bank of America Corp.’s Michelle Meyer and Mark Fleming of CoreLogic Inc. are also predicting prices are close to a trough after a 35 percent slump from a July 2006 peak, even as the threat of more foreclosures loom to boost supply.

The FOMC statement was no surprise:

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.

The Globe comments:

Investors, you are on your own.

The Federal Reserve’s policy committee ended a two-day meeting Wednesday by issuing a statement that is almost identical to the one the Federal Open Market Committee posted after its previous session in March.

A separate release showed the Fed is only marginally more optimistic about the economic outlook than it was at the start of the year. The central bank’s forecast for economic growth this year, based on the projections of 17 policy makers, is between 2.4 per cent and 2.9 per cent, compared with 2.2 per cent and 2.7 per cent previously. The forecast for 2013 is 2.7 per to 3.1 per cent, essentially unchanged.

Rumours are swirling about Canadian mortgage finance:

In late March, the federal budget took aim at supervision of Canada Mortgage and Housing Corp., which controls about 75% of the mortgage default insurance market. In Thursday’s budget implementation bill, Ottawa is expected say how this oversight will change.

CMHC now falls under the jurisdiction of the minister responsible for Human Resources and Skills Development Canada. But, as first reported by the Financial Post, Ottawa has been examining putting the Crown insurer under the direct supervision of the Office of the Superintendent of Financial Institutions — a powerful financial regulator with the power to enforce a broad range of actions.

The government said Wednesday it plans to introduce a law “to implement certain provisions of the budget,” according to a document known as the Notice Paper.

There may also be details Thursday about a new covered bond program, which will be available to federally and provincially regulated mortgage lenders in Canada and administered by CMHC.

“A legislative framework will support financial stability by helping lenders find new sources of funding and my making the market for Canadian covered bonds more robust,” according to the budget.

S&P has a negative outlook on Ontario:

  • We are revising our outlook on the Province of Ontario to negative from stable.
  • At the same time, we are affirming our ratings, including our ‘AA-’ long-term and ‘A-1+’ short-term issuer credit ratings on the province.
  • The outlook revision reflects our view regarding the minority legislature’s ability to meet what we view as challenging cost containment targets in the next one to two years necessary for the debt burden to peak in fiscal 2015 as planned.

We believe the province’s main credit challenges include its continuing weak budgetary and debt metrics and its challenging cost-containment plan required to achieve budgetary balance by fiscal 2018. In fiscal 2012, it recorded an operating deficit of about 12% of operating revenues (Standard & Poor’s adjusted) and an after-capital deficit of more than 22% of total revenues (Standard & Poor’s adjusted), which bettered the government’s forecast for a third consecutive year, but which remains stubbornly high, in our view.

DBRS confirmed AIM.PR.A at Pfd-3 Stable:

DBRS has today confirmed Groupe Aeroplan Inc.’s (Aeroplan or the Company) Issuer Rating and Senior Secured Debt rating at BBB and its Preferred Shares rating at Pfd-3, all with Stable trends. The ratings continue to benefit from the Company’s (1) brand strength in its core markets, (2) strong relationships with key Accumulation Partners and (3) stable free cash generating capacity. The ratings also reflect the fact that the Company’s overall performance depends heavily on consumer spending patterns and general economic conditions, and some degree of revenue concentration still exists.

In terms of financial profile, operating cash flow in F2012 is expected to be somewhat negatively affected by the European Court of Justice (ECJ) value-added tax (VAT) judgment (slated to be completed toward the end of F2012). That said, DBRS still anticipates cash flow from operations (after changes in working capital and deferred revenue) to increase to the range of $290 million to $310 million. Dividends are expected to increase modestly and capital expenditures are expected to be slightly higher at approximately $55 million in F2012 to fund software development initiatives that were set toward the end of F2011. As such, DBRS expects Aeroplan to generate healthy free cash flow levels of $115 million to $135 million in F2012.

Although Aeroplan would have the capacity to further reduce debt and improve its financial profile, DBRS expects the Company will use its free cash flow primarily to fund its growth ambitions and increased returns to shareholders. As such, DBRS expects Aeroplan’s debt-to-adjusted EBITDA to operate within the range of 2.0x to 2.5x in the near to medium term.

It was a mildly negative day for the Canadian preferred share market, with PerpetualPremiums losing 9bp, while both FixedResets and DeemedRetractibles were down 4bp. There was not much volatility; what there was was uniformly negative. Volume was average.

PerpetualDiscounts now yield 5.25%, equivalent to 6.82% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.6%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 220bp, a slight (and perhaps spurious) narrowing from the 225bp reported April 18.

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 -0.0914 % 2,504.3
FixedFloater 4.50 % 3.84 % 32,506 17.64 1 -1.7691 % 3,501.5
Floater 2.88 % 2.88 % 46,536 20.03 3 -0.0914 % 2,703.9
OpRet 4.75 % 2.70 % 52,270 1.12 5 0.1610 % 2,508.1
SplitShare 5.24 % -0.37 % 73,523 0.64 4 0.1683 % 2,698.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1610 % 2,293.4
Perpetual-Premium 5.47 % 2.51 % 80,189 0.10 23 -0.0926 % 2,220.7
Perpetual-Discount 5.18 % 5.25 % 152,843 15.01 10 -0.0744 % 2,409.3
FixedReset 5.02 % 3.09 % 194,341 2.19 67 -0.0355 % 2,397.8
Deemed-Retractible 4.97 % 3.76 % 194,703 3.02 46 -0.0428 % 2,308.1
Performance Highlights
Issue Index Change Notes
IAG.PR.A Deemed-Retractible -1.89 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.30
Bid-YTW : 5.58 %
BAM.PR.G FixedFloater -1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-25
Maturity Price : 21.83
Evaluated at bid price : 21.10
Bid-YTW : 3.84 %
IGM.PR.B Perpetual-Premium -1.52 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 5.24 %
MFC.PR.B Deemed-Retractible -1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.29
Bid-YTW : 5.67 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.T FixedReset 78,608 TD crossed 25,000 at 26.60; Nesbitt crossed 50,000 at 26.62.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-25
Maturity Price : 25.00
Evaluated at bid price : 26.60
Bid-YTW : 2.92 %
GWO.PR.P Deemed-Retractible 66,680 Nesbitt crossed 50,000 at 25.95.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 5.08 %
BNS.PR.Z FixedReset 61,225 GMP (who?) bought 29,800 from Desjardins at 25.15.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 3.22 %
SLF.PR.D Deemed-Retractible 51,320 Anonymous crossed 20,700 at 22.70; Desjardins crossed 26,000 at 22.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.66
Bid-YTW : 5.79 %
IFC.PR.A FixedReset 47,274 Desjardins crossed 25,000 at 25.65, then another 15,000 at 25.72.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 3.54 %
BMO.PR.L Deemed-Retractible 46,700 RBC crossed 10,400 at 26.99; TD crossed 30,000 at 27.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-25
Maturity Price : 26.00
Evaluated at bid price : 27.04
Bid-YTW : 2.67 %
There were 35 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IAG.PR.F Deemed-Retractible Quote: 25.90 – 26.64
Spot Rate : 0.7400
Average : 0.4447

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 5.51 %

FTS.PR.C OpRet Quote: 25.66 – 26.37
Spot Rate : 0.7100
Average : 0.4654

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-06-01
Maturity Price : 25.25
Evaluated at bid price : 25.66
Bid-YTW : -2.56 %

IAG.PR.E Deemed-Retractible Quote: 25.90 – 26.50
Spot Rate : 0.6000
Average : 0.4159

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 5.46 %

IGM.PR.B Perpetual-Premium Quote: 25.95 – 26.34
Spot Rate : 0.3900
Average : 0.2346

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 5.24 %

GWO.PR.L Deemed-Retractible Quote: 25.84 – 26.15
Spot Rate : 0.3100
Average : 0.2288

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.84
Bid-YTW : 5.15 %

BAM.PR.C Floater Quote: 17.81 – 18.40
Spot Rate : 0.5900
Average : 0.5098

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-25
Maturity Price : 17.81
Evaluated at bid price : 17.81
Bid-YTW : 2.96 %

LFE.PR.A Reorganization Details Announced

Wednesday, April 25th, 2012

Canadian Life Companies Split Corp. has announced the details of its reorganization, as promised when the proposal was approved and in accordance with announced terms.

The critical part of today’s announcement is:

Shareholders who do not wish to remain invested in the Company under its reorganized share structure will have until the close of business on May 17, 2012 to provide the Company with notice through their CDS participant that they wish to have their Preferred Shares or Class A Shares redeemed pursuant to the 2012 Special Retraction Right, and to surrender their Shares for retraction. On such a special retraction, each holder of a Preferred Share will receive the lesser of (i) $10.00 and (ii) the net asset value per Unit calculated on May 31, 2012; while holder of a Class A Share will receive the net asset value per Unit calculated on May 31, 2012, less $10.00. Shareholders interested in exercising such retraction right should contact the CDS Participant through which they hold the Shares for further information and instructions as to how to exercise this right. Shareholders should note that the requirements of any particular CDS Participant may vary, and that Shareholders may need to inform their CDS Participant of any intention to exercise this retraction right in advance of the May 17 deadline. Payment for the Class A Shares or Preferred Shares so tendered for retraction pursuant to the 2012 Special Retraction Right will be made no later than June 19, 2012.

Each broker will have a different deadline for notification of desired exercise of the Special Retraction Right, so make sure you know the date applicable to you! It should also be noted that there will be no maturity or retraction available on the previously scheduled wind-up date of 2012-12-1. That’s been wiped out.

The question is whether or not to retract. The NAV as of 2012-4-13 is $12.64. I believe that due to the increased coupon paid on the shares (it will be 6.25%) and the presence of warrants, it is now more appropriate to consider the preferred shares to be common shares in a closed-end fund trading at a discount rather than “preferred” in the normal sense.

Credit Quality Analysis
LFE.PR.A
Template Start 2002-12-8
End 2010-12-8
Symbol xfn.to
Expected
Return
7.00%
Underlying
Dividend
Yield
4.50%
Issue
Data
Initial NAV
2012-4-13
12.64
Pfd
Redemption
Value
10.00
Pfd
Coupon
0.625
MER 1.04%
(10bp reduction)
Cap Unit Div
Above Test
1.20
Cap Unit Div
Below Test
0.00
NAV Test 15.00
Whole Unit Par Value 25.00
Months to Redemption 80
 
Analysis Probability of Default 28.60%
Loss Given Default 22.42%
Expected Loss 6.40%
 
Yields
Calculation
(from 4/13)
Current Price 10.00
Maturity Date 2018-12-1
Yield to Maturity 6.29%
Expected Price 9.36
Yield to Expectations 5.48%

It will be noted that the yield calculations presented above have been performed from April 13 and hence reflect receipt of the April monthly dividend. Valuation of the options is complex; if the preferreds are considered best analyzed as common shares in a discounted closed-end-fund, there must be some allowance made for the fact that extant capital unitholders will receive some fraction (possibly 100%; possibly as little as 33%) of any final NAV in excess of $10.00.

It will also be noted that there will be many who consider the expected total return of the underlying portfolio, estimated above as 7%, to be overly generous, considering all the current, expected and potential capital rule changes that will be imposed on the insurance industry over the next six years. Others will look at the fat coupon on the new preferreds and reason that this will, essentially, allow them to suck out the excess NAV over the next six years even if the industry doesn’t do very much (it will be noted that in the analytics above, the 50-percentile for the expected final NAV is 12.41 – thus, even given a 7% expected total return of the underlying portfolio, the extant capital unitholders should not expect to make a dime until maturity – no dividends, no capital gain!).

So, some will be attracted to this as an equity investment. But I don’t think these things should be considered “preferred shares” any more. For those who wish to hold preferred shares and accrue the benefits of holding the asset class, I recommend that the Special Retraction Right be exercised or that the shares be sold on the market if they should trade at a premium.

April 24, 2012

Tuesday, April 24th, 2012

Fascinating developments in High Frequency Trading technology:

Currently, data take 64 milliseconds (give or take a few fractions of an eye blink) to travel round-trip between New York and London along a cable built in 1998 called the AC-1.

According to its New Jersey-based operator, Hibernia Atlantic, the $300 million Project Express will be 5.2 milliseconds faster than the AC-1, with an execution time of 59.6 milliseconds. That will make Project Express the world’s fastest transatlantic cable when it opens in 2013 and the first to achieve round-trip trading speeds of less than 60 milliseconds. Unless someone beats them to it.

As of this morning, it appears someone will. A small company called Perseus Telecom, in partnership with a subsidiary of India’s big telecom company, Reliance Communications, has announced the launch of QuanTA, a fiber-optic cable stretching from Long Island to the U.K. with an expected round-trip execution time of less than 60 milliseconds by the end of 2012.

This must be for arbitrage between Europe & New York – if it was just New York, it would be easier to set up the infrastructure here, with colocation on the Exchange floor.

The Europeans are getting a little testy:

German Chancellor Angela Merkel said balanced budgets are the best answer to the debt crisis, rebuffing French Socialist presidential candidate Francois Hollande’s campaign pledge to reverse Europe’s austerity drive.

Merkel, who faces two German state elections in May and a national election in the fall of 2013, joined with Sarkozy to craft the euro area’s crisis response over the past year and backed him for re-election. She insisted on the need for austerity today, saying Europe’s “credibility” depends on reducing deficits and debt.

“We’re not saying that saving solves all problems,” she told a conference in Berlin. Still, “you can’t spend more than you take in. You can’t live your whole life this way. Everybody knows this.”

It has become an article of faith that you shouldn’t trust the mainstream Credit Rating Agencies because – gasp! – they’re paid by the issuers. You should choose a investor-pay agency:

The U.S. Securities and Exchange Commission accused Egan-Jones Ratings Co. and founder Sean Egan of making misrepresentations about the firm’s experience rating asset-backed and government securities in a 2008 application to become a nationally recognized statistical ratings organization.

Egan-Jones falsely claimed in the application that it had about 150 outstanding ABS issuer ratings and 50 government ratings, the SEC said today in an administrative proceeding filed in Washington. At the time of the July 2008 application, the firm hadn’t issued any such ratings and therefore didn’t meet requirements for registration as an NRSRO, the SEC said.

Egan-Jones is one of nine firms registered with the SEC as an NRSRO, which means companies can use their credit ratings to meet regulatory requirements. Egan-Jones is paid by investors.

There’s some more cheerful European bank news:

European lenders, more reliant than ever on emergency aid after borrowing $1.3 trillion from their central bank, may need additional cash infusions until policy makers stem the crisis engulfing Spain and Italy.

After more than 30 bond sales in the first quarter, no bank has sold unsecured debt this month, and the cost of insuring against default has soared to levels last seen in January. Financial stocks, which rallied 20 percent following the European Central Bank’s December decision to provide unlimited three-year loans, are now 2 percent lower since then.

Investors are balking after some lenders used the ECB cash to boost holdings of sovereign debt and governments struggled to rein in deficits. Because banks post collateral in exchange for the ECB loans, the amount unsecured bondholders would get back in a default has shrunk. That has raised funding costs for what Morgan Stanley estimates is about 700 billion euros ($924 billion) of debt lenders must refinance by the end of 2013.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums down 6bp, FixedResets up 6bp and DeemedRetractibles winning 9bp. The Performance Highlights table is comprised entirely of BAM winners, but I don’t think much can be read into that: the PerpetualDiscounts are just bouncing back from a bit of weakness, and the BAM Floaters are the only Floaters in the index. Volume was below average.

Update, 2012-4-25: This post originally reported after-tax yields. The following is pre-tax:

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 3.2477 % 2,506.6
FixedFloater 4.42 % 3.78 % 32,371 17.80 1 0.1399 % 3,564.5
Floater 2.88 % 2.89 % 44,101 20.00 3 3.2477 % 2,706.4
OpRet 4.76 % 2.73 % 52,856 1.15 5 -0.1225 % 2,504.0
SplitShare 5.25 % 0.32 % 74,454 0.64 4 0.2382 % 2,693.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1225 % 2,289.7
Perpetual-Premium 5.47 % 1.73 % 80,983 0.11 23 -0.0603 % 2,222.8
Perpetual-Discount 5.17 % 5.23 % 154,665 15.05 10 0.3986 % 2,411.1
FixedReset 5.02 % 3.02 % 191,000 2.19 67 0.0585 % 2,398.7
Deemed-Retractible 4.97 % 3.77 % 196,015 1.99 46 0.0926 % 2,309.1
Performance Highlights
Issue Index Change Notes
BAM.PR.M Perpetual-Discount 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-24
Maturity Price : 22.44
Evaluated at bid price : 22.85
Bid-YTW : 5.23 %
BAM.PR.N Perpetual-Discount 1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-24
Maturity Price : 22.42
Evaluated at bid price : 22.76
Bid-YTW : 5.25 %
BAM.PR.C Floater 1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-24
Maturity Price : 17.92
Evaluated at bid price : 17.92
Bid-YTW : 2.95 %
BAM.PR.B Floater 3.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-24
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 2.85 %
BAM.PR.K Floater 4.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-24
Maturity Price : 18.26
Evaluated at bid price : 18.26
Bid-YTW : 2.89 %
Volume Highlights
Issue Index Shares
Traded
Notes
ENB.PR.F FixedReset 80,843 Desjardins crossed 15,000 at 25.75; RBC crossed blocks of 25,000 and 11,500, both at 25.80.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.76
Bid-YTW : 3.66 %
SLF.PR.D Deemed-Retractible 69,501 RBC crossed 65,000 at 22.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.71
Bid-YTW : 5.76 %
BMO.PR.M FixedReset 66,800 Nesbitt crossed 54,500 at 25.90.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-25
Maturity Price : 25.00
Evaluated at bid price : 25.88
Bid-YTW : 2.95 %
ELF.PR.H Perpetual-Discount 45,280 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-24
Maturity Price : 24.61
Evaluated at bid price : 25.01
Bid-YTW : 5.54 %
TD.PR.K FixedReset 42,077 Nesbitt crossed 40,000 at 26.90.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.96
Bid-YTW : 2.64 %
CM.PR.M FixedReset 36,500 RBC crossed 25,000 at 27.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 27.20
Bid-YTW : 2.46 %
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.E Perpetual-Premium Quote: 25.17 – 25.48
Spot Rate : 0.3100
Average : 0.2300

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.17
Bid-YTW : 4.48 %

ENB.PR.A Perpetual-Premium Quote: 26.00 – 26.24
Spot Rate : 0.2400
Average : 0.1617

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-24
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : -29.96 %

RY.PR.B Deemed-Retractible Quote: 25.76 – 26.06
Spot Rate : 0.3000
Average : 0.2247

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-08-24
Maturity Price : 25.75
Evaluated at bid price : 25.76
Bid-YTW : 3.33 %

RY.PR.G Deemed-Retractible Quote: 25.52 – 25.75
Spot Rate : 0.2300
Average : 0.1623

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 3.86 %

TCA.PR.Y Perpetual-Premium Quote: 52.17 – 52.50
Spot Rate : 0.3300
Average : 0.2725

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-05
Maturity Price : 50.00
Evaluated at bid price : 52.17
Bid-YTW : 3.13 %

BAM.PF.A FixedReset Quote: 25.30 – 25.49
Spot Rate : 0.1900
Average : 0.1385

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-24
Maturity Price : 23.19
Evaluated at bid price : 25.30
Bid-YTW : 4.38 %

DBRS: BAM is Not-Quite-Trend-Negative

Tuesday, April 24th, 2012

DBRS has announced that it:

has today confirmed the ratings of Brookfield Asset Management Inc. (BAM or the Company) at A (low), R-1 (low) and Pfd-2 (low). The ratings pertain to BAM at the corporate level. The ratings remain on a Stable trend, notwithstanding weaker corporate-level financial metrics in 2011 because of increased corporate-level debt to finance the growing invested capital. DBRS recognizes that the financial metrics are now weak for the ratings and believes that there is currently minimal room for further deterioration without pressuring the ratings. If one of the following scenarios were to materialize, DBRS will review and base our rating decision on an assessment of the contributing causes, the Company’s remedial plan and other relevant circumstances. These scenarios are: (1) Material increase in the proportion of BAM’s invested capital in less-stable opportunistic investments and private equity, leading to debt increases. (2) Material deterioration or rating downgrade in one or more of the core businesses. (3) Inability to improve cash flow coverage metrics (which could include funds from operations (FFO)-to-debt and FFO fixed charge coverage) to their 2010 levels by the end of 2012.

BAM’s corporate-level debt and issuance of preferred shares have increased in the past two years to partly finance its investments. In the meantime, operating cash flows from its investments recorded only modest growth. As a result, BAM’s corporate-level cash flow coverage metrics have weakened during the period, with FFO coverage-to-debt of 23% in 2011 (from 30% in 2010), FFO-to-interest of 4.5 times (x) (from 5.1x) and FFO-to-fixed charges (interests and preferred share dividend) of 3.1x (from 3.7x). We consider these 2011 levels weak for the ratings and expect improvement during 2012.

BAM’s corporate-level liquidity is strong, supported by corporate-level cash and available credit facilities of $2.4 billion as at December 31, 2011, and annual FFO after corporate expenses of about US$1.0 billion. Currently, there is no material debt repayment scheduled until 2014, when US$518 million comes due. The Company’s financial flexibility is further supported by its ability to access its external investor base and capital markets and to monetize part of its investments in listed vehicles, estimated to have a market value of US$17.9 billion (covering 3.8x the corporate-level debt of US$4.7 billion). While BAM’s liquidity should comfortably cover its corporate-level needs, DBRS notes that the Company remains largely dependent on external investors’ capital and equity issuances to support its growth.

This follows a similar, but more emphatic judgement by S&P.

BAM is the proud issuer of a great many preferred share issues: BAM.PF.A, BAM.PR.B, BAM.PR.C, BAM.PR.E, BAM.PR.G, BAM.PR.I, BAM.PR.J, BAM.PR.K, BAM.PR.M, BAM.PR.N, BAM.PR.O, BAM.PR.P, BAM.PR.R, BAM.PR.T, BAM.PR.X and BAM.PR.Z.

April 23, 2012

Monday, April 23rd, 2012

The Dutch government is in disarray:

Dutch Prime Minister Mark Rutte offered to quit, a move that would trigger early elections, as he sought to win parliamentary support for additional budget cuts needed to steer the Netherlands clear of the debt crisis.

With budget deliberations dragging on since March 5, the fate of Rutte’s minority government was thrown into doubt on April 21 when Wilders and his Freedom Party unexpectedly withdrew its support over how to narrow the shortfall. That prompted Rutte to cite new elections as “an obvious scenario” to try to resolve the deadlock.

In the Netherlands, the euro-area’s fifth biggest economy, the 2013 budget shortfall is currently forecast at 4.6 percent of gross domestic product. To pare it to 3 percent as specified by the European Commission, Rutte needs to find at least 9.5 billion euros of extra cuts to submit to Brussels by April 30.

“The package is way too rigorous and it’s bad for the economy,” Emile Roemer, head of the Socialist Party, which would double its seats to 30 according to latest polls, said in broadcast remarks. “We need to have elections and clarity as soon as possible.”

The opposition Labor Party is willing to cooperate with the government on preparing a complete 2013 budget only if elections are held in September, party leader Diederik Samsom told NOS television April 21. Economic growth is more important than meeting the 3 percent deficit target, Samsom said.

I mentioned a classic example of how investment managers are hired on April 18, 2011. The CalPERS story continues:

The former chief executive of the California Public Employees’ Retirement System was sued by U.S. regulators over claims he defrauded an investment firm into paying $20 million in fees to a friend’s placement agencies.

Federico Buenrostro, who served as Calpers CEO from 2002 to 2008, and his friend Alfred Villalobos, the former deputy mayor of Los Angeles, fabricated documents given to New York-based private-equity firm Apollo Global Management (APO), the Securities and Exchange Commission said today in a lawsuit filed in U.S. District Court in Nevada. California regulators sued the two men in May 2010 over similar claims.

The documents gave the false impression that Calpers had reviewed and signed placement-agent fee-disclosure letters in accordance with its established procedures, the SEC said. The lawsuit also names Villalobos and his firm ARVCO Capital Research LLC as defendants.

“Buenrostro and Villalobos not only tricked Apollo into paying more than $20 million in placement agent fees it would not otherwise have paid, but also undermined procedures designed to ensure that investors like Calpers have full disclosure of such fees,” John McCoy, associate regional director of the SEC’s Los Angeles office, said in a statement.

DBRS has released the Split Share Funds Quarterly Report – Q1 2012.

It was a mixed, unexciting day for the Canadian preferred share market, with PerpetualPremiums down 4bp, FixedResets up 5bp and DeemedRetractibles gaining 1bp. Volatility was muted. Volume was 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 0.8570 % 2,427.7
FixedFloater 4.43 % 3.79 % 33,588 17.80 1 0.1401 % 3,559.5
Floater 2.97 % 3.00 % 42,610 19.74 3 0.8570 % 2,621.3
OpRet 4.76 % 2.72 % 48,950 1.15 5 0.0230 % 2,507.1
SplitShare 5.26 % 1.48 % 77,498 0.65 4 -0.0843 % 2,687.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0230 % 2,292.5
Perpetual-Premium 5.47 % 1.73 % 81,031 0.11 23 -0.0363 % 2,224.1
Perpetual-Discount 5.20 % 5.28 % 155,073 15.01 10 -0.0705 % 2,401.5
FixedReset 5.02 % 3.10 % 192,281 2.19 67 0.0496 % 2,397.3
Deemed-Retractible 4.97 % 3.79 % 196,016 1.99 46 0.0081 % 2,307.0
Performance Highlights
Issue Index Change Notes
SLF.PR.D Deemed-Retractible -1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.70
Bid-YTW : 5.76 %
GWO.PR.H Deemed-Retractible -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.21
Bid-YTW : 5.34 %
BAM.PR.B Floater 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-23
Maturity Price : 17.91
Evaluated at bid price : 17.91
Bid-YTW : 2.95 %
BAM.PR.C Floater 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-23
Maturity Price : 17.62
Evaluated at bid price : 17.62
Bid-YTW : 3.00 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.E OpRet 117,200 Nesbitt crossed blocks of 40,000 and 75,000, both at 26.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.50
Bid-YTW : 2.72 %
SLF.PR.D Deemed-Retractible 86,180 RBC crossed 80,000 at 22.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.70
Bid-YTW : 5.76 %
FTS.PR.C OpRet 84,079 Nesbitt crossed 75,000 at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-06-01
Maturity Price : 25.25
Evaluated at bid price : 25.60
Bid-YTW : -0.25 %
BNS.PR.N Deemed-Retractible 58,935 TD crossed 49,900 at 26.48.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-01-29
Maturity Price : 26.00
Evaluated at bid price : 26.43
Bid-YTW : 2.77 %
RY.PR.E Deemed-Retractible 54,515 TD crossed 49,100 at 25.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 3.84 %
ELF.PR.H Perpetual-Discount 41,200 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-23
Maturity Price : 24.56
Evaluated at bid price : 24.95
Bid-YTW : 5.55 %
There were 23 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.K Floater Quote: 17.43 – 18.75
Spot Rate : 1.3200
Average : 0.8811

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-23
Maturity Price : 17.43
Evaluated at bid price : 17.43
Bid-YTW : 3.03 %

FTS.PR.C OpRet Quote: 25.60 – 25.95
Spot Rate : 0.3500
Average : 0.2271

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-06-01
Maturity Price : 25.25
Evaluated at bid price : 25.60
Bid-YTW : -0.25 %

RY.PR.Y FixedReset Quote: 26.69 – 26.95
Spot Rate : 0.2600
Average : 0.1627

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-11-24
Maturity Price : 25.00
Evaluated at bid price : 26.69
Bid-YTW : 3.17 %

GWO.PR.L Deemed-Retractible Quote: 25.90 – 26.19
Spot Rate : 0.2900
Average : 0.2054

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 5.10 %

CM.PR.K FixedReset Quote: 26.21 – 26.61
Spot Rate : 0.4000
Average : 0.3288

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.21
Bid-YTW : 3.10 %

POW.PR.G Perpetual-Premium Quote: 25.80 – 26.03
Spot Rate : 0.2300
Average : 0.1596

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-15
Maturity Price : 25.00
Evaluated at bid price : 25.80
Bid-YTW : 5.20 %

PrefLetter 2011 Collection Released!

Saturday, April 21st, 2012

The full collection of PrefLetters published in 2011 has been released and is now available for purchase via the PrefLetter website (click Subscribe Now).

The 2011 Collection includes the following appendices of varying length:

  • January: the run-up in deeply discounted Straight Preferreds “almost certainly driven by speculators attempting to out-guess OSFI regarding the transitional arrangements for the new Basel III bank capital rules.”
  • February: discussing OSFI’s recent regulatory pronouncements and the implications for future analysis.
  • March: discussing Risk, Reward and DeemedRetractibles.
  • April: reprises the very popular “Annuities” topic of the April, 2010, edition. A retirement calculator has been developed that includes annuities as an asset class, in addition to the standard stocks and bonds.
  • May: the concept of Dividend Capture and its applicability to FixedReset preferreds.
  • June: the analytical implications of CIBC’s machinations with respect to its preferred shares. There is also a discussion of Yellow Media’s preferreds
  • July: a brief review of Yield – and outlines some of
    the assumption made in the calculation of yield that are not always defensible.
  • August: the credit quality of the YLO preferred share issues in light of the 11Q2 results, credit rating downgrades and dividend cut.
  • September: updates the news regarding YLO.
  • October: the first is a comparison of four Canadian preferred share measures: CPD, DPS.UN, the BMO-CM “50” index, and Malachite Aggressive Preferred Fund; the second is a discussion of Security of Income vs. Security of Principal
  • November: the first concludes the discussion of yield that commenced in the July edition, while the second is an update of the situation with respect to YLO.
  • December: discusses “Liquidity Black Holes” and shows that sudden drops in price can be both entirely rational and unrelated to fundamentals.

The total length of the 2011 Annual Collection is 421 pages (file size about 17.0 MB) – much of this is, of course, the by now out of date recommendations of individual issues, but more than half of the total is comprised of the appendices.

Choose a New Font for PrefLetter!

Saturday, April 21st, 2012

For various arcane reasons, it has become desirable to change the font for PrefLetter.

My hard-working (and much abused) typesetter has proposed five PrefLetter_typeface_ideas that will meet the technical requirements:

  • Frutiger
  • Frutiger Condensed
  • Slate Std.
  • Myriad Pro
  • Berkeley

Have a look at the five PrefLetter_typeface_ideas and let me know in the comments or by eMail if you have any preference! The change will be effective with the May edition.