July 27, 2007

The week ended with another thumping for US Equities and Canadian stocks went along for the ride, notably

BCE Inc., target of the largest buyout, retreated after Citi Investment Research cut its recommendation, citing growing risks to its financing.

One analyst puts the odds of a Telus bid at 25% or less, but the long term track record of this analyst was not disclosed.

Some say that a turning point in capital markets has definitely been reached but there is some doubt that Wall Street’s problems will reach Main Street. The US economy has, apparently, been growing at a fair clip but the nattering nabobs of negativism have their own interpretation of the underlying trends. All the uncertainty meant that Treasuries did superbly, while Canadas followed … mostly. Even New York City, almost bankrupt in 1975, was able to get in on the action and scoop up some financing that ain’t going into corporates no more.  

And … I must apologize … the tables and commentary that have something of direct relevance to actual preferred shares will have to wait. HIMIPref™ has been updated, but I have dinner scheduled with a dear friend, whom I intend to regale with stories about how I don’t own any junk bonds.

I will update everything tomorrow!

Update, 2007-07-29: OK, maybe it wasn’t the very next day. But it was a most enjoyable dinner! In the meantime, the National Post has reported that:

“We have our financing,” Claude Lamoureax, president and CEO of Teachers’ said yesterday. “Clearly right now, the spreads have widened but that’s why you pay the bank huge fees to take the risks.”

As Mr. Lamoureax said, in leveraged buyouts the banks “take the risks” and right now the investment banks are temporarily swallowing the billions of dollars worth of debt deals for Chrysler and Alliance.

As for whether Teachers’ bankers should be worried, Mr. Lamoureux said there are no worries with its bankers or anyone else.

“Right now, we have our financing in place. No trouble,” he said.

Either he refused to say just exactly how the financing was in place, or the reporter didn’t ask. The story doesn’t go any further than the above bland assurance.

I’ve thought the issue in the context of what a massive break-fee-loss would mean to Teachers, and come to the conclusion that I don’t know enough about the issue. It would seem to me reasonable that there might be provisions regarding financing in the consortium agreement, to the effect that, if the deal fails on financing, the loss would be borne by Teachers financial partners, Providence Equity Partners Inc. and Madison Dearborn Partners, LLC. After all, they’re the financial muscle for the deal! It may be that such a provision is why Mr. Lamoureux is so sanguine … but we will just have to sit back and wait and see! In the meantime, I highly doubt that I’ll be throwing chips down on that table!

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.97% 4.96% 25,112 15.57 2 +0.0998% 1,039.6
Fixed-Floater 4.96% 5.15% 136,351 15.31 8 +0.1813% 1,019.7
Floater 4.86% 1.37% 78,819 8.47 4 +0.0808% 1,048.3
Op. Retract 4.83% 3.96% 85,443 3.25 16 -0.0019% 1,021.5
Split-Share 5.06% 4.57% 105,261 3.89 17 -0.0706% 1,046.3
Interest Bearing 6.26% 6.74% 64,084 4.66 3 -0.8786% 1,028.9
Perpetual-Premium 5.53% 5.19% 115,290 5.41 26 -0.0536% 1,023.0
Perpetual-Discount 5.09% 5.12% 338,800 15.32 38 -0.0002% 972.9
Major Price Changes
Issue Index Change Notes
BSD.PR.A InterestBearing -1.9792% Now with a pre-tax bid-YTW of 7.19% (as interest) based on a bid of 9.41 and a hardMaturity 2015-3-31 at 10.00. Y’know, when I think about all the stuff most people put in their RRSPs, this doesn’t look too bad!
BCE.PR.Z FixedFloater +1.0179%  
MFC.PR.C PerpetualDiscount +1.5277% Now with a pre-tax bid-YTW of 4.89% based on a bid of 23.26 and a limitMaturity.
Volume Highlights
Issue Index Volume Notes
IGM.PR.A OpRet 53,344 Now with a pre-tax bid-YTW of 4.06% based on a bid of 26.85 and a call 2009-7-30 at 26.00.
BNS.PR.L PerpetualDiscount 42,790 Now with a pre-tax bid-YTW of 4.99% based on a bid of 22.66 and a limitMaturity.
W.PR.J PerpetualPremium 41,100 Now with a pre-tax bid-YTW of 5.63% based on a bid of 25.01 and a limitMaturity. Not bad! Rated Pfd-2(low) by DBRS and P-2(low) by S&P. Currently redeemable at 25.25 … redeemable at 25.00 commencing 2008-07-15.
RY.PR.F PerpetualDiscount 39,500 Now with a pre-tax bid-YTW of 5.00% based on a bid of 22.25 and a limitMaturity.
BCE.PR.A FixedFloater 23,500  

There were nine other $25-equivalent index-included issues trading over 10,000 shares today.

2 Responses to “July 27, 2007”

  1. kaspu says:

    Your point about not owning junk bonds is well taken. And I fervently hope that your loyal readers have taken your past advice and are watching all this sturm und drang from a viewpoint of relative safety.
    But the eternal pessimist within me forces me to ask you this:

    If there is a complete corporate credit debacle, other than cash and gold, are there any other safe havens that will preserve capital value? Will even those of us who invest in the quality canadian prefs (P2h and higher) escape the hysterical fleeing from corporate debt? after all, the covenant of bank prefs in canada specificies that they are non-cumulative. The market might decide that this is an unacceptable risk and demand a wider spread. Lower yielding Canadas (yes…this time I do remember to call them Canadas) don’t have tjis provision. American bank prefs of even higher quality (AAA) almost always have in there convenants that they can defer dividend payments for as much as 20 quarters.
    So will all the money flee to government bonds, with the spreads between them and prefs widening to a ridiculous degree?

  2. [...] PrefBlog Canadian Preferred Shares – Data and Discussion « July 27, 2007 [...]

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