January 5, 2012

They don’t issue preferreds, but this is interesting anyway – S&P downgraded Sears by two notches:

  • The decline in operating performance at U.S. retailer Sears accelerated in 2011, and we expect operating performance to remain pressured in 2012, potentially resulting in negative EBITDA.
  • Sears’ liquidity sources will narrow, given the negative EBITDA we expect and the need to fund operating losses, capital spending, and pension contributions.
  • We are lowering our corporate credit rating on the company to ‘CCC+’ from ‘B’ and the short-term and commercial paper ratings for Sears Roebuck Acceptance to ‘C’ from ‘B-2’.
  • The negative outlook reflects our expectation that Sears’ liquidity could diminish in 2013.

This means that Eddy Lampert could be in trouble:

Edward Lampert’s hedge fund cut its stake in AutoZone (AZO) Inc. late last month to meet client redemptions amid a series of setbacks at Sears Holdings Corp. (SHLD), one of its biggest and highest-profile investments.

ESL Investments Inc., the firm run by Lampert, distributed about $1.02 billion worth of AutoZone stock to investors in connection with the closing of one investment partnership and the restructuring of another, according to a regulatory filing yesterday. The Greenwich, Connecticut-based firm also used $351.4 million of shares in AutoZone and AutoNation Inc. (AN) as payment in kind to meet year-end redemptions from its main fund, ESL Partners LP, the filing showed.

Lampert has been selling AutoZone and AutoNation shares while holding onto his entire stake in Sears, a strategy that could leave his main hedge fund further concentrated in the Hoffman Estates, Illinois-based retailer. AutoZone rose 19 percent last year and AutoNation shares gained 31 percent, while Sears shares plummeted 56 percent.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 29bp, FixedResets up 7bp and DeemedRetractibles gaining 22bp. For the second successive day there was a lengthy list of issues gaining more than 1% – with SLF issues notable for their presence among the better performers, while Floaters continued to signal retail expectations of inflationary times ahead. Volume remained significantly below average, but it is recovering.

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 2.1828 % 2,217.2
FixedFloater 4.80 % 4.54 % 35,102 17.14 1 0.0000 % 3,211.9
Floater 3.00 % 3.19 % 67,934 19.28 3 2.1828 % 2,394.0
OpRet 4.99 % 1.70 % 65,434 1.36 7 0.2714 % 2,478.5
SplitShare 5.41 % 1.29 % 69,503 0.92 4 0.4924 % 2,585.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2714 % 2,266.3
Perpetual-Premium 5.41 % 0.64 % 86,367 0.09 23 0.1640 % 2,203.0
Perpetual-Discount 5.13 % 5.05 % 141,654 15.37 7 0.2899 % 2,355.3
FixedReset 5.08 % 2.86 % 198,782 2.40 64 0.0744 % 2,362.7
Deemed-Retractible 4.97 % 3.70 % 186,228 2.24 46 0.2161 % 2,265.6
Performance Highlights
Issue Index Change Notes
GWO.PR.L Deemed-Retractible 1.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.17
Bid-YTW : 5.09 %
SLF.PR.I FixedReset 1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-12-31
Maturity Price : 25.00
Evaluated at bid price : 24.60
Bid-YTW : 4.41 %
BAM.PR.P FixedReset 1.04 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-30
Maturity Price : 25.00
Evaluated at bid price : 27.28
Bid-YTW : 3.54 %
BAM.PR.R FixedReset 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-01-05
Maturity Price : 23.57
Evaluated at bid price : 26.30
Bid-YTW : 3.60 %
MFC.PR.B Deemed-Retractible 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.32
Bid-YTW : 6.16 %
BNA.PR.E SplitShare 1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 23.65
Bid-YTW : 6.06 %
SLF.PR.A Deemed-Retractible 1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.58
Bid-YTW : 6.09 %
PWF.PR.K Perpetual-Discount 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-01-05
Maturity Price : 24.83
Evaluated at bid price : 25.12
Bid-YTW : 5.00 %
SLF.PR.E Deemed-Retractible 1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.60
Bid-YTW : 6.40 %
SLF.PR.D Deemed-Retractible 1.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.41
Bid-YTW : 6.45 %
SLF.PR.C Deemed-Retractible 1.75 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.52
Bid-YTW : 6.39 %
BAM.PR.K Floater 2.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-01-05
Maturity Price : 16.15
Evaluated at bid price : 16.15
Bid-YTW : 3.27 %
BAM.PR.B Floater 4.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-01-05
Maturity Price : 16.52
Evaluated at bid price : 16.52
Bid-YTW : 3.19 %
Volume Highlights
Issue Index Shares
Traded
Notes
SLF.PR.G FixedReset 118,952 Nesbitt crossed 115,000 at 22.55.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.50
Bid-YTW : 4.60 %
IFC.PR.A FixedReset 68,416 Desjardins bought 20,000 from RBC.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.04
Bid-YTW : 3.75 %
ENB.PR.D FixedReset 57,475 Desjardins crossed 25,000 at 25.52.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-01-05
Maturity Price : 23.26
Evaluated at bid price : 25.51
Bid-YTW : 3.55 %
BNS.PR.Q FixedReset 56,259 Nesbitt crossed 50,000 at 25.95.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-25
Maturity Price : 25.00
Evaluated at bid price : 25.85
Bid-YTW : 2.87 %
MFC.PR.G FixedReset 54,034 Recent fire sale.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.05
Bid-YTW : 4.85 %
BNS.PR.Y FixedReset 51,831 TD crossed 49,500 at 25.20.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 2.75 %
There were 24 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.N Perpetual-Discount Quote: 23.46 – 23.85
Spot Rate : 0.3900
Average : 0.2793

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-01-05
Maturity Price : 23.01
Evaluated at bid price : 23.46
Bid-YTW : 5.07 %

GWO.PR.M Deemed-Retractible Quote: 25.75 – 26.10
Spot Rate : 0.3500
Average : 0.2444

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 5.46 %

IAG.PR.C FixedReset Quote: 26.35 – 26.65
Spot Rate : 0.3000
Average : 0.2158

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.35
Bid-YTW : 3.43 %

GWO.PR.N FixedReset Quote: 23.19 – 23.53
Spot Rate : 0.3400
Average : 0.2588

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.19
Bid-YTW : 3.93 %

TD.PR.C FixedReset Quote: 26.33 – 26.57
Spot Rate : 0.2400
Average : 0.1673

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.33
Bid-YTW : 2.76 %

FTS.PR.C OpRet Quote: 26.00 – 26.50
Spot Rate : 0.5000
Average : 0.4293

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-02-04
Maturity Price : 25.50
Evaluated at bid price : 26.00
Bid-YTW : -11.76 %

2 Responses to “January 5, 2012”

  1. Drew says:

    Can you explain why it might be that floaters exhibit fears of inflation yet discounts are rallying?

  2. jiHymas says:

    Well, there’s a little sloppy thinking embedded in both my statement and my perceptions of retail’s perceptions. It’s not so much inflation that drives floaters, as “interest rates”, by which most people mean the Bank of Canada rate and their mortgage, which is based on 5-year Canadas, which is highly correlated with the BoC rate.

    We could make sense of it by saying that the BoC will have to tighten in order to combat inflation, and be successful in that endeavor. This would make the relative performances of floaters and PerpetualDiscounts consistent and illustrate once again that the short-end is driven by monetary policy and the long-end is driven by inflation expectations, which are related, but certainly not identical, concepts.

    However, the preferred share market rarely shows much consistency – particularly floaters, which inhabit their own little world. 🙂

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