April 24, 2013

The Globe was enthralled with the new Air Canada equipment financing:

Air Canada said on Wednesday it plans to acquire five new Boeing 777-300ER series aircraft with funds raised through offering two tranches of enhanced equipment trust certificates (EETCs) worth a total of
$606.3 million.

The EETC market has been one of the main sources of funding that U.S. carriers have used to fund aircraft purchases in the
last two decades.

This market has been off limits to airlines in Canada until late last year, when the Canadian government signed an accord that now allows domestic airlines to seek funding from this market, which offers lower interest rates than other forms of
aircraft financing.

My interest was further piqued by S&P’s rating announcement – which noted that the rating was “(sf)” – structured finance:

The pass-through certificates will be issued by pass-through trusts that will hold equipment notes issued by Loxley Aviation Ltd. Loxley Aviation is a newly formed company whose assets will consist of the aircraft to be financed, in part, with the proceeds of this offering and contract rights under its conditional sale agreements for the aircraft with Air Canada. We will assign final ratings after concluding a legal review of the documentation.

We base the preliminary ‘B'(sf) rating on the credit quality of Air Canada (B-/Stable/–); substantial collateral coverage by good-quality aircraft; and the legal and structural protections available to the pass-through certificates. The company will use proceeds of this offering and those of the 2013-1 class A and class B series to finance 2013 and 2014 deliveries of five Boeing B777-300ER aircraft to be acquired by Loxley Aviation and conditionally sold to Air Canada. Each aircraft’s equipment notes are cross-collateralized and cross-defaulted under the indentures, and cross-collateralized and cross-defaulted to the conditional sale agreements, which we believe increases the likelihood that Air Canada would cure any defaults and agree to perform its future obligations, including its payment obligations, under the conditional sale agreements in an insolvency-related event of the airline.

So, I wonder, what’s the deal with these things? How are they different from a normal mortgage bond, which is to say, debt secured by a physical asset?

Nothing on SEDAR.

A little digging and I learn that it’s a private placement:

The certificates are being offered and sold only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States in reliance on Regulation S under the Securities Act. The certificates have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and state securities laws. The certificates have not been and will not be qualified for sale to the public under applicable Canadian securities laws and, accordingly, any offer and sale of the certificates in Canada will be made on a basis that is exempt from the prospectus requirement of such securities laws.

Let us all thank the bureaucracy for protecting us from the debt markets!

It was another modestly good day for the Canadian preferred share market, with PerpetualPremiums up 8bp, FixedResets winning 9bp and DeemedRetractibles gaining 2bp. Volatility was average. Volume continued high.

PerpetualDiscounts now yield 4.84%, equivalent to 6.29% interest at the standard conversion factor of 1.3x. Long corporates now yield a little under 4.1%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 220bp, unchanged from April 17.

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 0.9527 % 2,598.4
FixedFloater 3.96 % 3.18 % 33,582 18.76 1 0.0000 % 4,150.7
Floater 2.68 % 2.87 % 82,194 20.05 4 0.9527 % 2,805.5
OpRet 4.80 % 1.26 % 60,836 0.15 5 0.0387 % 2,609.8
SplitShare 4.80 % 4.18 % 121,884 4.11 5 0.1180 % 2,960.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0387 % 2,386.4
Perpetual-Premium 5.18 % 3.09 % 88,301 0.84 32 0.0842 % 2,380.6
Perpetual-Discount 4.84 % 4.84 % 175,131 15.71 4 -0.0709 % 2,690.0
FixedReset 4.93 % 2.73 % 249,090 3.77 80 0.0918 % 2,507.4
Deemed-Retractible 4.88 % 3.57 % 135,209 1.37 44 0.0230 % 2,453.2
Performance Highlights
Issue Index Change Notes
SLF.PR.G FixedReset 1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.28
Bid-YTW : 2.81 %
BAM.PR.K Floater 1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-04-24
Maturity Price : 18.12
Evaluated at bid price : 18.12
Bid-YTW : 2.91 %
BAM.PR.B Floater 1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-04-24
Maturity Price : 18.38
Evaluated at bid price : 18.38
Bid-YTW : 2.87 %
CU.PR.C FixedReset 1.72 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.55
Bid-YTW : 2.56 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.D FixedReset 199,264 Desjardins crossed 185,400 at 26.43. Nice ticket!
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.29
Bid-YTW : 2.63 %
POW.PR.B Perpetual-Premium 86,747 Scotia crossed 76,000 at 25.63.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.48
Bid-YTW : -15.58 %
IFC.PR.C FixedReset 74,350 National crossed 50,000 at 26.07; Scotia crossed 15,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 26.06
Bid-YTW : 2.99 %
BNS.PR.P FixedReset 73,509 TD crossed 32,600 at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : -20.90 %
RY.PR.W Perpetual-Premium 65,117 RBC crossed 23,400 at 25.35.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-24
Maturity Price : 25.25
Evaluated at bid price : 25.36
Bid-YTW : -5.22 %
ENB.PR.H FixedReset 36,198 National crossed 25,100 at 25.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-04-24
Maturity Price : 23.36
Evaluated at bid price : 25.71
Bid-YTW : 3.19 %
There were 46 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TCA.PR.X Perpetual-Premium Quote: 50.55 – 51.24
Spot Rate : 0.6900
Average : 0.4366

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-15
Maturity Price : 50.00
Evaluated at bid price : 50.55
Bid-YTW : 3.09 %

HSE.PR.A FixedReset Quote: 25.75 – 26.33
Spot Rate : 0.5800
Average : 0.3419

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-04-24
Maturity Price : 23.63
Evaluated at bid price : 25.75
Bid-YTW : 2.81 %

VNR.PR.A FixedReset Quote: 26.62 – 26.95
Spot Rate : 0.3300
Average : 0.2106

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-10-15
Maturity Price : 25.00
Evaluated at bid price : 26.62
Bid-YTW : 2.84 %

MFC.PR.F FixedReset Quote: 25.10 – 25.40
Spot Rate : 0.3000
Average : 0.1919

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 3.02 %

SLF.PR.F FixedReset Quote: 26.10 – 26.38
Spot Rate : 0.2800
Average : 0.1868

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 2.58 %

PWF.PR.L Perpetual-Premium Quote: 25.50 – 25.74
Spot Rate : 0.2400
Average : 0.1765

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 4.25 %

One Response to “April 24, 2013”

  1. […] PerpetualDiscounts now yield 4.87%, equivalent to 6.33% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.05% (!) so the interest-equivalent pre-tax spread is now about 230bp, a marked rise from the 220bp reported April 24. […]

Leave a Reply

You must be logged in to post a comment.