July 4, 2013

There are rumours that European rates will continue low:

The European Central Bank will keep interest rates at record lows for an extended period and could yet cut them further, the bank’s chief, Mario Draghi, said on Thursday.

Less than two hours after the Bank of England gave a steer about future interest rate moves at Mark Carney’s debut policy meeting as governor, the ECB president adopted the same tactic.

“The Governing Council expects the key ECB rates to remain at present or lower levels for an extended period of time,” Draghi told a news conference after the ECB left interest rates at 0.5 per cent, emphasizing that this was the first time that the ECB had done so.

Mind you, European leadership demonstrated during the crisis that they were willing to compromise their personal integrity when this was considered expedient; as for the BoE, Lapdog Carney will do what he’s told and read whatever speech he’s handed. That’s why he was hired. And, I’m afraid, with Parakeet Poloz now in charge of the Bank of Canada, we’re left only with Bernanke as a trustworthy central banker.

There are more jolly bond fund statistics:

Investors have pulled about $60 billion from U.S. bond funds since Federal Reserve Chairman Ben S. Bernanke rattled markets by outlining his plan to end the central bank’s unprecedented asset purchases.
The redemptions foreshadow what’s in store for asset managers when the central bank eventually scales back the $85 billion in monthly purchases of bonds and mortgage securities that investors have come to rely on. Bond funds had $28.1 billion in net redemptions in the week ended June 26, the Washington-based Investment Company Institute said yesterday.

But to put that in perspective:

Overall bond redemptions were less than 2 per cent of total assets.

Here’s another object lesson in regulatory competence and honesty:

[Vincent] Tchenguiz has launched an unprecedented legal assault on the Serious Fraud Office, one of the top agencies for prosecuting white-collar crime in the U.K. After the SFO’s investigation of Tchenguiz’s dealings with an Icelandic bank fell apart last year, he accused the office of malicious prosecution and false imprisonment in a lawsuit filed in the High Court in London in December.

Tchenguiz, who was arrested on suspicion of fraud in 2011, is seeking damages of 200 million pounds ($313 million). And his younger brother, Robert, 52, who was also arrested, filed a similar suit, asking for 100 million pounds.

n July 2012, the High Court ruled that the SFO, under former director Richard Alderman, had misrepresented key facts in the case and directed the SFO to pay Vincent’s 3 million pound legal bill. The agency isn’t appealing the decision.

The SFO also erred when it alleged Vincent had failed to inform Kaupthing that other banks had prior claims on his real estate; the loan agreement stated that fact more than 100 times.

The SFO’s key mistake was in taking on somebody with the resources to pay a £3-million legal bill. But the rest isn’t surprising.

DBRS confirmed RON.PR.A at Pfd-4(high) [Trend Negative]:

Same-store sales were flat in 2012, yet net sales increased approximately 1.7% to nearly $4.9 billion versus the previous year based on higher sales in the Commercial and Professional Market segment, new store openings, new dealer-owners and improved same-store distribution sales to affiliate dealers. EBITDA margins were negatively affected by weaker gross margins due to promotional activity in a highly competitive environment and higher selling, general and administrative costs. As such, EBITDA declined by approximately 40% to $171 million, marking the third consecutive year of declining EBITDA.

Balance-sheet debt increased notably in F2012 to approximately $328 million, which combined with weakness in operating income to result in further deterioration of credit metrics. Lease-adjusted debt-to-EBITDAR increased to approximately 3.77 times (x) in 2012 versus 2.54x in 2011 and 2.80x in 2010 (improvement in 2011 was primarily attributable to the early voluntary repurchase of debentures) and lease-adjusted EBIT coverage declined to 1.51x in 2012 versus 2.26x in 2011 and nearly 3.7x in 2010.

Going forward, DBRS believes meaningful recovery in Rona’s earnings profile will remain challenging as the Company is expected to continue to face intense competition and a highly promotional environment while Canadian consumers may remain prudent in the uncertain housing and interest rate environment. On June 27, 2013, the Company announced the next phase of its Transformational Plan, which includes the closure of 11 non-profitable stores in Ontario and British Columbia, as well as additional administrative headcount reduction and other cost-cutting initiatives. DBRS expects that a significant improvement in operating performance will be difficult to realize over the near term but EBITDA could benefit from the successful implementation of the Company’s Transformational Plan over the medium term.

Capstone Infrastructure, proud issuer of CSE.PR.A, is making an acquisition by share exchange:

Capstone Infrastructure Corporation (TSX: CSE; CSE.PR.A; CSE.DB.A – “Capstone”) and Renewable Energy Developers Inc. (formerly Sprott Power Corp.) (TSX: RDZ; RDZ.DB – “ReD”) have entered into a definitive agreement (the “Agreement”) whereby Capstone will acquire all the outstanding shares of ReD (the “Transaction”) by way of a share exchange, which will result in a larger infrastructure company with power generation facilities across Canada totalling approximately net 465 megawatts (“MW”) of installed capacity, an attractive pipeline of contracted development opportunities in Canada representing net 79 MW of capacity, and international investments in regulated water and district heating businesses. The Board of Directors of each company has unanimously approved the Transaction.

Under the terms of the Transaction, shareholders of ReD will receive 0.26 of a Capstone common share and $0.001 in cash, which, combined, is currently the equivalent of $1.01, for each common share of ReD. The consideration payable to ReD’s shareholders represents a premium of 10.8% based on the 20-day volume weighted average price (“VWAP”) of ReD’s common shares and Capstone’s common shares on the Toronto Stock Exchange (“TSX”) as at July 2, 2013 of $0.91 and $3.88, respectively. Upon completion of the Transaction, which is valued at approximately $70 million, existing Capstone shareholders and ReD shareholders will own approximately 80% and approximately 20% of the common shares of the combined company, respectively.

  • • Expands Capstone’s renewable power footprint in Canada by adding net 95 MW in operating wind power facilities in Nova Scotia and Ontario.
  • • Enables Capstone to access a net 35 MW pipeline of wind power projects with 20-year power purchase agreements (“PPAs”) under development in Nova Scotia, Ontario, Saskatchewan and Quebec, and the option to acquire an additional net 44 MW in wind power projects with PPAs in Ontario. These projects will require equity funding from Capstone in the amount of approximately $60 million over the next two years, with the balance of the projects’ financing requirement to be satisfied with project-level debt.
  • • Brings additional proven development and project management personnel with a record of completing renewable power projects on time and on budget.
  • • Delivery of the development projects in ReD’s pipeline is expected to be accretive to cash flow over the long term.

Tomorrow’s report will be late, by which I mean Sunday.

It was another day of strong recovery for the Canadian preferred share market, with PerpetualDiscounts winning 56bp, FixedResets gaining 12bp and DeemedRetractibles up 19bp. The performance highlights table is comprised entirely of winners. Volume was on the low side of average, but not bad for a US holiday.

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 0.2071 % 2,587.0
FixedFloater 4.13 % 3.47 % 42,881 18.33 1 0.0000 % 3,977.8
Floater 2.71 % 2.90 % 79,694 20.01 4 0.2071 % 2,793.2
OpRet 4.85 % 3.42 % 66,628 0.16 5 0.1016 % 2,615.2
SplitShare 4.66 % 4.18 % 71,959 3.97 6 -0.0463 % 2,973.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1016 % 2,391.3
Perpetual-Premium 5.59 % -0.92 % 103,839 0.09 12 0.1979 % 2,284.5
Perpetual-Discount 5.32 % 5.36 % 142,248 14.69 26 0.5636 % 2,414.4
FixedReset 4.95 % 3.38 % 242,610 3.59 83 0.1157 % 2,487.8
Deemed-Retractible 5.04 % 4.45 % 178,345 4.85 44 0.1900 % 2,398.8
Performance Highlights
Issue Index Change Notes
GWO.PR.M Deemed-Retractible 1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-31
Maturity Price : 25.00
Evaluated at bid price : 26.01
Bid-YTW : 5.03 %
CU.PR.C FixedReset 1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.01
Bid-YTW : 3.01 %
SLF.PR.G FixedReset 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.85
Bid-YTW : 3.48 %
HSE.PR.A FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-04
Maturity Price : 23.33
Evaluated at bid price : 24.75
Bid-YTW : 3.58 %
PWF.PR.G Perpetual-Premium 1.07 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-03
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : -0.92 %
HSB.PR.D Deemed-Retractible 1.08 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.27
Bid-YTW : 4.31 %
SLF.PR.C Deemed-Retractible 1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.54
Bid-YTW : 5.66 %
NA.PR.Q FixedReset 1.19 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-11-15
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 3.26 %
MFC.PR.C Deemed-Retractible 1.33 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.80
Bid-YTW : 5.60 %
W.PR.J Perpetual-Discount 1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-04
Maturity Price : 24.60
Evaluated at bid price : 24.85
Bid-YTW : 5.65 %
FTS.PR.F Perpetual-Discount 2.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-04
Maturity Price : 24.28
Evaluated at bid price : 24.62
Bid-YTW : 5.02 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.R FixedReset 79,300 RBC crossed 35,000 at 25.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 3.68 %
BNS.PR.Q FixedReset 47,670 RBC crossed 35,000 at 25.00.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 3.51 %
TD.PR.S FixedReset 38,424 Reset rate announced.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.87
Bid-YTW : 3.46 %
MFC.PR.K FixedReset 37,300 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-19
Maturity Price : 25.00
Evaluated at bid price : 24.99
Bid-YTW : 3.86 %
RY.PR.Y FixedReset 36,168 RBC crossed 15,000 at 26.53.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-11-24
Maturity Price : 25.00
Evaluated at bid price : 26.48
Bid-YTW : 2.27 %
BNS.PR.P FixedReset 27,749 RBC crossed 12,200 at 24.85.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 24.85
Bid-YTW : 3.44 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.F Perpetual-Discount Quote: 24.43 – 24.98
Spot Rate : 0.5500
Average : 0.3965

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-04
Maturity Price : 24.17
Evaluated at bid price : 24.43
Bid-YTW : 5.46 %

FTS.PR.G FixedReset Quote: 24.49 – 24.85
Spot Rate : 0.3600
Average : 0.2281

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-04
Maturity Price : 23.41
Evaluated at bid price : 24.49
Bid-YTW : 3.95 %

CIU.PR.A Perpetual-Discount Quote: 22.53 – 23.20
Spot Rate : 0.6700
Average : 0.5508

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-04
Maturity Price : 22.14
Evaluated at bid price : 22.53
Bid-YTW : 5.14 %

BNS.PR.K Deemed-Retractible Quote: 25.18 – 25.67
Spot Rate : 0.4900
Average : 0.3770

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-28
Maturity Price : 25.00
Evaluated at bid price : 25.18
Bid-YTW : 3.44 %

TD.PR.A FixedReset Quote: 25.20 – 25.57
Spot Rate : 0.3700
Average : 0.2611

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 2.95 %

CU.PR.F Perpetual-Discount Quote: 22.70 – 23.00
Spot Rate : 0.3000
Average : 0.1975

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-04
Maturity Price : 22.40
Evaluated at bid price : 22.70
Bid-YTW : 5.00 %

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