BCE Exchange Offer for BAF Preferreds

July 23rd, 2014

BCE Inc. has announced:

that BCE will privatize Bell Aliant by acquiring the interest of its affiliate’s public minority shareholders, while supporting Bell Aliant’s ongoing growth and competitiveness with significant investments in Atlantic Canada infrastructure and employment.

BCE expects the privatization transaction to be completed by November 30, 2014, subject to more than 50% of Bell Aliant common shares held by public minority shareholders being tendered to the offer, notification under the Competition Act, and other conditions set forth in the support agreement, a copy of which is available under Bell Aliant’s SEDAR profile at www.sedar.com. CRTC and Industry Canada approvals are not required because there is no change in control of Bell Aliant, and no transfers of wireless spectrum licences.

BCE will also offer holders of preferred shares of Bell Aliant Preferred Equity Inc. (Prefco) the opportunity to exchange their Prefco preferred shares for BCE preferred shares with the same financial terms as the existing Prefco preferred shares, subject to terms and conditions of the offer. Completion of the Bell Aliant privatization is not conditional upon completion of the preferred share exchange.

The Special Committee of the independent directors of Prefco has unanimously determined that the preferred share offer is fair to preferred shareholders and, on the Special Committee’s recommendation, the Board of Directors of Prefco is recommending that shareholders accept the offer and tender their preferred shares. The Special Committee has received an opinion from Scotia Capital that, subject to the assumptions, limitations and qualifications set out in such opinion, the consideration to be received pursuant to the BCE preferred shares offer is fair from a financial point of view to the preferred shareholders. Completion of the preferred share exchange offer is conditional upon completion of the common share offer, holders of at least two-thirds of the outstanding preferred shares tendering their preferred shares to the offer, and the other conditions set forth in the support agreement.

The offers are expected to be commenced in mid-August and to expire in the second half of September. Tender offer circulars containing the full details of the common share offer and the preferred share offer (together with directors’ circulars for each offer) and other related documents setting forth full details of the terms and conditions of the offers will be mailed to shareholders.

It is not clear to me just what the position of untendered BAF preferred shares will be, in terms of the corporate structure, but will await shareholder documents.

Affected issues are:

These issues will be nicely complementary to BCE.PR.K, A FixedReset, 4.15%+188, which commenced trading July 5, 2011 with a ridiculous re-opening 2011-12-12.

DBRS has confirmed BCE at Pfd-3(high):

Following the transaction, DBRS expects Bell Aliant to be transferred to Bell Canada from BCE. As such, DBRS expects Bell Canada’s 2014 year-end gross debt-to-EBITDA to be approximately 2.35 times (x) versus DBRS’s previous expectation of approximately 2.10x. In its rating report dated April 7, 2014, DBRS stated that it expects Bell Canada to reduce its gross debt-to-EBITDA ratio to below 2.0x by mid-2015 and that failure by the Company to deleverage as expected could result in a negative rating action. DBRS is now more comfortable with a gross debt-to-EBITDA ratio of slightly above 2.0x over the medium term given the benefits to the business risk profile of the combined entity, the Company’s strong coverage ratios and its solid operating performance.

Going forward, the Company intends to deleverage through growth in operating income and the application of free cash flow toward debt reduction toward 2.0x over the next two to three years. This could be accelerated with the use of a dividend reinvestment plan funded by treasury stock issuance. Weaker-than-expected operating performance and/or failure to deleverage in the expected time frame could result in pressure on the ratings.

DBRS expects the transaction to be completed in November 2014. DBRS notes that the CRTC and Industry Canada approvals are not required because there is no change in control of Bell Aliant and no transfers of wireless spectrum licenses. DBRS will re-evaluate its ratings confirmation if there is an increase in BCE’s offer price and/or a change in the terms of financing.

DBRS has placed BAF Under Review with Positive Implications:

DBRS has today placed the ratings of Bell Aliant Regional Communications, Limited Partnership’s (Bell Aliant) Under Review with Positive Implications following BCE Inc.’s tender offer to acquire the minority interest in Bell Aliant for $3.95 billion (BCE Inc./Bell Canada currently own 44.1% of Bell Aliant).

As part of the transaction, BCE Inc. will assume Bell Aliant’s $2.89 billion net debt and $618 million preferred shares. The Positive Implications of the Under Review status reflect the stronger credit profile of BCE Inc./Bell Canada. DBRS will proceed with its review as more information about the form and final structure of the transaction becomes available.

Similarly, S&P’s rating of BCE is unaffected at P-2(low):

Standard & Poor’s Ratings Services today said that its ratings and outlook on Montreal-based diversified telecom and media service provider BCE Inc. (BBB+/Stable/–) and its related entities are not affected by the company’s tender offer to acquire the remaining (55.9%) minority interest float in Bell Aliant Inc. for approximately C$3.95 billion. BCE plans to fund the transaction with about C$2.95 billion of BCE Inc. common shares and about C$1 billion of debt.

And S&P’s rating of BAF is on CreditWatch Positive:

  • •Montreal-based BCE Inc. has announced a tender offer to acquire the remaining minority interest float in Atlantic-Canada based Bell Aliant Inc.
  • •BCE will fund the C$3.95 billion purchase with about C$2.95 billion of
    equity and about C$1 billion of debt.
  • •As a result, we are placing our long-term ratings on Bell Aliant and its related entities, including our ‘BBB’ corporate credit rating on the company, on CreditWatch with positive implications.


We expect to rate any Bell Aliant debt that remains after the acquisition on a consolidated basis with BCE — the ratings on which are unchanged following this announcement …. The transaction is subject to support from more than 50% of Bell Aliant’s minority shareholders as well as approval from the Competition Bureau of Canada, and we expect it to close in fourth-quarter 2014 following these approvals.

July 22, 2014

July 22nd, 2014

There are musings about a possible drop in Canadian policy rates:

The Bank of Canada says it’s just going with the flow: If economic data in the months ahead get stronger than currently expected, it will ready for higher interest rates; if economic conditions unexpectedly worsen, the central bank says it is prepared to cut its benchmark interest rate from its already ultra-low setting of 1 per cent. For now, the central bank is totally neutral.

Craig Alexander, chief economist at Toronto-Dominion Bank, doesn’t really believe it. His latest commentary is inspired by a question about whether the central bank really could surprise and cut interest rates. Mr. Alexander politely considers the question, saying the possibility “is not ridiculous given some of the recent economic developments.” Then he goes about demolishing the idea almost entirely.

Mr. Alexander’s report sets the backdrop:

The Bank of Canada has been on hold for an unprecedented 45 months, and TD Economics expects the overnight rate to remain unchanged for at least another year. Futures markets are in agreement, as they anticipate the next move in rates will be a hike, but not until the fourth quarter of 2015. This consensus view is predicated on the belief that the economy will deliver only moderate growth, gradually eating up the available economic slack and closing the output gap in early 2016. The economic backdrop augurs that inflation will remain close to the Bank’s 2% target, implying no rush to reduce the degree of monetary stimulus, but also no need to lower rates.

There’s not much action in the US bond market:

Trading in U.S. government bonds has dropped 25 percent in the past few weeks from the comparable period last year, according to Federal Reserve data. Investment-grade (NTMBIV) and junk-bond trading have plunged 17 percent and 8 percent, respectively, since the end of the second quarter, according to Financial Industry Regulatory Authority data.

This means that, for one, it’s harder for investors to shuffle their portfolios even if they want to because there are fewer people out there looking to sell or buy. And, two, this eats into bond dealers’ already waning trading revenues.

Adding to the summer doldrums is a declining volume of corporate-debt sales. Companies have sold an average $22.7 billion of dollar-denominated bonds each week this month, compared with an average $36.2 billion per week in June, according to data compiled by Bloomberg. Investors typically transact more frequently in bonds that have been sold within the prior few months.

How much of this is economics and how much is regulation? What are the implications for capital markets if liquidity remains low for an extended period? Does anybody know? Does anybody care?

Meanwhile, there is politics being played with the Jackson Hole guest list:

As the Federal Reserve Bank of Kansas City prepares to host next month’s annual gathering of central bankers in Wyoming, seasoned Fed watchers from the financial markets, including the chief U.S. economists of the biggest American banks, aren’t being invited, according to past participants.

The exclusion of Wall Street may reflect a dispute between some regional Fed bank presidents who are more worried by loose monetary policy than Fed governors in Washington including Yellen, said Pippa Malmgren, founder of DRPM Group in London and another frequent delegate who won’t be attending this year.

“I fully support disinviting the chief economists of the largest beneficiaries of quantitative easing,” Malmgren said, referring to the Fed’s program of monthly bond purchases, which is on course to end this year.

“This weakens the support for the Yellen camp and gives her opponents more chance to make their case” during the meeting, said Malmgren, a former adviser to U.S. President George W. Bush.

It seems very odd to me that the Fed isn’t inviting its best salesmen to their trade show.

I moaned yesterday about an incomprehensible tax dodge being controversially used by Renaissance Capital. Matt Levine explains it.

DBRS has confirmed W.PR.H and W.PR.J at Pfd-2(low):

Westcoast is expected to continue its significant expansion projects in the medium term to take advantage of the strong exploration and unconventional drilling activity in Western Canada. The Company invested $946 million in capex in 2013, including $528 million of expansion capital, with an additional $950 million in capex planned for 2014. Increasing earnings and cash flow from expansions placed into service to date have resulted in relatively strong credit ratios. Although a major portion of capital spending is expected to be funded through the Company’s operating cash flow, incremental financing is likely from increased long-term debt issuance. While the capex program is substantial, spending is allocated to low-risk gathering and processing (G&P) and pipeline segments, and underpinned by long-term contractual commitments, which will continue to support Westcoast’s relatively strong business risk profile. DBRS expects the Company to fund its capital expenditure prudently and maintain credit metrics in line with the current rating category.

It was a negative day for the Canadian preferred share market, with PerpetualDiscounts flat, FixedResets down 22bp and DeemedRetractibles off 6bp. Volatility was average. Volume was quite high, probably due to portfolio shuffling after the new issue announcements from BMO, FixedReset, 3.80%+222 and TD, FixedReset, 3.80%+227.

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 3.07 % 3.06 % 20,715 19.53 1 0.4115 % 2,584.9
FixedFloater 4.25 % 3.47 % 29,444 18.50 1 -1.8860 % 4,085.3
Floater 2.85 % 2.94 % 46,229 19.89 4 -0.2709 % 2,776.0
OpRet 4.00 % -9.46 % 81,590 0.08 1 0.4704 % 2,733.9
SplitShare 4.26 % 3.99 % 44,640 4.02 6 0.0000 % 3,116.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.4704 % 2,499.9
Perpetual-Premium 5.52 % -3.41 % 84,586 0.08 17 -0.0193 % 2,430.2
Perpetual-Discount 5.23 % 5.15 % 110,342 15.21 20 0.0043 % 2,582.5
FixedReset 4.40 % 3.59 % 201,271 8.57 77 -0.2235 % 2,557.8
Deemed-Retractible 4.98 % -1.15 % 124,714 0.09 43 -0.0572 % 2,552.4
FloatingReset 2.65 % 0.72 % 98,833 0.16 6 -0.1308 % 2,525.4
Performance Highlights
Issue Index Change Notes
MFC.PR.F FixedReset -2.33 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.02
Bid-YTW : 4.13 %
BAM.PR.G FixedFloater -1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-22
Maturity Price : 22.54
Evaluated at bid price : 22.37
Bid-YTW : 3.47 %
ENB.PR.Y FixedReset -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-22
Maturity Price : 22.78
Evaluated at bid price : 24.02
Bid-YTW : 4.01 %
CIU.PR.C FixedReset 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-22
Maturity Price : 21.64
Evaluated at bid price : 22.06
Bid-YTW : 3.31 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.S FixedReset 427,622 RBC bought 13,300 from anonymous at 25.73. Desjardins crossed 85,000 at 25.75. Nesbitt crossed 50,000 at 25.75; Scotia crossed 200,000 at 25.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-22
Maturity Price : 23.36
Evaluated at bid price : 25.62
Bid-YTW : 3.66 %
CM.PR.K FixedReset 327,845 Called for redemption July 31.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 3.67 %
CM.PR.O FixedReset 161,825 Scotia crossed 20,000 at 25.48. Desjardins crossed 30,000 at 25.50. RBC crossed 50,000 at 25.50 and 13,400 at 25.46.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-22
Maturity Price : 23.29
Evaluated at bid price : 25.40
Bid-YTW : 3.65 %
TD.PR.Y FixedReset 143,000 TD crossed 69,700 at 25.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : 3.15 %
TD.PR.I FixedReset 126,172 Called for redemption July 31.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 5.62 %
ENB.PF.E FixedReset 103,688 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-22
Maturity Price : 23.10
Evaluated at bid price : 24.96
Bid-YTW : 4.11 %
CM.PR.M FixedReset 101,649 Called for redemption July 31.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 5.83 %
There were 44 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.I Perpetual-Premium Quote: 25.37 – 25.60
Spot Rate : 0.2300
Average : 0.1518

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-21
Maturity Price : 25.00
Evaluated at bid price : 25.37
Bid-YTW : -13.24 %

GWO.PR.P Deemed-Retractible Quote: 25.65 – 25.89
Spot Rate : 0.2400
Average : 0.1619

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-03-31
Maturity Price : 25.25
Evaluated at bid price : 25.65
Bid-YTW : 5.12 %

RY.PR.T FixedReset Quote: 24.97 – 25.19
Spot Rate : 0.2200
Average : 0.1430

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 24.97
Bid-YTW : 1.33 %

CM.PR.G Perpetual-Premium Quote: 25.46 – 25.72
Spot Rate : 0.2600
Average : 0.1837

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-21
Maturity Price : 25.00
Evaluated at bid price : 25.46
Bid-YTW : -17.44 %

MFC.PR.F FixedReset Quote: 23.02 – 23.41
Spot Rate : 0.3900
Average : 0.3188

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.02
Bid-YTW : 4.13 %

GWO.PR.Q Deemed-Retractible Quote: 24.85 – 25.05
Spot Rate : 0.2000
Average : 0.1289

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.85
Bid-YTW : 5.30 %

New Issue: TD FixedReset, 3.80%+227, NVCC Compliant

July 22nd, 2014

The Toronto-Dominion Bank has announced:

a domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 3 (the “Series 3 Shares”).

TD has entered into an agreement with a group of underwriters led by TD Securities Inc. to issue, on a bought deal basis, 12 million Series 3 Shares at a price of $25.00 per share to raise gross proceeds of $300 million. TD has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 3 Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing.

The Series 3 Shares will yield 3.80% annually, payable quarterly, as and when declared by the Board of Directors of TD, for the initial period ending July 31, 2019. Thereafter, the dividend rate will reset every five years at a level of 2.27% over the then five-year Government of Canada bond yield.

Subject to regulatory approval, on July 31, 2019 and on July 31 every 5 years thereafter, TD may redeem the Series 3 Shares, in whole or in part, at $25.00 per share. Subject to TD’s right of redemption, holders of the Series 3 Shares will have the right to convert their shares into Non-Cumulative Floating Rate Preferred Shares, Series 4 (the “Series 4 Shares”), subject to certain conditions, on July 31, 2019, and on July 31 every five years thereafter. Holders of the Series 4 Shares will be entitled to receive quarterly floating dividends, as and when declared by the Board of Directors of TD, equal to the three-month Government of Canada Treasury bill yield plus 2.27%.

The expected closing date is July 31, 2014. TD will make an application to list the Series 3 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.

Later, they added:

that as a result of strong investor demand for its previously announced domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 3 (the “Series 3 Shares”), the size of the offering has been increased to 20 million Series 3 Shares. The gross proceeds of the offering will now be $500 million. The offering will be underwritten by a group of underwriters led by TD Securities Inc.

The expected closing date is July 31, 2014. TD will make an application to list the Series 3 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.

ImpliedVolatility_TD_FR_140722
Click for Big

It is difficult to come to any conclusions regarding the Implied Volatility. The two issues with the highest Issue Reset Spreads, TD.PR.I and TD.PR.K, have been called for redemption and otherwise the issues available for calculation are not well distributed – the low-spread issues are not NVCC-compliant, while the higher-spread issues are.

New Issue: BMO FixedReset, 3.80%+222, NVCC Compliant

July 22nd, 2014

Bank of Montreal has announced:

a Basel III-compliant domestic public offering of $300 million of Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 31 (the “Preferred Shares Series 31″). The offering will be underwritten on a bought-deal basis by a syndicate of underwriters led by BMO Capital Markets.

The Preferred Shares Series 31 will be issued to the public at a price of $25.00 per share. Holders will be entitled to receive non-cumulative preferential fixed quarterly dividends for the initial period ending November 25, 2019, as and when declared by the board of directors of the Bank, payable in the amount of $0.2375 per share, to yield 3.80 per cent annually.

Subject to regulatory approval, on or after November 25, 2019, the Bank may redeem the Preferred Shares Series 31 in whole or in part at par. On November 25, 2019, the dividend rate will reset and will reset thereafter every five years to be equal to the 5-Year Government of Canada Bond Yield plus 2.22 per cent. Subject to certain conditions, holders may elect to convert any or all of their Preferred Shares Series 31 into an equal number of Non-Cumulative Floating Rate Class B Preferred Shares Series 32 (“Preferred Shares Series 32″) on November 25, 2019, and on November 25 of every fifth year thereafter. Holders of the Preferred Shares Series 32 will be entitled to receive non-cumulative preferential floating rate quarterly dividends, as and when declared by the board of directors of the Bank, equal to the then 3-month Government of Canada Treasury Bill yield plus 2.22 per cent. Subject to certain conditions, holders may elect to convert any or all of their Preferred Shares Series 32 into an equal number of Preferred Shares Series 31 on November 25, 2024, and on November 25 of every fifth year thereafter.

The anticipated closing date is July 30, 2014. The net proceeds from the offering will be used by the Bank for general corporate purposes.

The Implied Volatility calculation for BMO FixedResets is very interesting – it appears that the slope of the three NVCC-compliant issues is much less than the 40% calculation that is obtained when all issues, including those which are not NVCC-compliant and therefore virtually certain to be called on one of the next two possible dates – are thrown into the mix.

ImpliedVolatility_BMO_FR_140722
Click for Big

Of course, the range of Issue Reset Spreads for the NVCC compliant issues is very small, and the issue price has been used for the new issue calculations, so one cannot draw many conclusions just yet, but … we will see!

July 21, 2014

July 21st, 2014

Matt Levine of Bloomberg has some sensible things to say about institutions victimized by evil derivatives:

This is a general rule to keep in mind when reading about governments and companies that were victimized by swaps that they didn’t understand: Governments and companies don’t understand anything. Governments and companies don’t have brains. Governments and companies do have human agents, and those human agents have brains, and they are capable of understanding many things. Different agents might or might not be capable of understanding the particular formulas at issue here. But most agents are capable of understanding (1) that getting a low low teaser rate now probably means paying a high high rate later, (2) that there are ways of saying that that don’t sound like that, (3) that their interests and the interests of the government or company they work for are not perfectly aligned, and (4) that those interests are likely to drift further apart over time.

A story about an incomprehensible tax dodge is noteworthy for two things:

Executives from Renaissance, founded by billionaire mathematician James Simons, are scheduled to testify about the transactions tomorrow in Washington, as are representatives of Barclays and Deutsche Bank.

Renaissance, based in East Setauket, New York, compiled one of the best records in investing history by using advanced mathematics and computer algorithms to identify mispriced securities. Its Medallion fund, open almost exclusively to Renaissance employees, returned more than 35 percent annualized over more than two decades.

“billionaire mathematician”. You don’t hear those two words together very often! The other point is that they’ve been able to do so well – outperformance is entirely possible for those who know what they’re doing.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts up 7bp, FixedResets gaining 5bp and DeemedRetractibles winning 10bp. Volatility was almost non-existent. Volume was extremely 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 3.09 % 3.07 % 20,709 19.50 1 0.0000 % 2,574.3
FixedFloater 4.17 % 3.40 % 28,801 18.65 1 -0.0876 % 4,163.9
Floater 2.84 % 2.92 % 45,010 19.92 4 -0.2162 % 2,783.5
OpRet 4.02 % -4.07 % 78,744 0.08 1 -0.0783 % 2,721.1
SplitShare 4.26 % 3.95 % 44,048 4.02 6 0.3336 % 3,116.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0783 % 2,488.2
Perpetual-Premium 5.52 % -5.34 % 82,168 0.09 17 0.0300 % 2,430.7
Perpetual-Discount 5.23 % 5.13 % 111,916 15.24 20 0.0703 % 2,582.4
FixedReset 4.38 % 3.54 % 200,305 6.57 77 0.0522 % 2,563.5
Deemed-Retractible 4.97 % 0.36 % 123,261 0.10 43 0.1027 % 2,553.9
FloatingReset 2.65 % 0.72 % 98,280 0.16 6 0.0131 % 2,528.7
Performance Highlights
Issue Index Change Notes
PVS.PR.B SplitShare 1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.90
Bid-YTW : 4.60 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.K FixedReset 203,248 Called for redemption July 31.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 5.48 %
ENB.PF.E FixedReset 104,420 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-21
Maturity Price : 23.10
Evaluated at bid price : 24.95
Bid-YTW : 4.11 %
BMO.PR.S FixedReset 84,556 Nesbitt crossed 25,000 at 25.76; RBC bought 10,000 from Scotia at 25.79.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.73
Bid-YTW : 3.27 %
TD.PF.A FixedReset 74,550 Desjardins crossed 58,600 at 25.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-21
Maturity Price : 23.30
Evaluated at bid price : 25.50
Bid-YTW : 3.56 %
CM.PR.K FixedReset 65,000 Called for redemption July 31.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 3.66 %
ENB.PF.C FixedReset 54,685 TD crossed 10,000 at 25.12.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-21
Maturity Price : 23.17
Evaluated at bid price : 25.15
Bid-YTW : 4.09 %
There were 16 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CIU.PR.C FixedReset Quote: 21.80 – 22.51
Spot Rate : 0.7100
Average : 0.5664

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-21
Maturity Price : 21.45
Evaluated at bid price : 21.80
Bid-YTW : 3.35 %

IAG.PR.F Deemed-Retractible Quote: 26.02 – 26.41
Spot Rate : 0.3900
Average : 0.2665

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-31
Maturity Price : 25.25
Evaluated at bid price : 26.02
Bid-YTW : 5.07 %

BAM.PR.E Ratchet Quote: 24.30 – 24.60
Spot Rate : 0.3000
Average : 0.2191

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-21
Maturity Price : 23.86
Evaluated at bid price : 24.30
Bid-YTW : 3.07 %

PWF.PR.A Floater Quote: 20.00 – 20.30
Spot Rate : 0.3000
Average : 0.2266

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-21
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 2.65 %

BAM.PR.M Perpetual-Discount Quote: 21.36 – 21.51
Spot Rate : 0.1500
Average : 0.0903

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-21
Maturity Price : 21.36
Evaluated at bid price : 21.36
Bid-YTW : 5.62 %

IAG.PR.A Deemed-Retractible Quote: 23.14 – 23.47
Spot Rate : 0.3300
Average : 0.2736

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.14
Bid-YTW : 5.61 %

July 18, 2014

July 19th, 2014

It seems that the Canadian economy is picking up a bit:

Consumers are still driving growth in Canada’s economy, with indicators showing faster inflation led by higher food and clothing costs and increased auto wholesales adding to recent housing-market strength.

The consumer price index quickened to a two-year high of 2.4 percent in June, and a 13.3 percent jump in automobile receipts led a 2.2 percent rise in wholesale sales, according to reports today from Ottawa-based Statistics Canada. A July 15 realtor report showed home resales reached a four-year high with prices up 6.9 percent from a year earlier.

The figures suggest indebted consumers are continuing to shoulder the burden of growth as policy makers such as Bank of Canada Governor Stephen Poloz await a rebound in business investment to bring the economy to full output. Poloz kept his key lending at 1 percent two days ago and stressed weak exports and slack in the economy will hold down inflation through a temporary price surge.

Canada’s ratio of household debt to disposable income rose to a record last year before two quarterly declines through March. Credit-market debt such as mortgages fell to 163.2 percent of disposable income, compared with a revised 163.9 percent in the fourth quarter and a record 164.1 percent in the third quarter of last year, Statistics Canada said June 19.

Perhaps it’s due to the idea that our houses will make us all rich?

Meanwhile, the Bloomberg Nanos Canadian Confidence Index, which measures the economic mood of Canadians through a weekly survey, shows that people in this country have become upbeat – especially when they think about their property values. It found that perceptions related to the value of real estate in people’s neighbourhoods are 10 percentage points above the six-year average and seven points above the 2014 average.

“Consumer confidence in Canada is noticeably propelled by views on real estate,” Nanos Research Group chairman Nik Nanos observes.

And we’ll get even richer from our condominium rentals!

Toronto condominium sales jumped in the second quarter, as investors in Canada’s biggest city soaked up a wave of supply to feed demand for rentals.

Unit sales rose 10 percent to 6,553 in the three months ended in June from the same period a year ago, according to figures from the Toronto Real Estate Board. That follows a 9 percent annual gain in the first quarter.

The average selling price rose 5.5 percent to a record C$367,010 ($342,000), after a 5.6 percent advance in the first quarter.

“Many of these are bought by investors to rent out and there’s just not enough rental supply,” Paul Etherington, president of the board, said by phone today.“The prices will continue to go up in the future but I don’t see them going up as dramatically.”

About a quarter of new condominiums are purchased by investors who rent the units to residents in a city where the supply of purpose-built rentals is limited, he said.

Groupthink, and its perceived desirability among bond pseudo-managers, has reached global proportions:

Junk bond investors have had enough of borrowers in Europe eroding safeguards as sales of the high-yield, high-risk debt surge to a record $110 billion.

Representatives from at least six firms met in London last week with the Association for Financial Markets in Europe to discuss reinforcing language in documents governing bond sales that protect investors, according to Gary Simmons, director of the group’s high-yield division. Legal & General Investment Management, Castle Hill Asset Management and Pioneer Investments are among money managers listed as members, according to AFME.

Bondholders are seeking to challenge private-equity firms and bankers who arrange debt sales about changes to terms, including shortening the time during which securities can’t be repaid and diluting change of control clauses protecting bondholders in a takeover. The weakening of covenants has drawn warnings from policy makers, with Federal Reserve Chair Janet Yellen saying last month she was concerned about “reach-for-yield behavior.”

“In a hot market, pricing can get tighter but safeguards such as call protection and change of control should stay the same,” said Henry Craik-White, a senior investment analyst at ECM Asset Management who attended AFME’s meeting. “The correct approach is to reach out to the wider investor community and highlight the issues before they ruin the market for everybody.”

Well, golly, we wouldn’t want anybody to ruin the market for everybody, would we? That might mean that long-term performance for some firms might exceed the long-term performance of other firms, which would be disastrous. What would be the point of networking?

Brazil’s Caixa bank might be giving us a foretaste of the next crisis:

As Brazilian state-owned bank Caixa Economica Federal prepared to sell bonds this month, Marco Aurelio de Sa, the head of trading at Credit Agricole SA, told his clients to stay away.

The securities are too risky because Caixa is the lender most vulnerable to losses after a court ruling against the nation’s banks in May fueled concern they may also lose related lawsuits that would put them on the hook for an estimated 341.5 billion reais ($151 billion). The costs could force the government to re-capitalize Caixa, causing the bank to exercise a clause in the bonds to write off the principal and interest.

“Caixa could have serious capitalization issues if the Supreme Court rules against the banks, and then there’s a big risk the bond is written off,” de Sa, a 20-year emerging-market veteran, said in an e-mail. “Even if it’s a quasi-sovereign, the clauses are very clear on what could lead to a write-off. The returns aren’t enough to compensate for the risk. We didn’t recommend it to clients.”

But American investment grade credit remains popular:

They piled back into benchmark U.S. Treasuries (USGG10YR) yesterday after a civilian plane got shot down in eastern Ukraine and as Israeli troops entered Gaza. They accelerated withdrawals from the riskiest debt in the past week, yanking $2.3 billion from high-yield bond funds, the biggest outflow since June 2013, according to a Wells Fargo & Co. (WFC) report.

Wall Street’s largest bond dealers cut their net junk-bond holdings to $4.8 billion in the week ended July 9, the lowest level since the Federal Reserve began reporting the data in April 2013.

Buyers funneled $2.4 billion into investment-grade corporate debt funds, the 30th consecutive week of deposits, the Wells Fargo report shows. Money is flowing in even though analysts predict a rise in benchmark yields by year-end, which would eat into the notes’ returns.

It was a modestly negative day for the Canadian preferred share market, with PerpetualDiscounts off 2bp, FixedResets losing 5bp and DeemedRetractibles down 3bp. Volatility was negligible. Volume was average.

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 3.09 % 3.07 % 21,546 19.50 1 1.5886 % 2,574.3
FixedFloater 4.16 % 3.39 % 28,200 18.66 1 0.0877 % 4,167.5
Floater 2.84 % 2.92 % 45,489 19.94 4 -0.0810 % 2,789.6
OpRet 4.01 % -5.40 % 76,891 0.08 1 -0.2345 % 2,723.2
SplitShare 4.27 % 3.98 % 44,234 4.02 6 -0.1665 % 3,106.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2345 % 2,490.1
Perpetual-Premium 5.52 % -4.47 % 81,926 0.09 17 0.0023 % 2,429.9
Perpetual-Discount 5.23 % 5.14 % 115,766 15.19 20 -0.0192 % 2,580.5
FixedReset 4.39 % 3.58 % 202,893 4.60 77 -0.0485 % 2,562.2
Deemed-Retractible 4.98 % 0.41 % 123,249 0.10 43 -0.0296 % 2,551.3
FloatingReset 2.66 % 0.72 % 93,766 0.16 6 -0.0262 % 2,528.4
Performance Highlights
Issue Index Change Notes
BAM.PR.E Ratchet 1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-18
Maturity Price : 23.86
Evaluated at bid price : 24.30
Bid-YTW : 3.07 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.K Deemed-Retractible 394,115 Scotia crossed 160,000 at 26.10. TD crossed two blocks of 40,000 each, both at the same price. RBC crossed 73,500 and 75,000, both at the same price again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-17
Maturity Price : 25.75
Evaluated at bid price : 26.10
Bid-YTW : -2.24 %
BNS.PR.O Deemed-Retractible 280,388 Scotia crossed blocks of 80,000 and 50,000, both at 26.25; RBC crossed blocks of 74,800 and 75,000, both at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-17
Maturity Price : 25.75
Evaluated at bid price : 26.20
Bid-YTW : -17.23 %
HSB.PR.D Deemed-Retractible 277,787 Scotia crossed blocks of 108,900 and 100,000, both at 25.43. RBC crossed 40,000 at 25.43; TD crossed 25,000 at 25.43.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-17
Maturity Price : 25.25
Evaluated at bid price : 25.43
Bid-YTW : -0.75 %
CM.PR.O FixedReset 163,415 Scotia crossed 40,000 at 25.49. RBC crossed blocks of 50,000 and 25,000 at the same price; Nesbitt crossed 40,000 at the same price again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.47
Bid-YTW : 3.60 %
ENB.PF.E FixedReset 123,673 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-18
Maturity Price : 23.10
Evaluated at bid price : 24.97
Bid-YTW : 4.15 %
RY.PR.H FixedReset 89,273 RBC bought 19,400 from Nesbitt at 25.55, then crossed 24,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-18
Maturity Price : 23.28
Evaluated at bid price : 25.39
Bid-YTW : 3.65 %
There were 35 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PVS.PR.B SplitShare Quote: 24.58 – 24.90
Spot Rate : 0.3200
Average : 0.1967

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.58
Bid-YTW : 4.92 %

BAM.PR.G FixedFloater Quote: 22.82 – 23.25
Spot Rate : 0.4300
Average : 0.3188

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-18
Maturity Price : 22.87
Evaluated at bid price : 22.82
Bid-YTW : 3.39 %

MFC.PR.F FixedReset Quote: 23.50 – 23.83
Spot Rate : 0.3300
Average : 0.2308

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.50
Bid-YTW : 3.94 %

NEW.PR.D SplitShare Quote: 32.40 – 32.69
Spot Rate : 0.2900
Average : 0.1995

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.40
Bid-YTW : 3.33 %

PVS.PR.D SplitShare Quote: 24.13 – 24.38
Spot Rate : 0.2500
Average : 0.1616

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2021-10-08
Maturity Price : 25.00
Evaluated at bid price : 24.13
Bid-YTW : 5.13 %

RY.PR.H FixedReset Quote: 25.39 – 25.69
Spot Rate : 0.3000
Average : 0.2386

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-18
Maturity Price : 23.28
Evaluated at bid price : 25.39
Bid-YTW : 3.65 %

DBRS Upgrades PDV.PR.A To Pfd-3(high)

July 19th, 2014

DBRS has announced that it:

has today upgraded the rating of the Preferred Shares issued by Prime Dividend Corp (the Company) to Pfd-3 (high) from Pfd-3.

In November 2005, the Company issued 2.2 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). The redemption date for both classes of shares issued was originally December 1, 2012, but was extended to December 1, 2018, after holders of 96.1% of Class A Shares and 90.2% of Preferred Shares voted in favour of the extension in November 2011.

On July 19, 2013, DBRS confirmed the rating of the Preferred Shares at Pfd-3 mainly based on the sufficient downside protection available to holders of the Preferred Shares. Since then, the NAV of the Company has increased, with downside protection increasing from 40% to 45% and remaining stable at that level over the past few months. The current dividend coverage ratio is approximately 0.8 times. As a result, the rating of the Preferred Shares has been upgraded to Pfd-3 (high) from Pfd-3.

Separately, the company has announced a change in Capital Unit dividend policy:

Prime Dividend Corp. (the “Company”) is pleased to announce a change in the distribution policy to the Class A shares that will result in an immediate increase to the July monthly dividend. Under the new policy the annualized rate will increase to 10% based on the current trading price. The Company believes the new policy will better reflect actual returns of the Company’s underlying portfolio and will allow further dividend increases as the Company’s trading price increases.

Under the new distribution policy, the monthly dividend payable on the Class A shares will be determined by applying a 10% annualized rate on the volume weighted average market price (VWAP) of the Class A shares over the last 5 trading days of the preceding month. As a result, Class A shareholders of record on July 31, 2014 will receive a dividend of $0.06458 per share based on the VWAP of $7.75 over the last 5 trading days in June, payable on August 8, 2014. Effectively, the actual amount of monthly distributions paid will vary with the market price, but the current yield will remain stable at 10% (based on the VWAP) under this new distribution policy.

In making this change, the Manager and the Board have considered the following in their analysis:
1. The net asset value per unit ($18.76 as at July 15, 2014) and the range over the previous years.
2. The amount of dividend income and additional income earned from the covered call writing program.
3. The resumption of dividend increases in many of the companies held in the portfolio, resulting in an increase in the average dividend rate.
4. The historically unprecedented low rate environment which has caused the distribution rate on the Class A shares to remain at the minimum level over the last 5 years under the previous floating rate distribution policy.
5. The net asset value attributable to the Class A shares which is approximately 10% higher than the trading price (as at July 15, 2014).

There will be no changes to the Preferred Share dividend policy or the Class A dividend threshold policy. Preferred shares will continue to receive prime plus 0.75% with a minimum rate of 5% annually.

This issue was last mentioned on PrefBlog when DBRS downgraded it to Pfd-3. PDV.PR.A is not tracked by HIMIPref™ as there are only about 1.4-million units outstanding … but I’ll bet a nickel the dividend policy change was made with an eye towards increasing that number!

RY.PR.T and RY.PR.X To Be Redeemed

July 18th, 2014

Royal Bank of Canada has announced:

its intention to redeem all of its issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series AT (the “Series AT shares”) and AV (the “Series AV shares”) on August 24, 2014, for cash at a redemption price of $25.00 per share to be paid on August 25, 2014.

There are 11,000,000 Series AT shares outstanding, representing $275 million of capital and 16,000,000 Series AV shares outstanding, representing $400 million of capital. The redemption of the Series AT and AV shares will be financed out of the general corporate funds of Royal Bank of Canada.

Separately from the redemption price, the final quarterly dividend of $0.390625 for each of the Series AT and AV shares will be paid in the usual manner on August 22, 2014 to shareholders of record on July 24, 2014. After such dividend payment, the Series AT and Series AV shares will cease to be entitled to dividends.

There are no surprises here, due to the high Issue Reset Spreads on these two issues.

RY.PR.T is a FixedReset, 6.25%+406 which commenced trading 2009-3-9 after being announced 2009-2-26.

RY.PR.X is a FixedReset, 6.25%+442, which commenced trading 2009-4-1 after being announced 2009-3-24.

BNA: Ticker Change to PVS

July 18th, 2014

The useless pack of morons in charge of Partners Value Split Corp. have announced:

That’s right – nothing. The dolts calling themselves directors are:

  • John P. Barratt
  • Brian D. Lawson
  • James L.R. Kelly
  • Frank N.C. Lochan *
  • Edward C. Kress *
  • Allen G. Taylor *

The twerps marked with an asterisk are also boneheaded officers of the corporation, joined by the lackadaisical Loretta M. Corso.

None of these idiots ensured that there was anything at all on the company website to indicate a change of ticker. My Lord, but these cretins are lucky that running a single-share Split Corp. doesn’t take any brains.

It was left to Stockwatch to publish the only internet mention I have found of today’s ticker change:

Partners Value Split Corp. has changed its trading symbol to PVS from BNA, according to the Toronto Stock Exchange. The exchange reports the company’s preferred shares will start trading under the new symbol at the open on Friday, July 18, 2014. There will be no change to the Cusip numbers. The company’s Series 1 preferred shares will trade under the symbol PVS.PR.A, its Series 3 preferred shares will trade under PVS.PR.B, its Series 5 preferred shares will trade under PVS.PR.C and its Series 6 preferred shares will trade under PVS.PR.D.

This allows us to construct the following table, which I have checked from data available from the Toronto Stock Exchange, once you know what to look for and pay:

Partners Value Split Corp.
Ticker Changes, 2014-7-19
Series Old
Ticker
New
Ticker
1 BNA.PR.B PVS.PR.A
3 BNA.PR.C PVS.PR.B
5 BNA.PR.E PVS.PR.C
6 BNA.PR.F PVS.PR.D

Update, 2014-7-21: They have issued a press release!

Toronto, July 21, 2014: Partners Value Split Corp. (the “Company”) announced today that the Company has changed the ticker symbol of its preferred shares trading on the TSX from BNA to PVS, effective Friday, July 18, 2014. The Company’s ticker symbol is now aligned with its corporate name.

The following table shows the former ticker symbol and new ticker symbol for each series of the Company’s outstanding preferred shares:

Preferred Share Former Ticker Symbol New Ticker Symbol
Series 1 BNA.PR.B PVS.PR.A
Series 3 BNA.PR.C PVS.PR.B
Series 5 BNA.PR.E PVS.PR.C
Series 6 BNA.PR.F PVS.PR.D

The Company owns a portfolio consisting of 53,160,644 Class A Limited Voting Shares of Brookfield Asset Management Inc. (the “Brookfield Shares”) which is expected to yield quarterly dividends that are sufficient to fund quarterly fixed cumulative preferential dividends for the holders of the Company’s preferred shares and to enable the holders of the Company’s capital shares to participate in any capital appreciation of the Brookfield Shares. Brookfield Asset Management is a global alternative asset manager with over US$175 billion in assets under management. For more than 100 years, Brookfield has owned and operated assets on behalf of shareholders and clients with a focus on property, renewable energy, infrastructure and private equity. Brookfield has a range of public and private investment products and services which leverage its expertise and experience. The Brookfield Shares are co-listed on the New York Stock Exchange under the symbol “BAM”, the TSX under the symbol “BAM.A” and the NYSE Euronext under the symbol “BAMA”.

* * * *

For further information, please contact: Allen G. Taylor, Chief Financial Officer, at (416) 359-7864

July 17, 2014

July 18th, 2014

The Canadian Bond Investors Association has been mocked on PrefBlog on March 10 – at that time I said:

Yes, it will be a better world, as soon as there are more rules, more red tape, more regulators and more lawyers. It never occurs to any of these clowns that they have a choice regarding what to buy; if big enough, they can even approach issuers themselves with a proposal for a private placement.

… and again on March 14 (it was a good week):

Assiduous Readers will recognize that these are the same box-tickers who want bond covenants standardized in order to reduce the chance they might have to read a term sheet and, even worse, have to take a view on the value difference between slightly different covenants, as discussed on March 10.

… and now they are back in the news with more pathetic whimpering:

Royal Bank provided investors with insufficient information on short notice before its July 11 sale of C$1 billion ($930 million) in subordinated notes that can convert to equity, the first in Canada to comply with new international banking rules, The Canadian Bond Investors Association said in a letter yesterday to provincial securities regulators. Toronto-based Royal Bank said it met all requirements.

This time, however, there was an immediate rejoinder:

“The buyers could have gone on strike and not bought this,” said David Beattie, senior credit officer at Moody’s Investors Service, said by phone from Toronto.

Royal Bank “met all legal and regulatory requirements in issuing this transaction,” Sandra Nunes, a spokeswoman for the company, said in an e-mail yesterday. “The deal was well oversubscribed, and it has performed well in the secondary market.”

Since the July 11 sale at a yield of 152 basis points, or 1.52 percentage points, more than Canadian government debt, the spread on the Royal Bank bonds has narrowed to about 146 basis points, according to data compiled by Bloomberg.

My Lord. The fact that the obvious was pointed out (by David Beattie) is almost as astonishing as the fact that Bloomberg – which covers the world – did a better job than the Globe and Mail on reporting the issue. However, the Bloomberg / G&M comparison is old news. However, the G&M article is enhanced by a comment from “ontario7″, who must be some kind of genius:

If you don’t like the way bond is structured, then don’t buy it.

And look as the quoted spread! The issue has an initial coupon of 3.04%, so the spread is being quoted over five-year Canadas. Like I said, the sub-debt market consists of the sleazy selling to the stupid, so it’s no wonder the CBIA is confused.

So anyway, I looked up the CBIA admission of incompetence (bolding added):

In order to foster robust capital markets, the CBIA strongly advocates that issuers follow best practices, especially when marketing new issuers and new structures. Best practices for new debt structures include furnishing all material documents on a timely basis and with a minimum of three business days before pricing. They also include providing public investor calls with a scheduled opportunity for questions and answers and allowing rating agencies to provide preliminary reports. We believe these best practices are important for institutional investors to meet their fiduciary duty to clients. We believe that securities regulators share this view, and in fact demand this of investment managers they register.

The RBC NVCC issue of July 11, 2014 fell short of a number of these best practices. The syndicate provided only a brief, pre-recorded net roadshow to investors less than two days ahead of the deal and provided no opportunity to ask questions on the public call. When the deal came to market, no final rating agency comments were available to potential investors and only “expected” ratings were listed on the term sheet. The CBIA believes this is not in line with best practices when a deal of this significance is in the market involving an instrument that is new to institutional investors.

In our April 8, 2013 letter, the CBIA requested improved disclosure procedures during the new issue process. In our letter we wrote:

“Investors are often afforded insufficient time to review key terms and conditions of bond indentures when an issue comes to market.”

Further, we offered:

“As a minimum more time is required for review of indentures. For new issuers we believe that a minimum of three working days should be allowed for investors to review final form indentures and prospectus supplements and to disclose concerns with legal counsel.”

In summary, we ask that the Canadian securities regulators look at the new issue process for this security and whether it was appropriate in the circumstances.

So, in other words, the CBIA is able to chant the slogan “We believe these best practices are important for institutional investors to meet their fiduciary duty to clients”, but is unable to make the giant leap to the awesome concept that if you don’t feel you have enough information regarding a security to meet your fiduciary duty to clients YOU DON’T FUCKEN BUY THE SECURITY. The new issue was discussed on PrefBlog.

To be fair however, they did write an entirely sensible letter addressed to the Ministry of Finance, Bank of Canada and OSFI regarding bail-in debt:

We are writing to respectfully urge the Department of Finance to expedite the process for providing clarity on the “Bail-In” framework.

The CBIA formally commented to the Office of the Superintendent of Financial Institutions in a letter dated January 23, 2012 (attached). We stated that clarity on a regulatory regime guiding the “bail-in” of senior unsecured bank instruments and a full picture of the regulatory landscape are important to have in place ahead of NVCC issuance to allow proper risk assessment and pricing considerations. While there has been progress on some areas addressed in our letter, the critical issue of bail-in debt has not been addressed, thus leaving institutional fixed income investors in an uncomfortable position when evaluating NVCC instruments.

A worthy effort, but good luck with that. OSFI has been dragging its heels on the Life Insurance Regulatory Framework for literally years now, and Assiduous Readers will be well aware of how that has distorted pricing of preferred shares amongst Bank issues, insurance issues and unregulated issues.

There’s an interesting discussion of Maple bonds and liquidity from 2010:

EUROWEEK: How much of a concern is the lack of liquidity in the secondary market?

Lumb, CBA: You need to have at least three managers to make sure investors are confident of being able to trade some of their positions. Historically, the Maple market has always needed more managers than most. Having one just would not work.

DeRosa, MetLife: We see the liquidity in the bond market becoming increasingly more robust. Our efforts to augment our relationships with investors and dealers will help somewhat, as will our outreach to investors on the merits of our programme.

Costanzo, TD Securities: Secondary liquidity is key to any market’s success. If no one needed a secondary market, issuers would simply call investors directly and do a trade between themselves. But banks are involved in the process to commit balance sheet and provide a secondary market. That’s one of our core roles. What will be key to the continued development of the Maple market will be getting more international investors on board. This will provide an increased flow in the bonds as international investors will have different motivations to buy/sell — i.e. currency fluctuations — and therefore further the diversification and depth of the market. For this to happen, international investors need to have a reason to be involved. Canada is already very highly regarded by the global investment community. The currency story continues to be an attractive one. It would prove an even more attractive investment if yields were higher and more like the levels attainable in the Kangaroo market, which are currently about 300bp higher.

Marjaee, MFC Global: Secondary liquidity is a big issue. It was much better for some issues last year. There is still illiquidity when it comes to some subordinated bonds, especially when there is uncertainty about whether something will be called or extended. The recent deals have had hard maturities. We like that. It leaves no options on the table for the issuer, especially if the issue is priced to the shorter date and expectations have been created for the deal to be called. Liquidity has been good with the CBA issue.

Regrettably, the Maple bond market remains tiny. Even more regrettably, the regulatory push to reduce liquidity is succeeding:

CanPX, Canada’s government-mandated bond-market information service, will make trade prices freely available on its website amid a review by regulators concerned that smaller investors don’t have access to the data.

The for-profit joint venture of Canada’s major bond dealers and interdealer brokers has begun posting the previous day’s price and yield highs, lows and closing levels for all 340 corporate securities it tracks, CanPX said in a statement.

The move follows the Canadian Securities Administrators’ announcement last month it would review transparency in the C$390 billion ($363 billion) corporate bond market. The group, a coalition of Canada’s provincial and territorial securities regulators, questioned whether the private-sector model led by CanPX was working, and if more active regulation is needed.

A good chunk of government bonds have gone abroad:

Foreigners made their largest purchase of Canadian securities in two years in May, led by demand for provincial and federal government bonds.

The net purchases worth C$21.4 billion ($19.9 billion) in May included C$15.9 billion of bonds, and were more than double the April total, Statistics Canada said today in Ottawa.

Demand for bonds was led by a net C$6.3 billion purchase of provincial debt, the biggest since April 2009. Non-Canadian investors also bought C$6.9 billion of federal government debt, the most since May 2012 after sales of C$15.4 billion over the five prior months.

But government bonds did very well today:

Treasury (USGG2YR) 10-year notes rallied the most since March as reports of a Malaysian plane being shot down in eastern Ukraine and Israel’s military starting ground operations in the Gaza strip boosted refuge demand.

Thirty-year bond yields fell to the lowest level in more than a year after a Malaysian Boeing 777 with 295 aboard crashed near the Russian-Ukraine border added to to haven appeal linked to expanded sanctions against Russia for support of separatist rebels. The difference between five- and 30-year yields narrowed to the least since 2009 a day after Federal Reserve Chair Janet Yellen told lawmakers monetary stimulus is still needed, while increases in interest rates may occur sooner if the economy accelerates.

The 10-year yield dropped eight basis points, or 0.08 percentage point, to 2.45 percent at 4:59 p.m. New York time, according to Bloomberg Bond Trader Prices. The 2.5 percent notes maturing in May 2024 added 22/32, or $6.88 percent $1,000 face amount, to 100 15/32. The yield fell as much as nine basis points, the most since March 13.

U.S. 30-year yield fell seven basis points to 3.27 percent, touching the lowest level since June 2013.

According to CBid, closed at a startling 1.48% today.

Parakeet Poluz is hinting that low rates may be here to stay:

Bank of Canada Governor Stephen Poloz says the central bank may discuss the interest rate that would keep the economy at full output, a rate he said has been lowered following the global recession.

The central bank is researching what economists call a neutral interest rate, and will discuss the issue in the next quarterly economic forecast paper due in October, Poloz said in an interview aired today on CBC Radio’s “The Current” program.

Despite the fireworks in the government bond market, it was a relatively poor day for the Canadian preferred share market, with PerpetualDiscounts down 9bp, FixedResets flat and DeemedRetractibles off 4bp. Volatility was good. Volume was average.

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 3.14 % 3.14 % 21,072 19.40 1 0.7158 % 2,534.0
FixedFloater 4.17 % 3.39 % 29,131 18.66 1 0.0000 % 4,163.9
Floater 2.84 % 2.93 % 45,730 19.92 4 0.1352 % 2,791.8
OpRet 4.01 % -8.29 % 79,620 0.08 1 0.2350 % 2,729.6
SplitShare 4.26 % 3.97 % 46,056 4.03 6 -0.0266 % 3,111.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2350 % 2,496.0
Perpetual-Premium 5.52 % -3.71 % 80,166 0.09 17 0.0069 % 2,429.9
Perpetual-Discount 5.23 % 5.16 % 107,143 15.22 20 -0.0851 % 2,581.0
FixedReset 4.38 % 3.59 % 199,468 4.60 77 0.0000 % 2,563.4
Deemed-Retractible 4.98 % 0.21 % 123,742 0.11 43 -0.0360 % 2,552.0
FloatingReset 2.66 % 2.08 % 103,091 3.84 6 0.0065 % 2,529.0
Performance Highlights
Issue Index Change Notes
CIU.PR.C FixedReset -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-17
Maturity Price : 21.47
Evaluated at bid price : 21.82
Bid-YTW : 3.41 %
TD.PR.P Deemed-Retractible 1.08 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-16
Maturity Price : 25.75
Evaluated at bid price : 26.21
Bid-YTW : -17.99 %
BAM.PR.R FixedReset 1.37 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.91
Bid-YTW : 3.61 %
FTS.PR.H FixedReset 2.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-17
Maturity Price : 21.47
Evaluated at bid price : 21.80
Bid-YTW : 3.49 %
Volume Highlights
Issue Index Shares
Traded
Notes
ENB.PF.E FixedReset 839,123 New issue settled today.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-17
Maturity Price : 23.10
Evaluated at bid price : 24.95
Bid-YTW : 4.16 %
CM.PR.M FixedReset 302,941 Called for redemption July 31.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 5.30 %
TD.PR.I FixedReset 241,143 Called for redemption July 31.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 24.99
Bid-YTW : 4.63 %
TD.PR.K FixedReset 188,914 Called for redemption July 31.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 4.97 %
ENB.PF.C FixedReset 159,117 TD crossed 115,600 at 25.09.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-17
Maturity Price : 23.18
Evaluated at bid price : 25.16
Bid-YTW : 4.13 %
BNS.PR.M Deemed-Retractible 111,653 Nesbitt crossed 109,200 at 25.88.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-26
Maturity Price : 25.50
Evaluated at bid price : 25.83
Bid-YTW : -8.69 %
There were 31 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
SLF.PR.H FixedReset Quote: 25.70 – 26.10
Spot Rate : 0.4000
Average : 0.2685

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 2.68 %

BNS.PR.B FloatingReset Quote: 25.41 – 25.60
Spot Rate : 0.1900
Average : 0.1176

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-10-25
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 2.09 %

TD.PF.A FixedReset Quote: 25.35 – 25.53
Spot Rate : 0.1800
Average : 0.1098

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-07-17
Maturity Price : 23.25
Evaluated at bid price : 25.35
Bid-YTW : 3.64 %

CU.PR.C FixedReset Quote: 26.00 – 26.24
Spot Rate : 0.2400
Average : 0.1847

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 2.74 %

VNR.PR.A FixedReset Quote: 25.64 – 25.91
Spot Rate : 0.2700
Average : 0.2154

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-10-15
Maturity Price : 25.00
Evaluated at bid price : 25.64
Bid-YTW : 3.53 %

GWO.PR.N FixedReset Quote: 21.37 – 21.55
Spot Rate : 0.1800
Average : 0.1255

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.37
Bid-YTW : 4.78 %