BK.PR.A Gets Bigger

April 13th, 2015

Quadravest has announced:

Canadian Banc Corp. (the “Company’) is pleased to announce it has completed the overnight marketing of up to 1,320,000 Preferred Shares and up to 1,320,000 Class A Shares of the Company. Total proceeds of the offering are expected to be approximately $30.7 million.

The offering is being co-led by National Bank Financial Inc., CIBC, RBC Capital Markets and also includes Scotia Capital Inc., TD Securities Inc., BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp., Dundee Securities, Raymond James, Desjardins Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.

The sales period of the overnight offering has now ended.

The Preferred Shares will be offered at a price of $10.00 per Preferred Share to yield 5% and the Class A Shares will be offered at a price of $13.25 per Class A Share to yield 10%. The closing price on the TSX of each of the Preferred Shares and the Class A Shares on April 1, 2015 was $10.30 and $13.75, respectively.

The net proceeds of the offering will be used by the Company to invest in a portfolio of six publicly traded Canadian Banks as follows: [Logos of Big 6 Banks]

The Company’s investment objectives are to:
Preferred Shares:
i. provide holders with cumulative preferential floating rate monthly cash dividends at a rate per annum equal to the prevailing Canadian prime rate plus 0.75% (minimum annual rate of 5.0% and maximum annual rate of 7%) based on original issue price; and
ii. On or about December 1, 2018 or such other date as the Company may determine (the “termination date”) to pay holders the
original $10 issue price of those shares.
Class A Shares:
i. provide holders with regular monthly cash distributions currently targeted to be at the annualized rate of 10% based upon the volume-weighted average trading price of the Class A Shares on the TSX for the last three trading days of the preceding month; and
ii. On the termination date to pay holders the original $15 issue price of those shares.

The intent to issue was previously reported on PrefBlog.

SBN.PR.A: Annual Report 2014

April 13th, 2015

S Split Corp. has released its Annual Report to December 31, 2014.

SBN / SBN.PR.A Performance
Instrument One
Year
Three
Years
Five
Years
Whole Unit +0.04% +7.59% +5.01%
SBN.PR.A +5.38% +5.38% +5.38%
SBN -5.41% +10.30 +4.53%
Bank of Nova Scotia +3.66% +13.68% +10.35%
S&P/TSX Financial Index +13.80% +18.27% +12.17%

Not much of an advertisement for a call-option writing strategy, is it? They’ve underperformed their underlying issue by over 5% annualized over the past five years. Not only that, the Capital Units have underperformed the common DURING A BULL MARKET! It would be interesting to perform a detailed reconciliation of the performance difference, to determine the amounts attributable to MER, option writing and Sequence of Return Risk adjustments.

Figures of interest are:

MER: 1,426,153 expenses before fund extension costs and special resolution expense divided by 53.8-million average assets (see below) is 2.65%. Ouch!

Average Net Assets: We need this to calculate portfolio yield; and it’s tricky because there were massive redemptions during the year. Preferred Share distributions of 1,509,073 @ 0.525 / share implies 2.874-million shares out on average. Average Unit Value (beginning & end of year) = (18.78 + 19.86) / 2 = 19.32. Therefore 2.874-million @ 19.32 = 55.5-million average net assets. Assets dropped substantially during the year, from 62.072-million to 22.058-million, largely due to a redemption of units on December 1, 2014, in connection with the term extension. So give the lower figure a 1/4 weighting and the higher one 3/4 (assume they were fairly liquid during the fourth quarter) and get (0.75 * 62.072 + 0.25 * 22.058) = 52.1-million average net assets. Good agreement between these two methods! Call it $53.8-million average fund assets.

Underlying Portfolio Yield: Dividends and interest income received of 2.323-million divided by average net assets of 53.8-million is 4.32%

Income Coverage: Net Investment Income (before capital gains & losses and issuance costs and resolution costs ) of $896,671 divided by Preferred Share Distributions of 1,883,142 is 59%.

LCS.PR.A: Annual Report 2014

April 13th, 2015

Brompton Lifeco Split Corp. has released its Annual Report to December 31, 2014.

LCS / LCS.PR.A Performance
Instrument One
Year
Three
Years
Five
Years
Whole Unit +5.1% +26.6% +8.2%
LCS.PR.A +5.6% +5.9% +5.4%
LCS +4.6% N/A +11.5%
S&P/TSX Financial Index +12.6% +18.7% +11.8%
S&P/TSX Composite Index +10.6% +10.2% +7.5%

Note that the benchmarking isn’t ideal, since the Financial index will include banks, while the fund has a mandate only for insurers.

Figures of interest are:

MER: 1.27% of the whole unit value, excluding Preferred share distributions and issuance costs and agents’ fees in connection with the Fund’s treasury offerings of Preferred shares,.

Average Net Assets: We need this to calculate portfolio yield; and it’s tricky because there was massive issuance during the year. MER of 1.27% on Total Expenses excluding Preferred share distributions and issuance costs and agents’ fees of $773,319 implies $60.89-million net assets. Preferred Share distributions of 1,883,142 @ 0.525 / share implies 3.587-million shares out on average. Average Unit Value (beginning & end of year) = (16.36 + 17.00) / 2 = 16.68. Therefore 3.587-million @ 16.68 = 59.8-million average net assets. Good agreement between these two methods! Call it $60.4-million average fund assets.

Underlying Portfolio Yield: Dividends, interest and lending income received of 1.659-million divided by average net assets of 60.4-million is 2.77%

Income Coverage: Net Investment Income (before capital gains & losses and issuance costs and agents’ fees ) of $886,012 divided by Preferred Share Distributions of 1,883,142 is 47%.

PVS Annual Report 2014

April 12th, 2015

Partners Value Split Corp. has released its Annual Report to December 31, 2014.

The company has the following issues outstanding: PVS.PR.A, PVS.PR.B, PVS.PR.C and PVS.PR.D. Note that there was a ticker change (from BNA) in July 2014.

Figures of interest are:

MER: I suggest it is best to include the amortization of share issue costs in MER – after all, this is a charge against the stated value of the company. Therefore, expenses were $382,000 (regular expenses) + $1,443,000 (amortization) = $1,825,000 on assets of $2.65-billion (see below) or 7bp.

Average Net Assets: We need this to calculate portfolio yield and MER. The average of the beginning and end of year assets (including preferred shares) so: [(3,108-million + 2,191-million)]/2 = $2.65-billion. It may be noted with admiration that this was done without significant financing – the increase came from appreciation of the underlying BAM.A shares, which increased in price from $41.22 on 2013-12-31 to $58.22 on 2014-12-31.

Underlying Portfolio Yield: Total Income of $40.1-million divided by average net assets of $2,650-million is 1.5%.

Income Coverage: Net income of $39.760-million less amortization of $1.443-million is $38.32-million to cover senior preferred dividends and debenture interest of $26.097-million is 147%. However, I consider it prudent to include the $10-million stated entitlement of the Junior preferreds, even though none of this was actually paid in 2014 because the Juniors can be retracted at any time, which could prove embarrassing in times of extreme stress. So I’d say income coverage is 103%.

BNS.PR.Y and BRF.PR.A: Convert Or Hold?

April 11th, 2015

It will be recalled that BNS.PR.Y will reset to 1.82% effective April 26 and that BRF.PR.A will reset to 3.355% effective April 30.

Holders of both securities have the option to convert to FloatingResets, which will pay 3-month bills plus 100bp and plus 262bp, respectively. Deadlines for notifying the company of the intent to convert are April 13 and April 15, respectively; note that these are company deadlines and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! Also, I realize that Monday will be the last day to notify BNS of intent to convert and that brokerage deadlines will have passed; but the brokerage deadline is just the date they want to know their answers. They’ll probably do it on a ‘best efforts’ basis when notified on the last day, if you grovel in a sufficiently entertaining fashion.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., BNS.PR.Y and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

To this end, we may construct a table showing similar pairs currently trading:

Fixed Reset Fixed Rate Floating Reset Spread over Bills Bid Price
Fixed Reset
Bid Price
Floating Reset
Break-Even 3-Month Bill Rate
Investment Grade
BNS.PR.P 3.35% BNS.PR.A 205 25.12 25.35 0.19%
TD.PR.S 3.371% TD.PR.T 160 25.07 23.96 0.28%
BMO.PR.M 3.39% BMO.PR.R 165 25.17 24.12 0.36%
BNS.PR.Q 3.61% BNS.PR.B 170 25.25 23.91 0.21%
TD.PR.Y 3.5595% TD.PR.Z 168 25.30 23.95 0.17%
BNS.PR.R 3.83% BNS.PR.C 188 25.37 24.05 0.36
RY.PR.I 3.52% RY.PR.K 193 25.41 24.25 0.23%
TRP.PR.A 3.266% TRP.PR.F 192 18.90 19.01 1.46%
Junk
DC.PR.B 5.688% DC.PR.D 410 23.71 20.50 -2.05%
AZP.PR.B 5.57% AZP.PR.C 418 13.70 13.26 0.84%
FFH.PR.C 4.578% FFH.PR.D 315 21.13 20.02 0.25%
AIM.PR.A 4.50% AIM.PR.B 375 19.41 19.55 0.89%
FFH.PR.E 2.91% FFH.PR.F 216 15.32 14.70 0.13%

We can show this graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_FR_150410
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The market appears to have a distaste at the moment for floating rate product; the implied rates until the next interconversion are all (except one!) lower than the current 3-month bill rate and one is significantly negative! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity. The average in the table above for the junk issues (except DC.PR.B / DC.PR.D) is about +0.53%; for the investment grade issues (except TRP.PR.A / TRP.PR.F) it is about 0.26%. There will be more on these exceptions later, but if we plug in these implied yields and the current bid prices of the FixedResets, we may construct the following table showing consistent prices for the two pairs under consideration:

Estimate of FloatingReset Trading Price In Current Conditionss
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread +0.26% +0.53%
BNS.PR.Y 21.70 100bp 21.06 21.37
BRF.PR.A 18.01 262bp 17.52 17.80

Based on current market conditions, I suggest that the FloatingResets that may result from conversion of BNS.PR.Y and BRF.PR.A will be cheap and trading a little below the price of the continuing FixedResets. Therefore, I recommend that holders of BNS.PR.Y and BRF.PR.A continue to hold these issues and not to convert. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading. But that, of course, will depend on the prices at that time.

Now, about those two exceptions.

The first exception, TRP.PR.A / TRP.PR.F, is problematical. It is notable that the break-even rate has moved dramatically upwards in the course of the last week – on April 2, this pair was an outlier to the downside; which is equivalent to saying that the FloatingReset, TRP.PR.F, has significantly outperformed the FixedReset, TRP.PR.A, during this week’s downdraft. It is tempting to write off the difference as a mere fluctuation, but on the other hand this pair is unique in another way: it is the only investment-grade pair that is not an NVCC non-compliant issue from a bank; which is to say that it is the only investment-grade pair not subject to a DeemedMaturity; which is to say it is the only investment-grade pair for which it is (deemed!) possible to exist to perpetuity, which is in fact the YTW scenario for each pair.

It is possible that the market is trading these issues such that the bank FixedResets with DeemedMaturities have these DeemedMaturities recognized and therefore, quite rightly, have outperformed their FixedResets considered likely to be extant in perpetuity during the week’s downdraft. And it is possible that this DeemedMaturity is being ignored for the FloatingResets. And that the market is ignoring the “Strong Pair” relationship between the pairs for banks, but paying attention to it for the TRP issues (or vice versa!).

This doesn’t make any sense; the Strong Pair theory demands only that the prices be equal on the next exchange date; whatever happens afterwards is irrelevant. But this is the preferred share market, which often doesn’t make sense.

It might be that the TRP pair is predicting the actual implied bill rate better than the bank pairs as far as discounted investment grade pairs are concerned, but fortunately BNS.PR.Y is, like the other bank issues, subject to a DeemedMaturity, so it is reasonable to assume that it and its future pair (if issued) will trade like the other banks.

The other exception is DC.PR.B / DC.PR.C. I don’t understand why there is such an enormous price difference. Sorry!

April 10, 2015

April 10th, 2015

Sometimes you just can’t win:

Vladimir Putin is facing a problem few could have anticipated: The ruble is becoming too strong.

Last year’s worst-performing major currency is this year’s best and while that’s buoying the nation’s bonds, driving yields to the lowest in four months, it’s also crimping Russia’s export revenue. Even though oil is little changed in dollars this year, the price when converted to rubles has plunged to the lowest since 2011.

The currency rout in 2014 helped Russia to keep its budget deficit within 1 percent of gross domestic product as the ruble weakened in lockstep with a 50 percent slump in oil. Now, with the cease-fire in Ukraine and the allure of higher-yielding assets attracting investors to ruble debt, the government is seeing the opposite effect.

“The current ruble level is already uncomfortable for the budget considering the oil price in rubles is already low,” Vladimir Bragin, head of research at Alfa Capital in Moscow, said by phone on Thursday. “In order to reach macroeconomic stability, Russia needs to limit its budget deficit and a weaker ruble is an easy way to do that.”

It looks like there will be another triumph for regulatory extortion:

Deutsche Bank AG is close to resolving a multi-year probe by U.S. and U.K. authorities into interest-rate manipulation, with a U.K. subsidiary expected to plead guilty, according to two people familiar with the matter.

Germany’s biggest bank will probably finalize a settlement this month, these people said. The unit expected to plead is Deutsche Bank Group Services, one of the people said.

The bank is also expected to pay penalties of more than $1.5 billion to wrap up probes by the U.S. Justice Department, the Commodity Futures Trading Commission, New York’s Department of Financial Services and the U.K.’s Financial Conduct Authority, according to one of the people. The penalty could be larger than those levied against other global banks for interest-rate rigging claims.

In October, the bank said it was in discussions with some authorities about a resolution. The German lender previously was fined 725 million euros ($773 million) by the European Union for manipulating yen Libor and the euro interbank offered rate.

Deutsche Bank set aside 3.6 billion euros in legal and operational risk provisions at the end of December. The bank doesn’t provide details on the reserves. Over the last three years, the bank’s litigation expenses totaled about 7.1 billion euros.

As an aside, I confess to being fascinated and horrified by the Valentina Lisitsa / Toronto Symphony Orchestra scandal. In the first place, I agree with Vinay Menon of the Toronto Star:

The TSO sacrificed its own artistic integrity. It was remarkably tone deaf. It set a dangerous precedent and, in doing so, made a mockery of the arts in this city. Canceling these concerts was about as absurd and unwarranted as that time mayor June Rowlands banned the Barenaked Ladies because the band’s name objectified women.

More to the point though is the TSO’s Jeff Melanson’s delusions of grandeur. If – as many fervently believe – she has crossed the line into hate speech … we have laws for that. Publicly available laws, with case law constructed from the precedents. We have a judicial system that will – publicly – make a finding based on the (publicly disclosed) facts of the case; we can attend the trial if we wish to, to verify that the decision is on the up-and-up. We have a police force that will perform any necessary investigation and many crown attorneys who will make a decision as to whether to proceed with charges on the basis of that investigation. We have a judicial system that will – publicly – make a finding based on the (publicly disclosed) facts of the case; we can attend the trial if we wish to, to verify that the decision is on the up-and-up. We do not need Jeff Melanson of the TSO to pin on his Junior Secret Policeman badge and indulge in a little career-wrecking in the apparent belief that artists are supposed to be nice people.

These vitriolic moral crusades harm the body politic more than anything Ms. Lisitsa has said and the promotion of two-bit bureaucrats to Official Moral Arbiters is even worse, as discussed on January 6, 2015 with respect to the Dalhousie dentists.

Update: This is delicious in light of the Valentina Lisitsa scandal with the TSO … at the height of the furor regarding the presence of Queers Against Israeli Apartheid in Toronto’s Gay Pride parade, a few institutions made a joint statement in support of the group:

As public institutions dedicated to artistic expression, we consider freedom of expression to be an essential element of our mandate.

… (signed) Andrew Shaw, Toronto Symphony Orchestra

Delicious.

Inspired by Easter, investors in Canadian preferred shares have participated in other religious ceremonies in the past week:

aztecSacrifice
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It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 5bp, FixedResets off 51bp and DeemedRetractibles gaining 3bp. The Performance Highlights table is predictably enormous, dominated by low-spread FixedReset losers. Volume was extremely high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150410
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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.02 to be $0.96 rich, while TRP.PR.B, resetting 2015-6-30 at +128, is $0.76 cheap at its bid price of 13.79.

impVol_MFC_150410
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Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 23.45 to be $0.60 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.16 to be $0.91 cheap. The lowest spread issue, MFC.PR.F, is noticeably off the curve defined by its peers.

impVol_BAM_150410
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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.07 to be $1.26 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 23.30 and appears to be $1.03 rich.

impVol_FTS_150410
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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 15.40, looks $1.65 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 22.59 and is $0.95 rich.

pairs_FR_150410
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Investment-grade pairs other than TRP.PR.A / TRP.PR.F now predict an average over the next five years of about 0.25%, a slight decrease from yesterday’s value of 0.30%. TRP.PR.A / TRP.PR.F remains an outlier, predicting 1.46%. The DC.PR.B / DC.PR.D pair is still off the charts and now predicts an average bill rate over the next 4 3/4 years of -2.05%.

pairs_FF_150410
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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 -2.5428 % 2,171.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 -2.5428 % 3,796.1
Floater 3.34 % 3.46 % 58,792 18.64 4 -2.5428 % 2,308.1
OpRet 4.43 % -1.13 % 35,753 0.14 2 0.0394 % 2,761.0
SplitShare 4.57 % 4.66 % 62,346 3.43 3 -0.0801 % 3,223.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0394 % 2,524.6
Perpetual-Premium 5.32 % 0.45 % 65,660 0.09 25 -0.1058 % 2,523.0
Perpetual-Discount 5.08 % 5.04 % 148,157 15.09 9 0.0469 % 2,806.4
FixedReset 4.53 % 3.77 % 269,807 16.43 85 -0.5093 % 2,355.7
Deemed-Retractible 4.91 % 2.83 % 106,746 0.29 37 0.0331 % 2,659.0
FloatingReset 2.53 % 2.97 % 75,919 6.27 8 -0.0746 % 2,352.1
Performance Highlights
Issue Index Change Notes
PWF.PR.A Floater -5.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 3.05 %
ENB.PF.G FixedReset -3.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 20.02
Evaluated at bid price : 20.02
Bid-YTW : 4.72 %
CIU.PR.C FixedReset -3.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 16.10
Evaluated at bid price : 16.10
Bid-YTW : 3.50 %
ENB.PF.E FixedReset -2.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 20.08
Evaluated at bid price : 20.08
Bid-YTW : 4.67 %
ENB.PF.A FixedReset -2.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 20.03
Evaluated at bid price : 20.03
Bid-YTW : 4.65 %
GWO.PR.N FixedReset -2.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.15
Bid-YTW : 6.62 %
BAM.PF.E FixedReset -2.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 22.28
Evaluated at bid price : 23.00
Bid-YTW : 3.87 %
TRP.PR.B FixedReset -2.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 13.79
Evaluated at bid price : 13.79
Bid-YTW : 3.76 %
PWF.PR.P FixedReset -1.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 17.26
Evaluated at bid price : 17.26
Bid-YTW : 3.58 %
ENB.PR.J FixedReset -1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 19.90
Evaluated at bid price : 19.90
Bid-YTW : 4.54 %
BAM.PR.B Floater -1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 14.50
Evaluated at bid price : 14.50
Bid-YTW : 3.46 %
ENB.PF.C FixedReset -1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 20.10
Evaluated at bid price : 20.10
Bid-YTW : 4.63 %
IAG.PR.G FixedReset -1.74 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.90
Bid-YTW : 3.87 %
TRP.PR.A FixedReset -1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 18.90
Evaluated at bid price : 18.90
Bid-YTW : 3.77 %
TRP.PR.C FixedReset -1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 15.66
Evaluated at bid price : 15.66
Bid-YTW : 3.81 %
MFC.PR.F FixedReset -1.36 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.10
Bid-YTW : 6.33 %
BAM.PF.B FixedReset -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 22.10
Evaluated at bid price : 22.60
Bid-YTW : 3.93 %
BAM.PR.C Floater -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 14.45
Evaluated at bid price : 14.45
Bid-YTW : 3.47 %
PWF.PR.T FixedReset -1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 23.09
Evaluated at bid price : 24.50
Bid-YTW : 3.31 %
SLF.PR.H FixedReset -1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.20
Bid-YTW : 5.12 %
ENB.PR.T FixedReset -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 4.54 %
MFC.PR.M FixedReset -1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 4.07 %
MFC.PR.C Deemed-Retractible 1.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 4.82 %
Volume Highlights
Issue Index Shares
Traded
Notes
HSE.PR.A FixedReset 959,404 RBC crossed two blocks of 443,800 each and another two of 30,300 each, all at 16.25.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 16.21
Evaluated at bid price : 16.21
Bid-YTW : 4.02 %
BAM.PF.C Perpetual-Discount 136,416 RBC crossed 82,300 at 23.34.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 22.98
Evaluated at bid price : 23.30
Bid-YTW : 5.23 %
BMO.PR.Q FixedReset 130,935 TD crossed blocks of 43,500 and 64,600, both at 22.91.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.82
Bid-YTW : 3.90 %
ENB.PR.F FixedReset 126,709 Desjardins crossed 100,000 at 19.25.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 4.54 %
BNS.PR.Z FixedReset 101,894 TD crossed 83,100 at 22.90.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.86
Bid-YTW : 3.74 %
FTS.PR.M FixedReset 90,791 Scotia crossed 14,600 at 24.95; RBC crossed 70,000 at 24.98.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 23.12
Evaluated at bid price : 24.80
Bid-YTW : 3.38 %
There were 60 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.A Floater Quote: 16.50 – 18.25
Spot Rate : 1.7500
Average : 1.1921

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 3.05 %

PWF.PR.T FixedReset Quote: 24.50 – 25.30
Spot Rate : 0.8000
Average : 0.5885

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 23.09
Evaluated at bid price : 24.50
Bid-YTW : 3.31 %

CIU.PR.C FixedReset Quote: 16.10 – 17.00
Spot Rate : 0.9000
Average : 0.7418

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 16.10
Evaluated at bid price : 16.10
Bid-YTW : 3.50 %

FTS.PR.F Perpetual-Premium Quote: 24.81 – 25.09
Spot Rate : 0.2800
Average : 0.1821

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 24.57
Evaluated at bid price : 24.81
Bid-YTW : 4.99 %

VNR.PR.A FixedReset Quote: 23.72 – 24.07
Spot Rate : 0.3500
Average : 0.2639

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 22.91
Evaluated at bid price : 23.72
Bid-YTW : 3.84 %

GWO.PR.N FixedReset Quote: 17.15 – 17.46
Spot Rate : 0.3100
Average : 0.2249

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.15
Bid-YTW : 6.62 %

PPL.PR.I Closes: Relatively Unscathed on Good Volume

April 10th, 2015

Pembina Pipeline Corporation has announced:

that it has closed its previously announced public offering of cumulative redeemable rate reset class A preferred shares, Series 9 (the “Series 9 Preferred Shares”) for aggregate gross proceeds of $225 million (the “Offering”).

The Offering was announced on March 31, 2015 when Pembina entered into an agreement with a syndicate of underwriters co-led by Scotiabank and RBC Capital Markets. A total of 9,000,000 Series 9 Preferred Shares, which includes 1,000,000 Series 9 Preferred Shares issued pursuant to the partial exercise of the underwriters’ option, were sold under the Offering.

Proceeds from the Offering will be used to reduce indebtedness under the Company’s credit facilities, which indebtedness was incurred in connection with Pembina’s 2015 capital expenditure program.

The Series 9 Preferred Shares will begin trading on the Toronto Stock Exchange today under the symbol PPL.PR.I.

Dividends on the Series 9 Preferred Shares are expected to be $0.2969 quarterly, or $1.1875 per share on an annualized basis, payable on the 1st day of March, June, September and December, as and when declared by the Board of Directors of Pembina, for the initial fixed rate period to but excluding December 1, 2020. The first dividend, if declared, will be payable September 1, 2015, in the amount of $0.4685 per share.

All of Pembina’s dividends are designated “eligible dividends” for Canadian income tax purposes.

PPL.PR.I is a FixedReset, 4.75%+391, announced March 31. It will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The issue traded 654,760 shares today (consolidated exchanges) in a range of 24.40-68 before closing at 24.45-50. Vital statistics are:

PPL.PR.I FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-10
Maturity Price : 22.93
Evaluated at bid price : 24.45
Bid-YTW : 4.75 %

The price drop of roughly 2% from the issue price as of March 31 isn’t really all that bad – on the month-to-date price-index, TXPR is down 2.41% and TXPL is down 3.46%. Price indices are pretty silly, but they’re available for free and the difference (from total return indices) in April to date is not particularly large.

The calculated level of Implied Volatility has dropped substantially from the 33% calculated at announcement time to a more reasonable but still extremely high 24%. This implies that we should expect Implied Volatility to drop, which implies the calculated curve will flatten, which implies we should expect high-reset issues to outperform low-reset issues over the period.

impVol_PPL_150410
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April 9, 2015

April 9th, 2015

Shareholder activism is rearing its head:

Bond investors face growing risk as activist shareholders are targeting more companies in 2015 than last year, threatening further damage to corporate credit quality, according to Moody’s Investors Service.

Investors have sought change at 54 companies including General Motors Co. and MGM Resorts International this year, up from 43 during the same period in 2014, Moody’s said. The record 222 companies targeted last year was up from 220 in 2013. Assets managed by activist hedge funds increased to about $120 billion in 2014 from about $105 billion in 2013, according to Hedge Fund Research data cited by Moody’s.

They’re lured by the “huge cash pile” at U.S. non-financial companies, which had $1.65 trillion on their balance sheets in October 2014, according to the report. Technology companies, which as of October carried more than half of the cash held by the largest non-financial U.S. companies, accounted for 20 percent of shareholder activism last year. Along with its cash, the sector’s minimal dividends and low debt levels will continue to draw attention from these investors, Moody’s said.

The bureaucrats at the IMF have recommended hiring more bureaucrats:

Bond funds may be exposing customers and the financial system to more risk than some investors realize as money managers seek higher returns in less liquid assets, the International Monetary Fund said in a report recommending improved oversight.

“The role of fixed-income funds, which entail larger contagion risks than traditional equity investment, has expanded considerably,” the IMF said Wednesday in a chapter on asset managers in its latest Global Financial Stability Report.

While the U.S. mutual fund industry’s regulation regime is based primarily on disclosure, the IMF proposed enhancing “liquidity rules, the definition of liquid assets, investment restrictions, and reporting and disclosure rules.” Not enough is known about the use of leverage and derivatives, said Gaston Gelos, chief of the IMF division that worked on the chapter.

While asset managers act as a “spare tire” in world’s financial system, providing financing even when banks are distressed, the industry raises risks that call for changes in regulated and oversight, the IMF said.

“Easy redemption options can create risks of runs because of the presence of a first-mover advantage,” the IMF said. “The destabilization of prices in certain asset segments (particularly bonds) can affect other parts of the financial system through funding markets and balance sheet and collateral channels.”

I have tried several times to download the report, but it appears that all their technology budget got spent on junkets; the download hangs pretty quickly. It might work in a couple of days.

Meanwhile it appears that yes, next time might be different:

The gap between how easy it is to trade mutual-fund shares and how hard it is to buy and sell assets such as high-yield bonds and leveraged loans is widening.

In 2015 alone, a year in which the Federal Reserve says it’s still planning to raise interest rates, investors have poured $46 billion into mutual funds and exchange-traded funds focused on corporate bonds, according to data compiled by Wells Fargo & Co.

They now own about 22 percent of outstanding high-yield bonds, up from about 12 percent in 2006, data compiled by JPMorgan Chase & Co. show.

While the size of the U.S. bond market has swelled 23 percent since the end of 2007 through the end of last year, trading has fallen 28 percent in the period, according to data compiled by the Securities Industry & Financial Markets Association.

Warnings about potential scarcity of liquidity when it’s at a premium have moved from academic circles and crackpot blogs to the mainstream:

JPMorgan Chase & Co. head Jamie Dimon said last year’s volatility in U.S. Treasuries is a “warning shot” to investors and that the next financial crisis could be exacerbated by a shortage of the securities.

The Oct. 15 gyration, when Treasury yields fluctuated by almost 0.4 percentage point, was an “unprecedented move” that would have serious consequences in a stressed environment, Dimon, the New York-based bank’s chairman and chief executive officer, said in a letter Wednesday to shareholders. Treasuries are supposed to be among the most stable securities.

Dimon, 59, cited the incident as he waded into a debate about whether bank regulations implemented after the 2008 financial crisis exacerbate price declines by limiting the ability of Wall Street banks to make markets. It’s just a matter of time until some political, economic or market event triggers another financial crisis, he said, without predicting one is imminent.

Hat tip to Assiduous Reader JP for bringing the above to my attention. JP sends me many interesting links, unlike you other bums.

Power Financial sees an opportunity in the robo-advisor business:

Power Financial Corp., which has built an empire around financial planning and investment advice, is now plugging into the world of robots by investing up to $30-million in Wealthsimple Financial Inc.

The partnership of the robo-adviser firm and a major financial institution is the first of its kind in Canada. It will help Power Financial to target more millennials and other Canadians who are less likely to invest through traditional channels, and instead opt for low-cost robo-advisers that provide automated online portfolio management. Under the agreement, pending regulatory approval, Power Financial will initially invest $10-million into Wealthsimple, with an option to put in another $20-million over the next 12 months. Power Financial could potentially make further investments over the next three years under the deal.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 12bp FixedResets down 15bp and DeemedRetractibles gaining 2bp. The Performance Highlights table continues to reflect a lot of churn in the market. Volume was slightly above average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150409
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.18 to be $0.89 rich, while TRP.PR.C, resetting 2016-01-30 at +154, is $0.69 cheap at its bid price of 15.90.

impVol_MFC_150409

Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.M, resetting at +236 on 2019-12-19, bid at 24.25 to be $0.49 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.20 to be $0.93 cheap.

impVol_BAM_150409
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.14 to be $1.32 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 23.51 and appears to be $1.38 rich.

Click for Big

impVol_FTS_150409

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 15.35, looks $1.73 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.60 and is $0.91 rich.

pairs_FR_150409
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Investment-grade pairs other than TRP.PR.A / TRP.PR.F now predict an average over the next five years of about 0.30%, a slight decrease from yesterday’s value of 0.35%. TRP.PR.A / TRP.PR.F remains an outlier, predicting 1.24%. The DC.PR.B / DC.PR.D pair is still off the charts and now predicts an average bill rate over the next 4 3/4 years of -1.66%.

pairs_FF_150409
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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 1.8934 % 2,227.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.8934 % 3,895.2
Floater 3.25 % 3.40 % 59,628 18.79 4 1.8934 % 2,368.3
OpRet 4.43 % -1.11 % 33,191 0.15 2 -0.2162 % 2,759.9
SplitShare 4.57 % 4.76 % 58,710 3.44 3 0.0534 % 3,225.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2162 % 2,523.6
Perpetual-Premium 5.31 % 2.07 % 63,078 0.09 25 0.0853 % 2,525.7
Perpetual-Discount 5.09 % 5.02 % 143,120 15.08 9 -0.1171 % 2,805.1
FixedReset 4.51 % 3.67 % 269,244 16.46 85 -0.1494 % 2,367.8
Deemed-Retractible 4.91 % 2.27 % 107,992 0.14 37 0.0219 % 2,658.1
FloatingReset 2.48 % 2.89 % 77,091 6.28 8 -0.1330 % 2,353.9
Performance Highlights
Issue Index Change Notes
BNS.PR.Y FixedReset -2.43 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.66
Bid-YTW : 4.00 %
PWF.PR.P FixedReset -2.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 17.61
Evaluated at bid price : 17.61
Bid-YTW : 3.47 %
MFC.PR.L FixedReset -2.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.22
Bid-YTW : 4.31 %
SLF.PR.H FixedReset -1.97 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.44
Bid-YTW : 4.95 %
MFC.PR.F FixedReset -1.87 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.35
Bid-YTW : 6.13 %
TRP.PR.A FixedReset -1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 19.22
Evaluated at bid price : 19.22
Bid-YTW : 3.67 %
ENB.PF.A FixedReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 4.51 %
PWF.PR.A Floater -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 2.87 %
ELF.PR.H Perpetual-Premium -1.16 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-04-17
Maturity Price : 25.25
Evaluated at bid price : 25.60
Bid-YTW : 5.13 %
TRP.PR.B FixedReset -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 14.09
Evaluated at bid price : 14.09
Bid-YTW : 3.62 %
MFC.PR.N FixedReset -1.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.75
Bid-YTW : 4.12 %
ENB.PR.N FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 19.85
Evaluated at bid price : 19.85
Bid-YTW : 4.48 %
TRP.PR.C FixedReset 1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 15.90
Evaluated at bid price : 15.90
Bid-YTW : 3.71 %
TRP.PR.D FixedReset 1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 22.42
Evaluated at bid price : 23.15
Bid-YTW : 3.51 %
BAM.PF.G FixedReset 1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 23.03
Evaluated at bid price : 24.66
Bid-YTW : 3.78 %
BAM.PR.K Floater 2.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 14.45
Evaluated at bid price : 14.45
Bid-YTW : 3.47 %
BAM.PR.C Floater 2.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 14.64
Evaluated at bid price : 14.64
Bid-YTW : 3.42 %
BAM.PR.B Floater 4.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 14.76
Evaluated at bid price : 14.76
Bid-YTW : 3.40 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.M FixedReset 202,150 RBC crossed 30,000 at 25.00 and 49,300 at 25.05. TD crossed 100,000 at 25.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 23.14
Evaluated at bid price : 24.86
Bid-YTW : 3.34 %
RY.PR.H FixedReset 111,330 TD crossed 35,000 at 24.78; RBC crossed 50,000 at 24.78.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 23.12
Evaluated at bid price : 24.75
Bid-YTW : 3.12 %
BNS.PR.Y FixedReset 80,055 Will reset at 1.82% effective April 26.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.66
Bid-YTW : 4.00 %
CU.PR.C FixedReset 68,244 TD crossed 40,500 at 24.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 23.48
Evaluated at bid price : 24.81
Bid-YTW : 3.18 %
TD.PF.B FixedReset 60,228 TD crossed 25,000 at 24.50; Nesbitt crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 23.04
Evaluated at bid price : 24.50
Bid-YTW : 3.13 %
NA.PR.S FixedReset 59,632 Nesbitt crossed blocks of 28,500 and 25,000, both at 24.80; YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 23.16
Evaluated at bid price : 24.78
Bid-YTW : 3.22 %
There were 39 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.E FixedReset Quote: 23.18 – 23.99
Spot Rate : 0.8100
Average : 0.5532

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 22.40
Evaluated at bid price : 23.18
Bid-YTW : 3.55 %

SLF.PR.H FixedReset Quote: 21.44 – 22.00
Spot Rate : 0.5600
Average : 0.3462

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.44
Bid-YTW : 4.95 %

ENB.PR.T FixedReset Quote: 19.40 – 19.88
Spot Rate : 0.4800
Average : 0.3128

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 19.40
Evaluated at bid price : 19.40
Bid-YTW : 4.45 %

MFC.PR.L FixedReset Quote: 23.22 – 23.72
Spot Rate : 0.5000
Average : 0.3353

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.22
Bid-YTW : 4.31 %

PWF.PR.P FixedReset Quote: 17.61 – 18.06
Spot Rate : 0.4500
Average : 0.3015

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-09
Maturity Price : 17.61
Evaluated at bid price : 17.61
Bid-YTW : 3.47 %

NA.PR.Q FixedReset Quote: 24.91 – 25.25
Spot Rate : 0.3400
Average : 0.2150

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.91
Bid-YTW : 3.44 %

April 8, 2015

April 8th, 2015

Another day in which nothing happened, including me getting caught up on my responses to comments.

But I did get a call from a novice investor. His discount brokerage gave him my number and told him that I was the guy who could tell him about the dividend specifications for IGM.PR.B. I’m sure I’ll get my commission cheque shortly.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 37bp, FixedResets up 4bp and DeemedRetractibles gaining 2bp. The Performance Highlights table is quite lengthy, considering the modest nature of the overall movement. Volume was high.

PerpetualDiscounts now yield 5.02%, equivalent to 6.53% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.6% (maybe a little over) so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 290bp, unchanged from the April 1 report.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150408
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.25 to be $1.00 rich, while TRP.PR.C, resetting 2016-01-30 at +154, is $0.92 cheap at its bid price of 15.67.

impVol_MFC_150408
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 23.72 to be $0.64 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.15 to be $0.91 cheap.

impVol_BAM_150408
Click for Big

The fit on this series has suddenly become atrocious. It will be most interesting to see how long it takes for things to readjust.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.12 to be $1.32 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 23.70 and appears to be $1.59 rich.

impVol_FTS_150408
Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 15.40, looks $1.73 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.78 and is $0.97 rich.

pairs_FR_150408
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Investment-grade pairs other than TRP.PR.A / TRP.PR.F now predict an average over the next five years of about 0.35%, holding the increase of last week. TRP.PR.A / TRP.PR.F is an outlier, predicting 1.08%. The DC.PR.B / DC.PR.D pair is still off the charts and now predicts an average bill rate over the next 4 3/4 years of -2.12%.

pairs_FF_150408
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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 -1.4889 % 2,186.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.4889 % 3,822.8
Floater 3.31 % 3.51 % 58,924 18.53 4 -1.4889 % 2,324.3
OpRet 4.42 % -3.96 % 30,739 0.15 2 -0.0982 % 2,765.9
SplitShare 4.57 % 4.80 % 59,087 3.44 3 -0.3856 % 3,224.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0982 % 2,529.1
Perpetual-Premium 5.31 % 0.91 % 60,750 0.09 25 -0.0821 % 2,523.6
Perpetual-Discount 5.08 % 5.02 % 142,858 15.12 9 -0.3733 % 2,808.4
FixedReset 4.50 % 3.64 % 268,816 16.46 85 0.0355 % 2,371.3
Deemed-Retractible 4.91 % 2.51 % 110,819 0.14 37 0.0224 % 2,657.5
FloatingReset 2.48 % 2.88 % 77,338 6.28 8 0.0426 % 2,357.0
Performance Highlights
Issue Index Change Notes
BAM.PR.B Floater -3.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 14.10
Evaluated at bid price : 14.10
Bid-YTW : 3.56 %
SLF.PR.G FixedReset -2.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.80
Bid-YTW : 6.84 %
IFC.PR.A FixedReset -1.59 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.80
Bid-YTW : 5.86 %
BAM.PR.C Floater -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 14.29
Evaluated at bid price : 14.29
Bid-YTW : 3.51 %
TRP.PR.A FixedReset -1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 19.56
Evaluated at bid price : 19.56
Bid-YTW : 3.60 %
FTS.PR.H FixedReset -1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 15.40
Evaluated at bid price : 15.40
Bid-YTW : 3.61 %
FTS.PR.G FixedReset -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 22.28
Evaluated at bid price : 22.82
Bid-YTW : 3.32 %
VNR.PR.A FixedReset -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 23.08
Evaluated at bid price : 24.05
Bid-YTW : 3.74 %
BAM.PR.Z FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 23.10
Evaluated at bid price : 24.18
Bid-YTW : 3.93 %
PWF.PR.T FixedReset 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 23.27
Evaluated at bid price : 25.00
Bid-YTW : 3.18 %
MFC.PR.N FixedReset 1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.99
Bid-YTW : 4.00 %
BAM.PR.X FixedReset 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 16.97
Evaluated at bid price : 16.97
Bid-YTW : 4.12 %
TRP.PR.E FixedReset 1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 22.44
Evaluated at bid price : 23.25
Bid-YTW : 3.54 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.Q FixedReset 248,320 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 23.12
Evaluated at bid price : 24.95
Bid-YTW : 3.45 %
BNS.PR.Y FixedReset 122,238 RBC crossed 56,900 at 22.20.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.20
Bid-YTW : 3.61 %
NA.PR.W FixedReset 104,600 Nesbitt crossed 95,700 at 24.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 23.06
Evaluated at bid price : 24.68
Bid-YTW : 3.15 %
ENB.PR.F FixedReset 99,548 Desjardins bought 71,800 from anonymouse at 19.25.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 19.16
Evaluated at bid price : 19.16
Bid-YTW : 4.47 %
HSE.PR.E FixedReset 86,554 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 23.23
Evaluated at bid price : 25.20
Bid-YTW : 4.24 %
RY.PR.J FixedReset 76,000 Scotia crossed 66,000 at 25.10.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 23.19
Evaluated at bid price : 25.10
Bid-YTW : 3.40 %
There were 48 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IFC.PR.A FixedReset Quote: 19.80 – 20.70
Spot Rate : 0.9000
Average : 0.6274

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.80
Bid-YTW : 5.86 %

FTS.PR.K FixedReset Quote: 22.78 – 23.63
Spot Rate : 0.8500
Average : 0.6344

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 22.22
Evaluated at bid price : 22.78
Bid-YTW : 3.30 %

BAM.PR.B Floater Quote: 14.10 – 14.50
Spot Rate : 0.4000
Average : 0.2251

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 14.10
Evaluated at bid price : 14.10
Bid-YTW : 3.56 %

BAM.PF.G FixedReset Quote: 24.28 – 24.70
Spot Rate : 0.4200
Average : 0.2767

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 22.88
Evaluated at bid price : 24.28
Bid-YTW : 3.86 %

ENB.PR.N FixedReset Quote: 19.65 – 20.00
Spot Rate : 0.3500
Average : 0.2206

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 19.65
Evaluated at bid price : 19.65
Bid-YTW : 4.53 %

TRP.PR.A FixedReset Quote: 19.56 – 19.80
Spot Rate : 0.2400
Average : 0.1455

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-04-08
Maturity Price : 19.56
Evaluated at bid price : 19.56
Bid-YTW : 3.60 %

LBS.PR.A Closes Treasury Offering

April 8th, 2015

Brompton Group has announced:

Life & Banc Split Corp. (the “Company”) is pleased to announce that it has completed a treasury offering of 1,300,000 class A shares and 1,300,000 preferred shares for aggregate gross proceeds of approximately $25.5 million. The class A shares and preferred shares will continue to trade on the Toronto Stock Exchange under the existing symbols LBS (class A shares) and LBS.PR.A (preferred shares).
The Company invests in a portfolio of common shares of the six largest Canadian banks (“Banks”) and the four major publicly traded Canadian life insurance companies (“Lifecos”). Currently, the portfolio consists of common shares of the following Banks and Lifecos:
The Bank of Nova Scotia Royal Bank of Canada
National Bank of Canada Industrial Alliance Insurance and Financial Services Inc.
The Toronto-Dominion Bank Great-West Lifeco Inc.
Canadian Imperial Bank of Commerce Manulife Financial Corporation
Bank of Montreal Sun Life Financial Inc.

The class A shares were offered at a price of $9.55 and the preferred shares were offered at a price of $10.05. The final class A and preferred share offering prices were determined so as to be non-dilutive to the net asset value per unit of the Company on March 26, 2015, as adjusted for dividends accrued prior to or upon settlement of the offering.

The syndicate of agents for the offering was led by RBC Capital Markets, CIBC, Scotiabank, and TD Securities Inc., and includes BMO Capital Markets, National Bank Financial Inc., GMP Securities L.P., Raymond James Ltd., Canaccord Genuity Corp., Desjardins Securities Inc., Dundee Securities Ltd., Haywood Securities Inc., Industrial Alliance Securities Inc. and Mackie Research Capital Corporation.

Not bad, considering that the April 2 NAVPU was $18.59! I previously reported on the offering.

LBS.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.