DFN.PR.A To Get Bigger

May 14th, 2015

Quadravest has announced:

Dividend 15 Split Corp. (the “Company”) is pleased to announce it has filed a preliminary short form prospectus in each of the provinces of Canada with respect to an offering of Preferred Shares and Class A Shares of the Company. The offering will be co-led by National Bank Financial Inc., CIBC, RBC Capital Markets and will also include 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 Preferred Shares will be offered at a price of $10.00 per Preferred Share to yield 5.25% on the issue price and the Class A Shares will be offered at a price of $11.90 per Class A Share to yield 10.08% on the issue price. The closing price on the TSX of each of the Preferred Shares and the Class A Shares on May 12, 2015 was $10.35 and $12.23, respectively.

Since inception of the Company, the aggregate dividends paid on the Preferred Shares have been $5.84 per share and the aggregate dividends paid on the Class A Shares have been $16.80 per share (including five special distributions of $0.25 per share, one special distribution of $0.50 per share and one special stock dividend of $1.75 per share), for a combined total of $22.64 per unit. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.

The net proceeds of the offering will be used by the Company to invest in an actively managed portfolio of dividend yielding common shares which includes each of the 15 Canadian companies listed below:

The Bank of Nova Scotia Manulife Financial Corp. Thomson-Reuters Corporation
BCE Inc. National Bank of Canada The Toronto-Dominion Bank
Canadian Imperial Bank of Commerce Royal Bank of Canada TransAlta Corporation
CI Financial Corp. Sun Life Financial Inc. TransCanada Corporation

The Company’s investment objectives are:
Preferred Shares:
i. to provide holders of the Preferred Shares with fixed, cumulative preferential monthly cash dividends in the amount of $0.04375 per Preferred Share to yield 5.25% per annum on the original issue price; and
ii. on or about December 1, 2019, to pay the holders of the Preferred Shares the original issue price of those shares.

Class A Shares:
i. to provide holders of the Class A Shares with regular monthly cash dividends currently targeted to be $0.10 per Class A; and
ii. on or about December 1, 2019, to pay the holders of Class A Shares at least the original issue price of those shares.

The sales period of this overnight offering will end at 9:00 a.m. (EST) on May 14, 2015.

The NAVPU of the Dividend 15 Corp. Whole Units is 20.06 as of May 12 … and these whole units are being sold for 21.90. Nice work if you can get it!

Update, 2015-5-15: This was extremely successful:

Dividend 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 4,300,000 Preferred Shares and up to 4,300,000 Class A Shares of the Company. Total proceeds of the offering are expected to be approximately $94.2 million.

May 13, 2015

May 14th, 2015

On April 30, S&P published its 2014 Annual Global Corporate Default Study And Rating Transitions:

In a year marked by considerable geopolitical turmoil, the ending of the Federal Reserve’s monthly asset purchases, and the steep decline in the price of oil, corporate borrowers fared very well by historical standards. In the full year, 60 global corporate issuers defaulted, considerably lower than the 81 last year and the lowest total since 2011 (see table 1). These 60 defaulted issuers accounted for a total of $91.6 billion in debt, down from $97.3 billion in 2013.

Overall, credit quality and rating stability remained high in 2014 (see table 6). The ratio of downgrades to upgrades increased marginally relative to 2013, but the rate of upgrades still outpaced that of downgrades. Overall, the percentage of rating actions decreased, and the magnitude of individual rating changes remained muted. This pushed the average number of notches recorded among downgrades to 1.36 from 1.38 in 2013. Meanwhile, the average number of notches for upgrades remained nearly unchanged, at 1.16 versus 1.15 in 2013 (see chart 13). (Watch the related CreditMatters TV segment titled, “Standard & Poor’s Global Corporate Default And Rating Transitions Study,” dated April 30, 2015.)

Overview

  • •The number of global defaults in 2014 declined to 60 from 81 in 2013. This helped push the global speculative-grade default rate down to 1.42% from 2.28% at the end of 2013. Similar to 2013, this decline is a result of both a smaller number of defaults and an increase in the number of speculative-grade issuers in 2014–up to 3,163 from 2,804 a year earlier.
  • •The one-year global Gini ratio rose to 93 in 2014, which is the second highest in 34 years. This is largely attributable to the roughly 91% of the rated defaulters in 2014 beginning the year with ratings of ‘B-’ or lower.
  • •The overall rate of rating actions decreased in 2014. The downgrade rate decreased to 8.4% from 9.4% in 2013, while the upgrade rate declined to 9.3% from 11.4%. Ratings stability increased, with the rate of unchanged ratings hitting a 10-year high of 74.5%.
  • •Consistent with past years, the U.S. continues to account for the majority of defaults globally in 2014, at 55%. However, this is the lowest percentage in the past 34 years. Following the U.S., emerging markets accounted for just over 25% of the remaining defaulters.

They have also published a bit more commentary:

U.S. corporate credit performed exceptionally well in 2014 as the number of rated companies defaulting declined to its lowest number since 2007. While the Federal Reserve completed its round of tapering, winding down its monthly large-scale asset purchases, interest rates for highly rated credits fell from already low levels. Corporate bond issuance surpassed $1 trillion for a third consecutive year, and investment-grade and Treasury bond yields fell. As the speculative-grade market faced rising volatility during the year brought about by falling oil prices and rising geopolitical strains, the speculative-grade default rate fell to below 2%, less than one half of its long-term average. Slow but steady economic growth continued to support business conditions, and the upgrade to downgrade ratio improved as more U.S. companies were upgraded than downgraded in 2014. The number of U.S. corporate defaulters fell to 33 from 45 in 2013. The defaulting companies were either unrated or were rated ‘B-’ and lower as of the beginning of 2014, consistent with our findings that Standard & Poor’s Ratings Services’ U.S. corporate credit ratings continue to serve as effective indicators of relative credit risk. (Watch the related CreditMatters TV segment titled, “Standard & Poor’s U.S. Corporate Default And Rating Transitions Study,” dated May 11, 2015.)

Overview

  • •In 2014, 33 U.S. companies with $82 billion in outstanding debt defaulted; by comparison, 45 U.S. corporates defaulted with $64.9 billion of outstanding debt in 2013.
  • •The U.S. speculative-grade (‘BB+’ and lower) corporate default rate fell to 1.59% as of year-end 2014 from 2.16% as of year-end 2013. Of the companies that defaulted in 2014, the highest rated was ‘B-’.
  • •Companies in the lowest rating categories had the highest default rates: 25% of the companies rated ‘CCC’/'C’ at the beginning of the year had defaulted by the end of the year.
  • •The one-year Gini ratio for Standard & Poor’s 2014 ratings’ performance climbed to a new high of 96.1%. This is the highest one-year Gini recorded for U.S. corporates in our data going back to 1981.
  • •Overall, ratings were more stable in 2014 than in 2013: Nearly 76% of ratings were unchanged in 2014, up from 72% the prior year.

SEC Chair Mary Jo White gave a speech lauding the opportunities that market complexity gives for regulatory employment, and the fine job the SEC is doing, titled Optimizing Our Equity Market Structure. These were Opening Remarks at the Inaugural Meeting of the Equity Market Structure Advisory Committee:

It is fitting that today we are starting our market structure discussion with an assessment of Rule 611 of Regulation NMS — the order protection rule. The selection of this rule for the inaugural meeting is reflective of how important it is to examine the fundamentals of our current market and regulatory structure, to explore their impact and assess their continued utility. This is not done just for an interesting discussion — although I am sure it will be that. Rather, we are about the serious business of optimizing the structure of our equity markets through a careful, data-driven assessment where no issue is off limits or any assumption unquestioned. And Rule 611 is most certainly a rule that features prominently in the discussion of market structure, with different views of its various impacts, including critiques that it has: (1) contributed to excessive fragmentation; (2) led to increased off-exchange trading; (3) harmed institutional investors; and (4) failed to achieve the objective of enhancing displayed liquidity. The Division of Trading and Markets has prepared and posted on our website a memorandum that is intended to help explore the extent to which these claims may or may not be accurate. Addressing Rule 611 will no doubt serve to highlight the other forces that have shaped our market structure, whether they be regulatory, competitive, or technological.

Rule 611 is part of Regulation NMS:

Regulation NMS includes new substantive rules that are designed to modernize and strengthen the regulatory structure of the U.S. equity markets. First, the “Order Protection Rule” requires trading centers to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the execution of trades at prices inferior to protected quotations displayed by other trading centers, subject to an applicable exception. To be protected, a quotation must be immediately and automatically accessible. Second, the “Access Rule” requires fair and non-discriminatory access to quotations, establishes a limit on access fees to harmonize the pricing of quotations across different trading centers, and requires each national securities exchange and national securities association to adopt, maintain, and enforce written rules that prohibit their members from engaging in a pattern or practice of displaying quotations that lock or cross automated quotations. Third, the “Sub-Penny Rule” prohibits market participants from accepting, ranking, or displaying orders, quotations, or indications of interest in a pricing increment smaller than a penny, except for orders, quotations, or indications of interest that are priced at less than $1.00 per share. Finally, the Commission is adopting amendments to the “Market Data Rules” that update the requirements for consolidating, distributing, and displaying market information, as well as amendments to the joint industry plans for disseminating market information that modify the formulas for allocating plan revenues (“Allocation Amendment”) and broaden participation in plan governance (“Governance Amendment”).

After all the garbage coming from the regulators, it’s nice to see that someone gets it:

An ex-Jefferies & Co. trader convicted last year of lying to buyers and sellers of mortgage-backed bonds may have done nothing worse in one judge’s view than what a homeowner does when selling a house.

There’s a “certain amount of license and puffery” that goes on in the bond market, especially with “big boys” “who are capable of very sophisticated analysis,” U.S. Circuit Judge Barrington D. Parker said Wednesday during the appeal of Jesse Litvak’s conviction. “This kind of thing goes on all the time.”

Litvak, 40, was found guilty by a federal jury in New Haven, Connecticut, in March 2014, becoming the first person convicted of fraud tied to the Troubled Asset Relief Program set up by the U.S. amid the 2008 financial crisis. On appeal, Litvak says the case would make crimes out of statements in everyday negotiations such as car sales and that his lies weren’t material to the bond transactions.

Parker, one of three judges hearing the case in the U.S. Court of Appeals in New York, may agree. He asked Assistant U.S. Attorney Jonathan Francis if a real estate broker would be making a material misrepresentation by falsely telling a home buyer that a seller wouldn’t accept a lower offer.

Francis said the rules are different in the securities industry and that a higher standard is needed to discourage deceit and ensure that markets are fair and that investors won’t be ripped off.

Mr. Francis’ position is, of course, bullshit. The reason there is more regulation in the securities industry than in real-estate is because there are more layers of middlemen in securities transactions and these middlemen are giant corporations who pay regulatory fees as a part of doing business and pass them on to clients without itemization. If clients knew how much regulation was costing them, directly and indirectly, there would be a lot less regulation.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 24bp, FixedResets off 3bp and DeemedRetractibles down 7bp. The performance highlights table shows volatility remains a big factor, with Enbridge issues prominent on the bad side. Volume was on the low side of 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_150513
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.20 to be $0.99 rich, while TRP.PR.B, resetting 2015-6-30 at +128, is $0.79 cheap at its bid price of 15.78.

impVol_MFC_150513
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. 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 24.75 to be $0.60 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.33 to be $0.61 cheap.

impVol_BAM_150513
Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.52 to be $0.83 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.97 and appears to be $0.56 rich.

impVol_FTS_150513
Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.46, looks $1.01 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 22.08 and is $0.50 rich.

pairs_FR_150513
Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.30%, including the TRP.PR.A / TRP.PR.F at -0.36%. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -1.06%, while BRF.PR.A / BRF.PR.B is at -1.36%.

pairs_FF_150513
Click for Big

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 -0.4728 % 2,298.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.4728 % 4,018.3
Floater 3.16 % 3.30 % 54,370 18.96 4 -0.4728 % 2,443.1
OpRet 4.41 % -4.13 % 38,819 0.13 2 0.0980 % 2,774.6
SplitShare 4.57 % 4.81 % 59,198 3.34 3 0.0802 % 3,224.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0980 % 2,537.1
Perpetual-Premium 5.46 % 2.38 % 63,834 0.08 18 0.0052 % 2,521.3
Perpetual-Discount 5.04 % 5.04 % 121,767 15.29 15 0.2370 % 2,788.9
FixedReset 4.39 % 3.76 % 272,135 16.42 86 -0.0255 % 2,424.1
Deemed-Retractible 4.92 % 3.24 % 110,399 0.62 35 -0.0696 % 2,643.6
FloatingReset 2.58 % 2.92 % 61,974 6.18 7 -0.0729 % 2,336.4
Performance Highlights
Issue Index Change Notes
ENB.PR.N FixedReset -2.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 20.35
Evaluated at bid price : 20.35
Bid-YTW : 4.59 %
ENB.PR.Y FixedReset -1.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 19.25
Evaluated at bid price : 19.25
Bid-YTW : 4.59 %
HSE.PR.A FixedReset -1.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 17.48
Evaluated at bid price : 17.48
Bid-YTW : 4.07 %
ENB.PR.P FixedReset -1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 20.01
Evaluated at bid price : 20.01
Bid-YTW : 4.52 %
ENB.PR.F FixedReset -1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 19.55
Evaluated at bid price : 19.55
Bid-YTW : 4.61 %
TRP.PR.D FixedReset -1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 22.62
Evaluated at bid price : 23.51
Bid-YTW : 3.68 %
ENB.PR.D FixedReset -1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 4.46 %
ENB.PR.T FixedReset -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 19.68
Evaluated at bid price : 19.68
Bid-YTW : 4.60 %
ENB.PR.B FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 19.45
Evaluated at bid price : 19.45
Bid-YTW : 4.47 %
ELF.PR.H Perpetual-Premium -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 24.72
Evaluated at bid price : 25.20
Bid-YTW : 5.49 %
ELF.PR.G Perpetual-Discount -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 23.11
Evaluated at bid price : 23.40
Bid-YTW : 5.11 %
ENB.PR.A Perpetual-Premium 1.04 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-12
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : -14.37 %
RY.PR.Z FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 23.15
Evaluated at bid price : 24.72
Bid-YTW : 3.29 %
SLF.PR.H FixedReset 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.95
Bid-YTW : 4.96 %
CM.PR.P FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 23.00
Evaluated at bid price : 24.50
Bid-YTW : 3.34 %
CU.PR.D Perpetual-Discount 1.23 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-09-01
Maturity Price : 25.25
Evaluated at bid price : 25.50
Bid-YTW : 4.61 %
CIU.PR.C FixedReset 1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 16.20
Evaluated at bid price : 16.20
Bid-YTW : 3.76 %
PWF.PR.S Perpetual-Discount 1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 24.33
Evaluated at bid price : 24.75
Bid-YTW : 4.86 %
MFC.PR.M FixedReset 2.74 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.75
Bid-YTW : 3.85 %
MFC.PR.L FixedReset 3.65 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.59
Bid-YTW : 4.31 %
Volume Highlights
Issue Index Shares
Traded
Notes
ENB.PR.H FixedReset 121,407 Nesbitt crossed 100,000 at 18.60.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 18.37
Evaluated at bid price : 18.37
Bid-YTW : 4.47 %
MFC.PR.A OpRet 89,420 Called for redemption June 19.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-19
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 0.32 %
BAM.PF.G FixedReset 44,659 Desjardins crossed 40,000 at 24.85.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 23.14
Evaluated at bid price : 24.97
Bid-YTW : 3.94 %
SLF.PR.H FixedReset 41,221 Nesbitt crossed 38,300 at 21.90.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.95
Bid-YTW : 4.96 %
ENB.PR.P FixedReset 27,576 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 20.01
Evaluated at bid price : 20.01
Bid-YTW : 4.52 %
RY.PR.H FixedReset 24,106 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 23.07
Evaluated at bid price : 24.59
Bid-YTW : 3.34 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.K FixedReset Quote: 23.82 – 24.50
Spot Rate : 0.6800
Average : 0.4164

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.82
Bid-YTW : 4.12 %

ELF.PR.H Perpetual-Premium Quote: 25.20 – 25.65
Spot Rate : 0.4500
Average : 0.3273

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 24.72
Evaluated at bid price : 25.20
Bid-YTW : 5.49 %

ENB.PR.N FixedReset Quote: 20.35 – 20.73
Spot Rate : 0.3800
Average : 0.2644

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 20.35
Evaluated at bid price : 20.35
Bid-YTW : 4.59 %

ENB.PR.F FixedReset Quote: 19.55 – 19.87
Spot Rate : 0.3200
Average : 0.2273

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-13
Maturity Price : 19.55
Evaluated at bid price : 19.55
Bid-YTW : 4.61 %

MFC.PR.I FixedReset Quote: 25.48 – 25.73
Spot Rate : 0.2500
Average : 0.1654

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.48
Bid-YTW : 3.85 %

IFC.PR.A FixedReset Quote: 20.78 – 21.15
Spot Rate : 0.3700
Average : 0.2903

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.78
Bid-YTW : 5.53 %

MFC.PR.A To Be Redeemed

May 14th, 2015

Manulife Financial Corporation has announced:

its intention to redeem all of its outstanding 14,000,000 Non-cumulative Class A Shares, Series 1 (“Series 1 Preferred Shares”) for cash on June 19, 2015. The Series 1 Preferred Shares (TSX: MFC.PR.A) are redeemable at Manulife’s option on June 19, 2015, at a redemption price per Series 1 Preferred Share equal to C$25.00 for an aggregate total of C$350 million. Formal notice will be delivered to holders of Series 1 Preferred Shares in accordance with the terms outlined in the share provisions for the Series 1 Preferred Shares.

Separately from the redemption price, the final quarterly dividend of C$0.25625 per Series 1 Preferred Share will be paid in the usual manner on June 19, 2015 to shareholders of record on May 20, 2015. After the Series 1 Preferred Shares are redeemed, holders of Series 1 Preferred Shares will cease to be entitled to distributions of dividends and will not be entitled to exercise any rights as holders other than to receive the redemption price.

This is one of the last Operating Retractibles still around – most were redeemed when accounting changes turned them into debt and this was reinforced by being disallowed as Tier 1 Capital by OSFI, although extant issues were grandfathered.

Many thanks to Assiduous Readers WT and GA for separately bringing this to my attention.

May 12, 2015

May 12th, 2015

For those who missed it, Bloomberg has an admirable piece on the some explanations of the global bond rout:

Between the ECB’s bond buying and the threat of deflation, yields across Europe started to go negative this year, meaning investors were essentially paying for the privilege to lend their money out. That created a spill over effect into bond markets in the rest of the world as investors went in search of a better deal, pulling yields down in those markets too. The average yield across all Germany’s debt went negative about three weeks ago. That seems to have been the straw that broke the camel’s back. Since then that average yield has climbed to the highest level this year. Yields on about $2 trillion of bonds across 12 countries still linger below zero.

The US Department of So-Called Justice has decided a little more regulatory extortion is never a bad thing:

The U.S. Justice Department is set to rip up its agreement not to prosecute UBS Group AG for rigging benchmark interest rates, according to a person familiar with the matter, taking a new step to hold banks accountable for repeat offenses.

The move by the U.S. would be a first for the industry, making good on a March threat by a senior Justice Department official to revoke such agreements and putting banks on notice that these accords can be unwound if misconduct continues.

UBS’s cooperation in the currency probe may help shield it from antitrust charges in that matter. However, the bank is still exposed to fraud charges in that case, and any admission of wrongdoing could also put it in violation of an earlier deal the Zurich-based bank struck with the Justice Department.

In a December 2012 non-prosecution agreement with the U.S. to resolve a worldwide investigation into the manipulation of the London interbank offered rate, or Libor, UBS promised not to commit crimes for two years.

Don’t bet your bottom dollar on Chicago, Chicago:

Chicago had its credit rating cut to junk by Moody’s Investors Service after the Illinois Supreme Court’s rejection of a state pension-overhaul plan reduced the city’s options for fixing its own underfunded system.

The two-level downgrade to Ba1 affects $8.1 billion of general obligations, which were already the lowest-rated among the 90 biggest U.S. cities, excluding Detroit. The outlook is still negative. Moody’s has dropped the city seven levels since July 2013.

The deterioration in the credit standing of the third-most-populous U.S. city underscores how pension promises are squeezing the finances of states and localities nationwide. Moody’s downgrade compounds Chicago’s fiscal struggles: its counterparties can immediately demand as much as $2.2 billion in accelerated principal, accrued interest and termination fees, New York-based Moody’s said in the report.

There’s an interesting piece on Bloomberg about using technology to compete with cheap labour:

A few years ago, in an effort to diversify his company’s offerings, Pomini teamed up with Selvaggia Armani, an artist and designer. The two began working on a series of lamps designed by Armani and manufactured to order on Pomini’s 3D printers. The pieces—some of which include intricate meshwork or interlocking chains that would be difficult to produce using traditional methods—take shape slowly, each layer fused from powdered nylon by a high-power laser. The project was a surprising success: Pomini now works with more than a dozen designers; he introduced 3D­printed jewelry in 2012. “This is the beauty of this technology,” says Armani, 47. “You can build things that are impossible.”

Armani have helped turn northeastern Italy into an unlikely hothouse of innovation. Last year growth in the region was positive for the first time since 2007, at 0.5 percent. Exports rose by 3.5 percent in 2014 and are expected to keep climbing. In the province of Trento, for instance, the public and private sectors together invest some 2 percent of gross domestic product in research and development. At the Centro Moda Canossa—a trade school in Trento for children age 14 to 18 specializing in fashion design and tailoring—the faculty recently added a class in which students incorporate 3D printing, laser cutting, and microcontroller chips into their designs. “You can’t offer a job from the past. Nobody will come,” says Michele Bommassar, 36, the school’s vice director. “You have to offer the jobs of the future.”

Is anybody in Canada listening? No? OK, go back to sleep, then. You’ll want to be rested for the anti-globalization demo.

In other news, Hydro One, having achieved the pinnacle of operating efficiency, has decided to join the Junior Justice League:

A Hydro One employee will be fired following an incident on Sunday when a female television reporter was harassed by Toronto FC fans hurling obscenities while she was doing a live hit.

“Hydro One is taking steps to terminate the employee for violating our Code of Conduct,” Hydro One spokesman Daffyd Roderick said in a statement.

“Respect for all people is ingrained in the code and our values. We are committed to a work environment where discrimination or harassment of any type is met with zero tolerance.”

So now, not only will universities like Dalhousie be able to administer the extra-judicial flavour of the month (as discussed on January 6) but any two-bit corporation will be able to do the same. So we are beginning to see a reversion to the good old days, when your employer had the ability to regulate every aspect of your life … it will be interesting to learn when unions become popular again, which will happen as soon as enough people get fed up with the abuse and fearful of its consequences – especially when it results from an essentially random occurance of internet pile-on.

It was a negative day for the Canadian preferred share market, with PerpetualDiscounts losing 26bp, FixedResets off 4bp and DeemedRetractibles down 8bp. FixedResets dominated both ends of the Performance Highlights table. 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_150512
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.26 to be $0.49 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.21 cheap at its bid price of 25.00.

impVol_MFC_150512
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. 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.N, resetting at +230 on 2020-3-19, bid at 24.04 to be $0.40 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.33 to be $0.35 cheap.

impVol_BAM_150512
Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.65 to be $0.69 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.96 and appears to be $0.55 rich.

impVol_FTS_150512
Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.30, looks $1.08 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 22.00 and is $0.50 rich.

pairs_FR_150512
Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.40%, but TRP.PR.A / TRP.PR.F remains an outlier at -0.39%. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -1.12%.

pairs_FF_150512
Click for Big

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 0.1104 % 2,309.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.1104 % 4,037.3
Floater 3.14 % 3.27 % 54,838 19.02 4 0.1104 % 2,454.7
OpRet 4.41 % -2.65 % 39,132 0.14 2 0.1178 % 2,771.8
SplitShare 4.58 % 4.80 % 59,082 3.34 3 -0.3594 % 3,221.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1178 % 2,534.6
Perpetual-Premium 5.45 % 2.18 % 66,363 0.08 18 0.0283 % 2,521.2
Perpetual-Discount 5.05 % 5.07 % 119,922 15.35 15 -0.2559 % 2,782.3
FixedReset 4.38 % 3.73 % 273,092 16.33 86 -0.0363 % 2,424.7
Deemed-Retractible 4.91 % 3.51 % 110,294 0.78 35 -0.0752 % 2,645.4
FloatingReset 2.58 % 2.91 % 62,405 6.19 7 -0.0243 % 2,338.1
Performance Highlights
Issue Index Change Notes
MFC.PR.L FixedReset -3.76 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.76
Bid-YTW : 4.76 %
SLF.PR.H FixedReset -3.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.70
Bid-YTW : 5.10 %
FTS.PR.H FixedReset -2.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 16.30
Evaluated at bid price : 16.30
Bid-YTW : 3.84 %
FTS.PR.K FixedReset -1.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 21.70
Evaluated at bid price : 22.00
Bid-YTW : 3.72 %
ENB.PR.T FixedReset -1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 20.20
Evaluated at bid price : 20.20
Bid-YTW : 4.56 %
PWF.PR.P FixedReset -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 18.75
Evaluated at bid price : 18.75
Bid-YTW : 3.60 %
IFC.PR.A FixedReset -1.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.80
Bid-YTW : 5.51 %
PWF.PR.S Perpetual-Discount -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 23.92
Evaluated at bid price : 24.32
Bid-YTW : 4.95 %
GWO.PR.I Deemed-Retractible -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.75
Bid-YTW : 5.26 %
MFC.PR.H FixedReset 1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 2.64 %
BMO.PR.T FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 23.06
Evaluated at bid price : 24.55
Bid-YTW : 3.33 %
BAM.PR.R FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 20.88
Evaluated at bid price : 20.88
Bid-YTW : 4.16 %
BAM.PR.X FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 18.65
Evaluated at bid price : 18.65
Bid-YTW : 4.08 %
GWO.PR.N FixedReset 1.10 % 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 %
NA.PR.W FixedReset 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 23.00
Evaluated at bid price : 24.50
Bid-YTW : 3.37 %
TRP.PR.C FixedReset 1.64 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 18.60
Evaluated at bid price : 18.60
Bid-YTW : 3.52 %
BMO.PR.S FixedReset 1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 23.22
Evaluated at bid price : 24.92
Bid-YTW : 3.35 %
BAM.PR.T FixedReset 2.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 21.27
Evaluated at bid price : 21.55
Bid-YTW : 4.01 %
Volume Highlights
Issue Index Shares
Traded
Notes
BAM.PF.F FixedReset 127,583 Desjardins crossed 100,000 at 24.85; TD crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 23.16
Evaluated at bid price : 24.86
Bid-YTW : 3.96 %
CM.PR.Q FixedReset 115,410 Nesbitt crossed 76,800 at 25.00; TD crossed 25,000 at 24.97.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 23.10
Evaluated at bid price : 24.85
Bid-YTW : 3.69 %
RY.PR.H FixedReset 82,086 Desjardins crossed 20,000 at 24.62; RBC crossed 40,400 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 23.08
Evaluated at bid price : 24.61
Bid-YTW : 3.34 %
ENB.PR.H FixedReset 63,230 RBC crossed blocks of 23,600 and 26,400, both at 18.86.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 18.75
Evaluated at bid price : 18.75
Bid-YTW : 4.46 %
RY.PR.C Deemed-Retractible 59,095 Nesbitt crossed 50,000 at 25.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-11-24
Maturity Price : 25.00
Evaluated at bid price : 25.18
Bid-YTW : 2.95 %
ENB.PR.T FixedReset 51,581 RBC crossed 40,000 at 20.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 20.20
Evaluated at bid price : 20.20
Bid-YTW : 4.56 %
There were 52 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.M FixedReset Quote: 24.09 – 24.97
Spot Rate : 0.8800
Average : 0.5983

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.09
Bid-YTW : 4.19 %

IAG.PR.G FixedReset Quote: 25.95 – 26.50
Spot Rate : 0.5500
Average : 0.4134

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 2.70 %

RY.PR.Z FixedReset Quote: 24.46 – 24.94
Spot Rate : 0.4800
Average : 0.3657

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 23.05
Evaluated at bid price : 24.46
Bid-YTW : 3.34 %

PWF.PR.F Perpetual-Discount Quote: 25.01 – 25.29
Spot Rate : 0.2800
Average : 0.1688

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 24.69
Evaluated at bid price : 25.01
Bid-YTW : 5.28 %

GWO.PR.F Deemed-Retractible Quote: 25.61 – 25.98
Spot Rate : 0.3700
Average : 0.2603

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-11
Maturity Price : 25.00
Evaluated at bid price : 25.61
Bid-YTW : -14.88 %

BAM.PF.B FixedReset Quote: 22.65 – 22.99
Spot Rate : 0.3400
Average : 0.2306

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-12
Maturity Price : 22.14
Evaluated at bid price : 22.65
Bid-YTW : 4.15 %

May 11, 2015

May 11th, 2015

Markets are forecasting no changes in the Canadian policy rate:

The bond market is starting to believe Bank of Canada Governor Stephen Poloz’s newfound optimism in the Canadian economy, resetting borrowing costs back to the day of his shock rate cut.

Traders have almost completely priced out another rate cut in banker’s acceptances contracts, a predictor of interest rates. Contracts due December, 2015, reached 1 per cent this month for the first time since Jan. 21, the day the Bank of Canada lowered its overnight rate to 0.75 per cent to contend with the collapse in the price of oil, the nation’s biggest export.

So-called Bax contracts have settled about 20 basis points above the central bank’s target rate on average since 1992, data compiled by Bloomberg show. The yield has averaged 0.91 per cent this year.

It was another violently mixed day for the Canadian preferred share market, with PerpetualDiscounts down 58bp, FixedResets gaining 18bp and DeemedRetractibles off 6bp. A lengthy Performance Highlights table is dominated by FixedResets, particularly on the good side. Volume was 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_150511
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.24 to be $0.98 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.90 cheap at its bid price of 24.95.

impVol_MFC_150511
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. 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 23.65 to be $0.49 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.16 to be $0.55 cheap.

impVol_BAM_150511
Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.52 to be $0.62 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.98 and appears to be $0.58 rich.

impVol_FTS_150511
Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.68, looks $0.95 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 22.40 and is $0.64 rich.

pairs_FR_150511
Click for Big

Investment-grade pairs now predict an average over the next five years of about 0.40%, but TRP.PR.A / TRP.PR.F is an outlier at -0.51% and BNS.PR.Y / BNS.PR.D is at +0.78%. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -1.03% while BRF.PR.A / BRF.PR.B is at +1.03%.

pairs_FF_150511
Click for Big

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 -0.9378 % 2,306.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.9378 % 4,032.9
Floater 3.15 % 3.26 % 55,736 19.05 4 -0.9378 % 2,452.0
OpRet 4.42 % -2.04 % 38,273 0.14 2 -0.0785 % 2,768.6
SplitShare 4.56 % 4.66 % 59,622 3.35 3 0.1600 % 3,233.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0785 % 2,531.6
Perpetual-Premium 5.45 % 2.00 % 66,427 0.08 18 -0.0697 % 2,520.5
Perpetual-Discount 5.04 % 5.03 % 119,119 15.36 15 -0.5779 % 2,789.5
FixedReset 4.38 % 3.72 % 270,070 16.39 86 0.1805 % 2,425.6
Deemed-Retractible 4.91 % 3.22 % 110,721 0.53 35 -0.0569 % 2,647.4
FloatingReset 2.58 % 2.92 % 62,894 6.19 7 0.2251 % 2,338.7
Performance Highlights
Issue Index Change Notes
BAM.PR.C Floater -1.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 15.10
Evaluated at bid price : 15.10
Bid-YTW : 3.33 %
CU.PR.F Perpetual-Discount -1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 22.46
Evaluated at bid price : 22.85
Bid-YTW : 4.91 %
CIU.PR.C FixedReset -1.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 16.02
Evaluated at bid price : 16.02
Bid-YTW : 3.80 %
RY.PR.Z FixedReset -1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 23.08
Evaluated at bid price : 24.54
Bid-YTW : 3.32 %
TRP.PR.D FixedReset -1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 22.71
Evaluated at bid price : 23.69
Bid-YTW : 3.65 %
PWF.PR.S Perpetual-Discount -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 24.21
Evaluated at bid price : 24.62
Bid-YTW : 4.89 %
TRP.PR.A FixedReset -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 20.88
Evaluated at bid price : 20.88
Bid-YTW : 3.64 %
CU.PR.G Perpetual-Discount -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 22.55
Evaluated at bid price : 22.95
Bid-YTW : 4.89 %
BAM.PR.B Floater -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 15.41
Evaluated at bid price : 15.41
Bid-YTW : 3.26 %
ENB.PR.F FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 20.23
Evaluated at bid price : 20.23
Bid-YTW : 4.53 %
FTS.PR.M FixedReset -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 23.16
Evaluated at bid price : 24.89
Bid-YTW : 3.57 %
BMO.PR.T FixedReset 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 22.96
Evaluated at bid price : 24.30
Bid-YTW : 3.38 %
MFC.PR.N FixedReset 1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.96
Bid-YTW : 4.18 %
FTS.PR.K FixedReset 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 21.98
Evaluated at bid price : 22.40
Bid-YTW : 3.64 %
MFC.PR.M FixedReset 1.29 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.31
Bid-YTW : 4.07 %
BNS.PR.Z FixedReset 1.51 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.60
Bid-YTW : 3.48 %
TRP.PR.C FixedReset 1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 18.30
Evaluated at bid price : 18.30
Bid-YTW : 3.57 %
GWO.PR.N FixedReset 1.97 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.15
Bid-YTW : 6.27 %
SLF.PR.G FixedReset 2.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.03
Bid-YTW : 6.38 %
FTS.PR.G FixedReset 2.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 21.85
Evaluated at bid price : 22.16
Bid-YTW : 3.72 %
RY.PR.H FixedReset 2.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 23.11
Evaluated at bid price : 24.70
Bid-YTW : 3.32 %
MFC.PR.L FixedReset 2.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.65
Bid-YTW : 4.28 %
TD.PF.B FixedReset 2.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 23.12
Evaluated at bid price : 24.69
Bid-YTW : 3.33 %
HSE.PR.A FixedReset 2.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 17.92
Evaluated at bid price : 17.92
Bid-YTW : 3.97 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.B FixedReset 122,714 TD crossed four blocks: 35,000 shares, 17,500 shares, 30,000 and 29,500, all at 15.91.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 15.80
Evaluated at bid price : 15.80
Bid-YTW : 3.67 %
RY.PR.I FixedReset 85,880 Nesbitt crossed two blocks of 35,000 each and one of 15,000, all at 25.35.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 2.99 %
TRP.PR.G FixedReset 68,982 TD crossed 20,000 at 25.07.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 23.11
Evaluated at bid price : 24.95
Bid-YTW : 3.81 %
BNS.PR.O Deemed-Retractible 63,250 RBC crossed 61,100 at 26.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-10
Maturity Price : 25.50
Evaluated at bid price : 25.82
Bid-YTW : -7.56 %
TRP.PR.A FixedReset 58,801 TD crossed 35,000 at 21.40 and 15,000 at 21.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 20.88
Evaluated at bid price : 20.88
Bid-YTW : 3.64 %
BMO.PR.M FixedReset 45,800 RBC crossed 45,200 at 25.23.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 2.85 %
There were 31 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
FTS.PR.K FixedReset Quote: 22.40 – 22.98
Spot Rate : 0.5800
Average : 0.3664

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 21.98
Evaluated at bid price : 22.40
Bid-YTW : 3.64 %

MFC.PR.H FixedReset Quote: 25.79 – 26.24
Spot Rate : 0.4500
Average : 0.2931

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.79
Bid-YTW : 3.21 %

RY.PR.Z FixedReset Quote: 24.54 – 24.88
Spot Rate : 0.3400
Average : 0.2403

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-11
Maturity Price : 23.08
Evaluated at bid price : 24.54
Bid-YTW : 3.32 %

MFC.PR.C Deemed-Retractible Quote: 23.78 – 24.05
Spot Rate : 0.2700
Average : 0.1733

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.78
Bid-YTW : 5.26 %

IAG.PR.A Deemed-Retractible Quote: 23.99 – 24.31
Spot Rate : 0.3200
Average : 0.2254

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.99
Bid-YTW : 5.23 %

BMO.PR.K Deemed-Retractible Quote: 25.60 – 25.84
Spot Rate : 0.2400
Average : 0.1504

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-10
Maturity Price : 25.50
Evaluated at bid price : 25.60
Bid-YTW : -2.01 %

May PrefLetter Released

May 11th, 2015

The May, 2015, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

The regular appendices reporting on DeemedRetractibles and FixedResets are included.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the May, 2015, issue, while the “Next Edition” will be the June, 2015, issue, scheduled to be prepared as of the close June 12 and eMailed to subscribers prior to market-opening on June 15.

PrefLetter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

DF.PR.A 2014 Annual Report

May 11th, 2015

Dividend 15 Split Corp. II has released its Annual Report to November 30, 2014.

DF / DF.PR.A Performance
Instrument One
Year
Three
Years
Five
Years
Whole Unit +14.10% +15.60% +11.91%
DF.PR.A +5.38% +5.38% +5.38%
DF +27.80% +34.53% 23.11%
S&P/TSX 60 Index +15.07% +10.76% +7.91%

Using the S&P TSX 60 index rather than “Dividend Aristocrats” seems a little odd to me – but we’ll let them choose their benchmark!

Figures of interest are:

MER: It is reported as 2.72% of the whole unit value (“excluding any one time secondary offering expenses. Management expense ratio is based on total expenses for the stated period and is expressed as an annualized percentage of average net asset value during the period”), but I don’t believe this number. Expenses before agent fees on the secondary offering were $2.038-million on average assets of $155-million (see below) so I’ll call the MER 1.31%, which is in good agreement with prior years’ figures.

Average Net Assets: We need this to calculate portfolio yield. Distributions to preferred shareholders amounted to $4,693,481 which, at $0.525/share, means an average 8.940-million shares outstanding on the distribution dates. These were valued at 16.61 at the beginning of the year and 17.33 at the end, so say average net assets were 151.7-million. Total assets at the end and beginning of the year were $198.6-million and $115.6-million, respectively, so that average is $157.1-million. That’s good agreement! Call the average figure $155-million.

Underlying Portfolio Yield: Dividends received of 4,875,060 divided by average net assets of 155-million is 3.14%

Income Coverage: Net Investment Income of 2.837-million (before issuance costs) divided by Preferred Share Distributions of 4.693-million is 60.4%.

PVS Annual Report, 2014

May 10th, 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.

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 for the on assets of $2.650-billion (see below) or 7bp p.a..

Average Net Assets: We need this to calculate portfolio yield and MER. There were negligible capital transactions, so we’ll just take the average of the beginning and end of period assets (including preferred shares) so: (3.108-billion + 2.191-billion)/2 = 2.650-billion

Underlying Portfolio Yield: Total Income of $40.1-million divided by average net assets of $2,650-million is 1.51% p.a..

Income Coverage: Net income of $39.760-million less amortization of $1.443-million is $38.317-million to cover senior preferred dividends 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 106%.

May 8, 2015

May 8th, 2015

Jobs, jobs, jobs!

April’s job-creation score was better, March was worse, and the U.S. jobless rate crept closer to the Federal Reserve’s moving target for full employment.

The 223,000 increase in payrolls last month followed a revised 85,000 gain in March that was the smallest since June 2012, figures from the Labor Department showed Friday in Washington. The jobless rate fell to 5.4 percent, the lowest since May 2008, from 5.5 percent.

Wage growth remained limited, with average hourly earnings rising 0.1 percent in April after a revised 0.2 percent March gain that was weaker than initially reported. The median forecast in a Bloomberg survey projected a 0.2 percent increase for last month.

Compared with a year earlier, hourly pay was up 2.2 percent last month, holding within the narrow range tracked over the past four years.

The report also included positive news on the size of the labor force. The participation rate, which indicates the share of working-age people who are employed or looking for work, increased to 62.8 percent from 62.7 percent in March, which matched the lowest since 1978. The gain was paced by 45-to-64 year-old Americans.

The Fed now defines full employment as between 5 percent and 5.2 percent, according to projections released after their March 17-18 meeting. The range was lowered from 5.2 percent to 5.5 percent after the jobless rate reached the top of the scale in February.

In Canada, not so much:

The Target effect is denting Canada’s jobs numbers.

Employers shed a total of 19,700 jobs last month, according to Statistics Canada, the most since August, as retailers eliminated thousands of sales, cashiers and clerks positions.

The numbers show the impact of a raft of store closings amid upheaval in the sector, including Target Canada, Best Buy, Mexx, Smart Set, Indigo Books and Sony. The sector may be in flux, but it remains the largest source of employment in the country.

The retail sector posted a loss of 20,500 workers, Statscan said Friday, leaving employment levels flat from a year earlier. Monthly jobs numbers can be volatile, but separate payrolls data show the retail sector has contracted for four months in a row.

In January, Target said it was pulling out of Canada, an abrupt move that spelled job losses for 17,600 of its workers over the ensuing months and put pressure on hundreds of firms that served the chain, forcing some of them to lay off staff, too.

Across Canada, the jobless rate stayed at 6.8 per cent as fewer people looked for work.

Monthly numbers can swing up and down, but smoothed-out averages show employment has grown by just 2,600 jobs on average per month in the past half-year. Year-over-year employment growth has been stuck below 1 per cent for the past 13 months.

Other sectors shed workers as well last month, in construction and information services. Natural resources were little changed in the month, but are down 6.6 per cent from a year earlier, reflecting the oil price slide.

On the other hand, it’s my understanding that in Toronto, house flippers have basically been priced out of the market by eager-to-buy veterans of too many bidding wars. In the States, not so much:

Real estate buyers seeking money to renovate and flip U.S. houses are getting help from some of the world’s biggest investment firms.

Colony Capital Inc., Blackstone Group LP and Cerberus Capital Management are among the companies that have started making bridge loans to investors who buy homes to sell them quickly for a profit. Borrowing costs — traditionally the highest in residential lending — are tumbling as the firms compete for customers.

The foray represents a deepening bet on the housing market by Wall Street-backed companies, many of which have built rental-home empires during the past three years and started specialty-lending businesses to finance smaller investors. Big firms with deep pockets and access to cheap capital may have an edge over local private lenders that have dominated flipper financing.

Home flippers are benefiting from rising prices, limited new construction and a shortage of inventory on the market. While quick resales have decreased from the start of the housing market’s rebound, when investors snapped up discounted distressed homes, profits are getting bigger.

The average gross profit for completed flips in the first quarter was $72,450, up from $61,684 a year earlier and the highest in records dating to 2011, according to a report Thursday from RealtyTrac, a real estate data firm. Markets with the highest average gross return on investment included Baltimore, central Florida and Detroit.

‘Who will watch the watchers?’ query the wise men in Congress. Watcher watchers!

Senate Banking Committee Chairman Richard Shelby is putting the finishing touches on a bill that could give Congress more power over the New York Fed and create a commission with authority to propose sweeping reforms of the entire Fed system.

Other senators want to curb the Fed’s ability to bail out banks during a financial meltdown and increase transparency of its regulation.

“Shelby wants to do something with the Fed,” said Ed Mills, a financial-policy analyst at FBR & Co. in Arlington, Virginia, and a former adviser to Democrats in the House and Senate. “It seems as if they’re going to have something in here that is additional oversight of the Fed or rebalancing some of the power internally at the Fed, whether staff resources or more transparency.”

There’s really only one structural problem with the Fed: it has responsibility for both bank supervision and monetary policy. While there are good arguments to be made in favour of combining the mandates, as has been discussed previously on PrefBlog (see, for example, September 10, 2008 and Willem Buiter’s Prescription), I continue to think that puts just too much power in the hands of one institution.

As far as ‘Fed bailouts of Wall Street Banks’ are concerned – well, for the most part that’s a canard. The explicit bail-outs were done by the Treasury with the authority of congress. The Fed simply lent to solvent banks against adequate collateral … which is what Central Banks are supposed to do during a liquidity crisis. They can, however, be criticized for not ensuring that these loans were not made at penalty rates:

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

Brookfield Investments Corporation, proud issuer of BRN.PR.A (which is not tracked by HIMIPref™) has been confirmed at Pfd-2(low) by DBRS:

DBRS Limited (DBRS) has today confirmed the rating of Pfd-2 (low) with a Stable trend for the Senior Preferred Shares of Brookfield Investments Corporation (Brookfield Investments or the Company). The rating continues to be based on the strength of Brookfield Investments’ owner (Brookfield Asset Management Inc. or BAM; rated A (low), Stable trend by DBRS), as well as the Company’s relatively stable portfolio of real estate and asset management investments, with strong asset and dividend coverage. The rating remains limited by Brookfield Investments’ exposure to the volatility of overall capital markets, concentration of investments in the real estate sector, lack of investment restrictions and the relative illiquidity of unlisted investments.

It was another strong-mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 19bp, FixedResets up 33bp and DeemedRetractibles off 2bp. The strength in FixedResets came at the end of the day:

TXPL
TXPL_150508
Click for Big

A Performance Highlights table of unsurprising size was unsurprisingly dominated by winning FixedResets, but there were a few losers in the mix. Volume was quite 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_150508
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.48 to be $0.96 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.12 cheap at its bid price of 25.04.

impVol_MFC_150508
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. 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.K, resetting at +222 on 2018-9-19, bid at 23.52 to be $0.28 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.61 to be $0.43 cheap.

impVol_BAM_150508
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 20.52 to be $0.60 cheap. BAM.PR.X, resetting at +180bp 2017-6-30 is bid at 18.51 and appears to be $0.57 rich.

impVol_FTS_150508
Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.63, looks $0.76 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 22.14 and is $0.52 rich.

pairs_FR_150508
Click for Big

Investment-grade pairs now predict an average over the next five years of about 0.35%, but TRP.PR.A / TRP.PR.F is an outlier at -0.78% and BNS.PR.Y / BNS.PR.D is at +0.84%. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -0.68% while DC.PR.B / DC.PR.D is now at 0.95%.

pairs_FF_150508
Click for Big

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 -0.4202 % 2,328.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.4202 % 4,071.1
Floater 3.12 % 3.22 % 55,010 19.15 4 -0.4202 % 2,475.2
OpRet 4.41 % -1.93 % 38,432 0.15 2 -0.0196 % 2,770.8
SplitShare 4.57 % 4.78 % 61,960 3.36 3 0.0267 % 3,228.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0196 % 2,533.6
Perpetual-Premium 5.45 % 1.43 % 67,136 0.08 18 0.0763 % 2,522.3
Perpetual-Discount 5.01 % 5.00 % 120,224 15.42 15 0.1884 % 2,805.7
FixedReset 4.38 % 3.73 % 274,342 16.32 86 0.3291 % 2,421.2
Deemed-Retractible 4.92 % 3.04 % 110,198 0.22 36 -0.0243 % 2,648.9
FloatingReset 2.59 % 2.93 % 65,325 6.20 7 -0.1033 % 2,333.4
Performance Highlights
Issue Index Change Notes
PWF.PR.P FixedReset -1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 18.87
Evaluated at bid price : 18.87
Bid-YTW : 3.57 %
GWO.PR.N FixedReset -1.66 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.80
Bid-YTW : 6.50 %
FTS.PR.G FixedReset -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 21.39
Evaluated at bid price : 21.71
Bid-YTW : 3.79 %
BAM.PR.K Floater -1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 15.30
Evaluated at bid price : 15.30
Bid-YTW : 3.28 %
MFC.PR.N FixedReset -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.70
Bid-YTW : 4.32 %
BAM.PF.F FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 23.14
Evaluated at bid price : 24.80
Bid-YTW : 3.97 %
HSE.PR.A FixedReset 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 17.45
Evaluated at bid price : 17.45
Bid-YTW : 4.08 %
NA.PR.S FixedReset 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 23.29
Evaluated at bid price : 25.12
Bid-YTW : 3.39 %
MFC.PR.K FixedReset 1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.52
Bid-YTW : 4.28 %
CU.PR.D Perpetual-Discount 1.16 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-09-01
Maturity Price : 25.25
Evaluated at bid price : 25.25
Bid-YTW : 4.81 %
MFC.PR.L FixedReset 1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.14
Bid-YTW : 4.55 %
BAM.PF.G FixedReset 1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 23.14
Evaluated at bid price : 24.96
Bid-YTW : 3.94 %
FTS.PR.M FixedReset 1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 23.24
Evaluated at bid price : 25.15
Bid-YTW : 3.51 %
TD.PF.C FixedReset 1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 22.89
Evaluated at bid price : 24.22
Bid-YTW : 3.39 %
BAM.PR.T FixedReset 1.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 21.10
Evaluated at bid price : 21.10
Bid-YTW : 4.12 %
BAM.PR.X FixedReset 1.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 18.51
Evaluated at bid price : 18.51
Bid-YTW : 4.11 %
BAM.PF.A FixedReset 2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 23.24
Evaluated at bid price : 24.76
Bid-YTW : 3.99 %
TRP.PR.C FixedReset 2.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 18.01
Evaluated at bid price : 18.01
Bid-YTW : 3.63 %
CIU.PR.C FixedReset 2.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 16.26
Evaluated at bid price : 16.26
Bid-YTW : 3.74 %
Volume Highlights
Issue Index Shares
Traded
Notes
CU.PR.F Perpetual-Discount 125,058 TD crossed 72,500 at 23.35; RBC crossed 52,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 22.94
Evaluated at bid price : 23.25
Bid-YTW : 4.83 %
RY.PR.M FixedReset 102,306 RBC bought blocks of 10,000 and 20,000 from TD, both at 24.84, then crossed 24,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 23.05
Evaluated at bid price : 24.76
Bid-YTW : 3.57 %
BAM.PF.D Perpetual-Discount 96,307 RBC crossed blocks of 25,000 and 60,600 at 23.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 23.15
Evaluated at bid price : 23.47
Bid-YTW : 5.27 %
FTS.PR.M FixedReset 86,240 Desjardins crossed 75,000 at 25.09.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 23.24
Evaluated at bid price : 25.15
Bid-YTW : 3.51 %
TRP.PR.F FloatingReset 55,200 RBC crossed 40,000 at 18.97.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 19.04
Evaluated at bid price : 19.04
Bid-YTW : 3.39 %
SLF.PR.A Deemed-Retractible 54,594 Scotia crossed 40,000 at 24.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 4.99 %
There were 48 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
RY.PR.H FixedReset Quote: 24.17 – 24.75
Spot Rate : 0.5800
Average : 0.3928

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 22.90
Evaluated at bid price : 24.17
Bid-YTW : 3.42 %

ENB.PR.D FixedReset Quote: 20.00 – 20.45
Spot Rate : 0.4500
Average : 0.2761

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.42 %

BMO.PR.T FixedReset Quote: 24.05 – 24.60
Spot Rate : 0.5500
Average : 0.3993

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 22.85
Evaluated at bid price : 24.05
Bid-YTW : 3.42 %

BMO.PR.W FixedReset Quote: 24.01 – 24.37
Spot Rate : 0.3600
Average : 0.2258

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 22.81
Evaluated at bid price : 24.01
Bid-YTW : 3.40 %

BMO.PR.S FixedReset Quote: 24.46 – 24.88
Spot Rate : 0.4200
Average : 0.3022

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 23.04
Evaluated at bid price : 24.46
Bid-YTW : 3.44 %

BAM.PR.K Floater Quote: 15.30 – 15.67
Spot Rate : 0.3700
Average : 0.2589

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-08
Maturity Price : 15.30
Evaluated at bid price : 15.30
Bid-YTW : 3.28 %

Fortis Releases FTS.PR.H Conversion / Reset Details

May 8th, 2015

I complained earlier regarding the lack of communication regarding the extension and reset of FTS.PR.H.

An officer of Fortis has sent me a copy of the official notification to Computershare:

St. John’s, NL (April 28, 2015):

Effective April 28, 2015, Fortis Inc. (the “Corporation”) announced that it does not intend to exercise its right to redeem all or any part of the currently outstanding Cumulative Redeemable Five-Year Fixed Rate Reset First Preference Shares, Series H of the Corporation (the “Series H shares”) on June I, 2015.

There are currently 10,000,000 Series H shares outstanding.

Subject to certain conditions set out in the short form prospectus of the Corporation dated January 18, 2010 relating to the issuance of the Series H shares, the holders of the Series H shares have the right to convert all or part of their Series H shares, on a one-for-one basis, into Cumulative Redeemable Floating Rate First Preference Shares, Series I of the Corporation (the “Series I shares”) on June l, 2015 (the “Conversion Date”).

On such date, holders who do not exercise their right to convert their Series H shares into Series I shares will continue to hold their Series H shares.

The foregoing conversion right is subject to the following:
i. If the Corporation determines that there would be less than 1,000,000 Series I shares outstanding after the Conversion Date, then holders of Series H shares will not be entitled to convert their shares into Series I; and
ii. Alternatively, if the Corporation determines that there would remain outstanding less than 1,000,000 Series H shares after the Conversion Date, then all remaining Series H shares will automatically be converted into Series I shares on a one-for-one basis on the Conversion Date.

In either case, the Corporation will give written notice to that effect to holders of Series H shares no later than May 25, 2015.

The dividend rate applicable for the Series H shares for the five-year period from and including June 1, 2015 to but excluding June 1, 2020, and the dividend rate applicable to the Series I shares for the three-month period from and including June I, 2015 and ending on and including August 31, 2015, will be determined on May 4, 2015 and notice of such dividend rates shall be provided to the holders of the Series H shares on that day.

Beneficial owners of Series H shares who wish to exercise their conversion right, should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from May 4, 2015 until 5:00 p.m. (Eastern) on May 19, 2015.

Inquiries should be directed to Mr. Jim Spinney, Treasurer, Fortis at 709.737.2902.

Signed:
[signature]
Karl W. Smith
Executive Vice President, Chief Financial Officer

All that was provided regarding the reset was:

St. John’s, NL (May 4, 2015):

Fortis Inc. (the “Corporation”) hereby provides notice to the holders of its Cumulative Redeemable Five Year Fixed Rate Reset First Preference Shares, Series H of the Corporation (the “Series H shares”) of the following dividend rates, in each case payable if, as and when declared by the Board of Directors of the Corporation:

1. $0.15625 per Series H share, being the fixed dividend rate payable quarterly on the first day of’March, June, September and December of each year during the five-year period from and including June 1, 2015 to but excluding June 1, 2020; and

ii. $0.13125 per share on the Cumulative Redeemable Floating Rate First Preference Shares, Series I of the Corporation (the “Series I shares”), being the floating dividend rate applicable to the Series I shares for the 3-month period from and including June 1, 2015 and ending on and including August 31, 2015,

in each case determined in accordance with the corresponding rights, privileges, conditions and restrictions attached to the Series H shares and Series I shares, respectively, as a class, as set out in the short form prospectus of the Corporation dated January 18, 20 I 0 relating to the issuance of the Series H shares.

Inquiries should be directed to Mr. Jim Spinney, Treasurer, Fortis at 709.737.2902.

Signed:
[signature]
Karl W. Smith
Executive Vice President, Chief Financial Officer

The officer explained:

Fortis has provided the conversion notification as well as the new yields and notification deadlines to the official shareholders of Series H – that being CDS (Computershare). CDS confirmed that they have notified the brokers who in turn should notify the beneficial bondholders.

Well, that’s the good old book-based system for you! There’s only one registered shareholder – and as noted earlier, the prospectus states:

The Corporation will, on the Fixed Rate Calculation Date, give written notice of the Annual Fixed Dividend Rate for the ensuing Subsequent Fixed Rate Period to the registered holders of the then outstanding Series H First Preference Shares.

So, sure, the method they’ve chosen appears to be legal enough to my non-securities-lawyer eyes … but why do they do it this way? They are diligent enough to have a web page dedicated to their preferred shares, which includes links to the prospectuses … and that’s very good! That puts them a cut above most issuers. But why not take that one extra step and communicate with holders – and, more importantly, prospective holders – regarding details of the reset? BCE includes links to notices of this kind on their preferred share page – how difficult could it be to send a copy of notices of this nature to ‘the website guy’ who is already in charge of putting up the press releases?

So anyway, yeah, FTS.PR.H will reset at a dividend rate of 2.50% paid on par value, “a stunning 41% reduction in dividend from the original 4.25%” as reported earlier. FTS.PR.I will float at 145bp over three-month bills, reset quarterly. Holders of FTS.PR.H must notify the company through their broker and Computershare by 5:00 p.m. (Eastern) on May 19, 2015; but note that your broker’s internal deadline will be earlier than this; and also note that May 18 is the Victoria Day holiday in most of Canada and most brokers will be closed. So if you intend to convert, make sure you check with your broker regarding their internal deadlines!

I will post with my recommendation regarding whether or not to convert next week.