MAPF 17H1 Semi-Annual Financials Published

July 24th, 2017

Malachite Aggressive Preferred Fund has published its:

All materials are accessable via the fund’s main web-page.

July 21, 2017

July 21st, 2017

Today’s inflation numbers provided some ammunition for the hawks:

Canada’s core consumer prices and retail sales came in faster than expected, signaling that overall inflation may turn around to clear the way for another rate increase this year.

The average of the central bank’s three core inflation measures rose to 1.4 percent in June, Statistics Canada said Friday from Ottawa, up from a May reading of 1.3 percent that was the lowest since 1999. Retail sales doubled economist forecasts for May with a 0.6 percent increase, bringing the year-over-year gain to 7.3 percent, more than double the average over the last decade.

Canada’s dollar strengthened a fourth day as the reports lined up with Bank of Canada Governor Stephen Poloz’s argument that inflation will shrug off some temporary weakness and move back toward his 2 percent target over the next year.

S&P downgraded Manitoba:

  • •Although Manitoba is taking clear steps to improve its fiscal sustainability in the long term, it faces large projected budget deficits and further growth in its already-high debt burden over the next two years.
  • •We are therefore lowering our long-term issuer credit and senior unsecured debt ratings on the Province of Manitoba to ‘A+’ from ‘AA-‘.
  • •The stable outlook reflects our expectations that, in the next two years, the government will implement the medium-term measures to control costs that were introduced in its 2018 budget, putting it on a gradual path to fiscal sustainability.


The downgrade reflects the large, expenditure-driven structural deficits currently facing Manitoba. The current government, in power for a little more than a year, has laid out a seven-year path back to operating balance mostly through restructuring its cost base. While these steps bode well for strengthening budget performances in the medium term, they will not prevent the government from posting large after-capital deficits over the next two years, in our view. We expect borrowing needs associated with these deficits to keep Manitoba’s debt burden well above that of its Canadian provincial peers.

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 -1.6732 % 2,397.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.6732 % 4,399.9
Floater 3.61 % 3.63 % 125,850 18.22 3 -1.6732 % 2,535.7
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0313 % 3,067.6
SplitShare 4.69 % 4.31 % 52,768 1.41 5 -0.0313 % 3,663.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0313 % 2,858.3
Perpetual-Premium 5.39 % 4.76 % 68,018 6.10 21 -0.1660 % 2,768.1
Perpetual-Discount 5.32 % 5.31 % 84,297 14.99 15 -0.6245 % 2,905.7
FixedReset 4.34 % 4.32 % 192,129 6.39 98 -0.2620 % 2,396.8
Deemed-Retractible 5.07 % 5.42 % 122,431 6.14 30 -0.1550 % 2,853.1
FloatingReset 2.59 % 2.89 % 42,269 4.28 10 -0.0225 % 2,634.7
Performance Highlights
Issue Index Change Notes
BAM.PF.C Perpetual-Discount -2.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 21.53
Evaluated at bid price : 21.53
Bid-YTW : 5.69 %
MFC.PR.K FixedReset -2.62 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.21
Bid-YTW : 6.38 %
BAM.PR.N Perpetual-Discount -2.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 5.65 %
GWO.PR.N FixedReset -2.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.86
Bid-YTW : 8.44 %
BAM.PR.M Perpetual-Discount -1.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 21.30
Evaluated at bid price : 21.30
Bid-YTW : 5.64 %
PWF.PR.S Perpetual-Discount -1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 22.25
Evaluated at bid price : 22.55
Bid-YTW : 5.33 %
BAM.PR.C Floater -1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 14.28
Evaluated at bid price : 14.28
Bid-YTW : 3.64 %
BAM.PR.B Floater -1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 14.30
Evaluated at bid price : 14.30
Bid-YTW : 3.63 %
CU.PR.C FixedReset -1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 21.62
Evaluated at bid price : 21.97
Bid-YTW : 4.47 %
BAM.PR.K Floater -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 14.32
Evaluated at bid price : 14.32
Bid-YTW : 3.63 %
BAM.PF.D Perpetual-Discount -1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 21.89
Evaluated at bid price : 22.22
Bid-YTW : 5.55 %
TRP.PR.A FixedReset -1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 20.10
Evaluated at bid price : 20.10
Bid-YTW : 4.26 %
TRP.PR.B FixedReset -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 15.69
Evaluated at bid price : 15.69
Bid-YTW : 4.31 %
IFC.PR.C FixedReset -1.19 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.45
Bid-YTW : 5.40 %
TRP.PR.C FixedReset -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 16.85
Evaluated at bid price : 16.85
Bid-YTW : 4.32 %
SLF.PR.G FixedReset -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.50
Bid-YTW : 8.08 %
TRP.PR.F FloatingReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 20.18
Evaluated at bid price : 20.18
Bid-YTW : 3.24 %
IAG.PR.A Deemed-Retractible 1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.66
Bid-YTW : 6.26 %
IFC.PR.A FixedReset 1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.79
Bid-YTW : 6.97 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.R FixedReset 714,354 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.03
Bid-YTW : 4.54 %
BMO.PR.B FixedReset 196,317 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.46
Bid-YTW : 3.66 %
NA.PR.C FixedReset 156,090 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-11-15
Maturity Price : 25.00
Evaluated at bid price : 24.96
Bid-YTW : 4.61 %
BNS.PR.H FixedReset 128,170 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-01-26
Maturity Price : 25.00
Evaluated at bid price : 26.21
Bid-YTW : 3.68 %
BNS.PR.P FixedReset 128,000 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 24.96
Bid-YTW : 3.49 %
W.PR.K FixedReset 118,938 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-01-15
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 4.18 %
PWF.PR.E Perpetual-Premium 110,551 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-08-20
Maturity Price : 25.00
Evaluated at bid price : 25.03
Bid-YTW : 2.21 %
There were 49 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
RY.PR.D Deemed-Retractible Quote: 25.38 – 26.91
Spot Rate : 1.5300
Average : 0.8147

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-08-20
Maturity Price : 25.00
Evaluated at bid price : 25.38
Bid-YTW : -5.17 %

BAM.PF.C Perpetual-Discount Quote: 21.53 – 22.10
Spot Rate : 0.5700
Average : 0.3662

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 21.53
Evaluated at bid price : 21.53
Bid-YTW : 5.69 %

BIP.PR.C FixedReset Quote: 25.75 – 26.17
Spot Rate : 0.4200
Average : 0.2718

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 4.67 %

CU.PR.I FixedReset Quote: 26.43 – 26.83
Spot Rate : 0.4000
Average : 0.2750

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-01
Maturity Price : 25.00
Evaluated at bid price : 26.43
Bid-YTW : 2.91 %

MFC.PR.K FixedReset Quote: 21.21 – 21.65
Spot Rate : 0.4400
Average : 0.3167

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.21
Bid-YTW : 6.38 %

W.PR.H Perpetual-Premium Quote: 24.41 – 24.70
Spot Rate : 0.2900
Average : 0.1737

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-21
Maturity Price : 24.16
Evaluated at bid price : 24.41
Bid-YTW : 5.67 %

July 20, 2017

July 20th, 2017

Empty Voting has assumed some importance in the Tembec takeover:

This week Oaktree said it intends to solicit proxies from those opposed to the deal. Oaktree opposes the US$807 million “flawed” transaction for what it terms “a flawed and poorly timed process;” for the lack of explanation for the “material gap between Rayonier’s offer and Tembec’s intrinsic value,” and because of its view that a standalone Tembec would be a better alternative.

Oaktree also raises the issue of empty votes, illustrating that comment by referring to the activities of Fairfax Financial, Tembec’s largest shareholder, which had a 19.99 per cent stake when the transaction was announced on May 25. (At that time, Rayonier and Tembec said Fairfax was “supportive of the transaction.”)

Now, thanks to a series of stock sales, with the last being for 14.2 per cent of Tembec — a sale announced on June 19, which so happens to be the meeting’s record date — Fairfax “no longer beneficially owns, or has control or direction over any of the outstanding share,” according to a filing. Fairfax issued three press releases (June 9, June 15 and June 19) indicating sales of its Tembec shares.

Note that this does not necessarily fall under the heading of “empty voting”, assuming that the shares in question were transferred on or prior to the record date, since the purchaser would then be entitled to the votes. Fairfax would be casting “empty votes” if they actually held the shares on the record date and cast the votes they were therefore entitled to while contracted to sell them; the question would then be the ’empty support’, if I can call it that, whereby Fairfax is touted as being ‘supportive of the transaction’ but then does not actually cast its votes.

The Globe’s story states that the issue actually is Empty Voting, but details and legal documents are hard to come by!

Fairfax subsequently sold its position in Tembec in the days that followed. But because it was an investor as of the so-called record date – the cutoff used by companies to establish who their shareholders are – it might be entitled to vote the stake it held at that time despite the fact it has since cashed out.

Such a situation, known as empty voting, remains relatively rare in Canada but a few cases have come up that were contested in court. Oaktree says Tembec and Rayonier potentially misled investors into thinking Fairfax backed the merger for its long-term value. And it says Fairfax should not be allowed to vote on the proposal because it no longer has an economic interest in Tembec.

It will be recalled that such empty voting (or debt decoupling, or any one of many sobriquets) is important in the CDS market:

In the primer on CDS I referred to a paper by Hu & Black regarding debt decoupling:
We have also heard from bankruptcy judges that they sometimes see odd behavior in their courtrooms, which empty crediting might explain. For example, one judge described a case in which a junior creditor complained that the firm’s value was too high, even though a lower value would hurt the class of debt the creditor ostensibly held.

There has been lots written about this issue, notably with respect to Telus:

In my recent paper, Empty Voting Revisited: The Telus Saga, I analyze the various instances of this important legal battle and develop regulatory implications.

The ensuing courtroom battle between Telus and Mason is legion. The complicated story line involved (inter alia) two major court decisions. First, the Court of Appeal for British Columbia ruled on the validity of Mason’s request for a shareholder meeting (TELUS Corporation v Mason Capital Management LLC, 2012 BCCA 403). In essence, the Court upheld the request. Crucially, the Court held that Mason’s risk exposure and its potential status as ‘empty voter’ did not allow the Court to disregard the valid calling of the meeting. Two months later, the Supreme Court of British Columbia, in a separate proceeding, approved a ‘plan of arrangement’ (a restructuring mechanism under Canadian law), as proposed by Telus. The Court held that the ‘empty voting’ situation was indeed one of the factors that had to be taken into account for assessing the fairness of the arrangement (In re TELUS Corporation, 2012 BCSC 1919). These two somehow contradictory decisions are important because they illustrate how courts are struggling with responding to the empty voting problem more generally. As I explain in the article, only where the law provides for discretionary, substantive court control, Courts will be able to take the risk exposure of shareholders into account.

Empty voting ultimately calls for regulatory responses globally. As I elaborate elsewhere, regulators should be guided by two main principles: first, transparency: disclosure of significant empty positions is paramount to any market reaction; and secondly, regulators should introduce a right to disenfranchise risk-decoupled shareholders under certain circumstances (as opposed to a voting restriction ipso iure).

Robert M. Yalden, Jeremy Fraiberg and Andrew MacDougall of Osler issued a call to arms in 2012:

Why hasn’t something been done before now?

Although empty voting has long been recognized as a concern, to date almost nothing has been done to address it. The Canadian Securities Administrators’ Notice and Request for Comment dated December 18, 2008 on proposed NI 55-104 Insider Reporting Requirements and Exemptions stated that the CSA was aware of and reviewing issues on empty voting. On July 14, 2010 the U.S. Securities and Exchange Commission issued a Concept Release on the U.S. Proxy System requesting comments on potential regulatory initiatives to improve proxy voting in the U.S., including initiatives to address empty voting. More recently, one of the key initiatives in the Ontario Securities Commission’s Statement of Priorities for 2012-13 is to improve the proxy voting system by conducting an empirical analysis to review concerns raised about its accountability, transparency and efficiency and facilitate discussions amongst market participants to improve the system.

One reason that nothing has been done to address empty voting is that some degree of empty voting is an unavoidable consequence of the need under our proxy voting system to set a record date for voting that precedes the meeting date. There are also practical difficulties in establishing enforceable rules to protect the integrity of the vote. Another reason is the desire to avoid regulations that might impede the benefits to market liquidity of share lending arrangements and derivative transactions. But a key reason is the lack of empirical evidence as to the extent of the problem.

And all this was foreshadowed by Latham & Watkins, a US law firm:

While somewhat of an over-simplification, our corporate statutes and
accompanying judicial decisions are premised on a paradigm of:
  • • relatively low volatility in share ownership,
  • • the purchase and sale of shares in face-to-face (or near face-to-face) transactions,
  • • physical embodiment of shares in the form of share certificates,
  • • transfer of shares through the manual assignment of negotiable share certificates and their reissuance to new owners through physical delivery to and by transfer agents and registrars,
  • • a coincidence of record and beneficial ownership, or at most a relatively simple (one tier) system of “street name” holdings, and
  • • perhaps most fundamentally, the ability to link beneficial ownership to specific share certificates.


This question is not simple. After all, a believer in free markets and market efficiency would presumably view the residual equity position in a corporation as consisting of a bundle of rights, with the right to vote being merely one stick in that bundle. In the context of an efficient market analysis, if an investor chooses to sell or otherwise dispose of its right to vote (as it does when it lends the stock for a fee), why is that bad? Why is it different from selling some of the economic up-side or buying protection against the economic down-side through selling call options or buying put options? And if it is permissible for the owner of the vote to dispose of the voting right, how can it be wrong for another investor to buy the voting right? After all, the investor is acquiring voting rights in an open market and at a cost which in theory reflects the value of the rights. If there is no proxy vote or contest then pending or in sight, presumably the vote has little value. If the transaction is in the midst of a proxy contest or other controversial vote, presumably the vote has greater value and the acquirer will have to pay that much more.

The long gap between record date and meeting date is anachronistic and a vestige a long gone era of physical stock certificates trotted around lower Manhattan for manual clearing, transfer and registration. With modern technology, there is no apparent need to retain an advance record date concept to manage shareholder voting. Rather, the record date could be as late as the close of business on the night preceding the meeting, with a voting period (i.e., the time for which the polls remain open) at or in conjunction with the meeting lasting several hours or perhaps a full working day. Assuming the various book entry systems supporting the equity markets could be made to “talk to each other” electronically, voting could likewise be electronic, and a “real time” voting system should be feasible.

Such a real time voting system would need accommodations from the SEC. Physical proxy statement delivery in advance of the meeting to all voters could no longer be mandated by the proxy rules.

Falk Bräuning and Kovid Puria publish some interesting research in a Boston Fed paper, Uncovering Covered Interest Parity: The Role of Bank Regulation and Monetary Policy Uncovering Covered Interest Parity: The Role of Bank Regulation and Monetary Policy:

Covered interest parity (CIP) is a concept holding that the interest rates paid on two similar assets that only differ in their denominated currencies should, after controlling for any foreign exchange rate risk, be the same. Fulfilling this condition depends on the idea that international capital mobility is largely frictionless. More specifically, the theory underpinning CIP predicts that converting the amount borrowed in a foreign currency using the foreign exchange (FX) spot market, while simultaneously hedging the resulting exchange rate risk using a foreign exchange forward contract, should result in a cross-currency basis equal to zero. (Such a simultaneous spot purchase and forward sale of foreign currency is called an FX swap, a contract in which investors essentially borrow in one currency and lend in another currency.) Because the U.S. dollar is the dominant global currency used in international trade and finance, trades against the dollar account for about 90 percent of the activity that occurs in the FX swap market. The ten largest global banking institutions account for two-thirds of the trades in the FX swap market, with nonfinancial corporations and other investors also using the FX swap market to hedge foreign currency risk or engage in arbitrage activity.

Historically, the CIP relationship was so stable across countries that it came to be regarded as one of the few binding laws in economics. Prior to the 2007–2008 financial crisis, the cross-currency basis was close to zero for all pairs, but after the crisis began, large violations of CIP were present, especially with respect to the U.S. dollar. When the European sovereign debt crisis arose in early 2010, the cross-currency basis also widened, but then flattened out by late 2012. While credit risk and liquidity risk have subsequently remained low, since mid-2014 large and persistent violations of CIP have been observed, resulting in substantial increases in the cost of borrowing U.S. dollars in the FX swap market. This paper analyzes the driving factors behind these most recent deviations in the CIP condition.

  • •More stringent post-crisis bank regulations increased the cost to banks of providing dollars to the FX swap market, and lowered their incentives to engage in CIP arbitrage. A key regulatory change for U.S. banks, effective on January 1, 2013, essentially acted as an adverse supply shift, particularly for banks with lower Tier 1 capital ratios. The authors estimate that banks with a 1 percentage point lower capitalization ratio reduced their FX swaps by 19 percent more than did banks with average capitalization ratios.
  • •The key factor behind the recent widening of the cross-currency basis is the surge in demand for assets denominated in U.S. dollars, a situation that stems from international monetary policy differences and related interest rate differentials between the United States and other countries. This demand effect, coupled with U.S. banks reducing their participation in the FX swap market, means that the supply of dollars is no longer perfectly elastic. This situation has created a higher forward premium beyond what is predicted under the CIP condition.
  • •The Federal Reserve’s provision of dollar swap lines with other central banks has allowed foreign central banks to supply dollars directly to their counterparties. The authors find that European banks obtain more dollar liquidity from the European Central Bank when the cost of borrowing dollars in the FX swap market is high, and that subsequently the cross-currency basis between the U.S. dollar and the euro decreases.
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 -1.2673 % 2,438.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.2673 % 4,474.8
Floater 3.55 % 3.57 % 116,224 18.37 3 -1.2673 % 2,578.8
OpRet 0.00 % 0.00 % 0 0.00 0 -0.2028 % 3,068.5
SplitShare 4.69 % 4.27 % 54,636 1.42 5 -0.2028 % 3,664.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2028 % 2,859.2
Perpetual-Premium 5.38 % 4.75 % 68,766 6.10 21 0.0113 % 2,772.7
Perpetual-Discount 5.28 % 5.26 % 83,524 15.00 15 0.0839 % 2,924.0
FixedReset 4.32 % 4.31 % 181,126 6.39 98 -0.0161 % 2,403.1
Deemed-Retractible 5.06 % 5.39 % 120,145 6.14 30 0.1955 % 2,857.5
FloatingReset 2.59 % 2.94 % 43,104 4.28 10 0.1217 % 2,635.3
Performance Highlights
Issue Index Change Notes
BAM.PR.C Floater -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-20
Maturity Price : 14.53
Evaluated at bid price : 14.53
Bid-YTW : 3.58 %
BAM.PR.K Floater -1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-20
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 3.57 %
IFC.PR.A FixedReset -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.52
Bid-YTW : 7.19 %
SLF.PR.H FixedReset -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.61
Bid-YTW : 6.18 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.C FixedReset 277,200 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.72
Bid-YTW : 4.23 %
BMO.PR.D FixedReset 228,095 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-08-25
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 4.44 %
CM.PR.R FixedReset 141,495 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.09
Bid-YTW : 4.48 %
BNS.PR.P FixedReset 122,000 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.91
Bid-YTW : 3.61 %
BNS.PR.H FixedReset 120,985 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-01-26
Maturity Price : 25.00
Evaluated at bid price : 26.34
Bid-YTW : 3.55 %
NA.PR.C FixedReset 104,082 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-11-15
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 4.47 %
There were 18 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PF.D Perpetual-Discount Quote: 22.56 – 23.20
Spot Rate : 0.6400
Average : 0.4625

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-20
Maturity Price : 22.27
Evaluated at bid price : 22.56
Bid-YTW : 5.47 %

GWO.PR.N FixedReset Quote: 17.22 – 17.60
Spot Rate : 0.3800
Average : 0.2761

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.22
Bid-YTW : 8.11 %

MFC.PR.O FixedReset Quote: 26.63 – 26.90
Spot Rate : 0.2700
Average : 0.1678

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.63
Bid-YTW : 3.95 %

IFC.PR.A FixedReset Quote: 19.52 – 19.94
Spot Rate : 0.4200
Average : 0.3183

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.52
Bid-YTW : 7.19 %

BAM.PR.T FixedReset Quote: 20.60 – 20.84
Spot Rate : 0.2400
Average : 0.1633

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-20
Maturity Price : 20.60
Evaluated at bid price : 20.60
Bid-YTW : 4.56 %

BAM.PR.Z FixedReset Quote: 23.80 – 24.09
Spot Rate : 0.2900
Average : 0.2134

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-20
Maturity Price : 23.00
Evaluated at bid price : 23.80
Bid-YTW : 4.69 %

July 19, 2017

July 19th, 2017

Matt Levine of Bloomberg passes on the latest legal wrinkle in the CDS field:

And when a bank needs rescuing, holders of its most senior stuff — the deposits, the secured debt — tend to be fully and seamlessly made whole, while holders of its most junior stuff — common stock, AT1 capital securities — tend to get instantaneously zeroed.

But in modern legal systems there is a problem with these hierarchies, which is that everyone who buys a junior claim on a bank and then sees that claim wiped out also automatically gets a lawsuit. If your junior claim is wiped out, you can sue someone — probably the bank, or whoever acquired the bank — claiming that your junior claim was wiped out unfairly: The proper procedures weren’t followed, or the bank wasn’t really insolvent when it was rescued, or it was really insolvent much earlier and its disclosures were wrong, or you were tricked into buying the junior claim by misrepresentations about its safety, or whatever. And you sue, and if you win, you have a senior claim: When a company loses a lawsuit, it actually has to pay up, making that claim unlike junior capital securities with perpetual maturity and long deferral periods.

This is just sort of weird. Here is a story about how Banco Popular Espanol SA’s credit default swaps are a mess, which is a small symptom of that larger weirdness:

Credit derivatives written against the failed Spanish lender’s junior debt were triggered in a matter of days and, given that these bonds were now worthless, it seemed self-evident to many that owners of the CDS would get paid in full.

But now a row has broken out over whether the potential value of legal claims bondholders are pursuing over Banco Popular’s collapse should be considered when determining any compensation, clouding the first payout on credit derivatives linked to a European bank since the rules were rewritten to iron out major flaws in 2014.

Lazy balance sheets at US utilities have been a point of corporate interest for well over a year now:

Led by massive acquisitions from pipeline companies Enbridge and TransCanada, six domestic businesses spent approximately $87-billion in the past 12 months snapping up U.S. firms.

Why are the Canadians suddenly stepping up? And can domestic CEOs in other sectors, all of whom aspire to grow internationally, steal a page from the utilities?

On the first question, the starting point for takeovers is this concept of lazy balance sheets south of the border. Executives at capital-hungry companies such as utilities are always conscious of their credit ratings. This is especially true of CEOs and boards at U.S. pipelines: Enron’s meltdown and the near-death experience of the global financial crisis made top-notch ratings a priority. As a result, many U.S. utilities carry relatively little debt. That’s “lazy” in the sense that the company could easily borrow more money, while continuing to be judged as investment grade by the likes of S&P and Moody’s.

While utility executives might care about ratings, the credit market stopped paying much attention last year. In the spring of 2016, borrowing costs began to fall for any investment grade-rated company. At the same time, the spread or gap narrowed between the interest rates paid by a blue-chip double-A-rated borrower and a still-respectable but more leveraged triple B-rated business. And credit markets opened up – massive loans and bond sales were possible.

And so today we learned:

Ontario utility Hydro One Ltd. moved into the U.S. natural gas and electrical transmission business Wednesday by acquiring Washington-based Avista Corp. for $4.4-billion.

Toronto-based Hydro One, which was privatized by the Ontario government in 2015, is making its first foray outside the province by buying a utility that supplies electricity to 379,000 customers and gas to 342,000 clients across five western U.S. states. Hydro One has 1.3 million customers in Ontario.

Hydro One is the latest in a series of Canadian utilities to acquire an American rival, with six domestic companies collectively committing $87-billion to U.S. takeovers over the past 18 months.

But S&P was not impressed:

  • •On July 19, 2017, Toronto-based Hydro One Ltd. (HOL) announced the C$6.7 billion (US$5.3 billion) proposed acquisition of Avista Corp., a U.S.-based electricity and gas utility.
  • •We are revising our outlook on HOL and subsidiary Hydro One Inc. (HOI) to negative from stable.
  • •We are also affirming our ratings on HOL and HOI, including our ‘A’ long-term corporate credit rating on both.
  • •The outlook revision reflects the shift in HOL’s business strategy, as well as the slightly weakened business risk from the acquisition


Historically, HOL’s focus on Ontario provided the company with incremental business strength based on a favorable market position, regulation, and operational history. With the Avista acquisition, we believe HOL’s business risk has eroded slightly. Furthermore, the additional leverage that the transaction introduces also eroded HOL’s credit metrics and financial risk.

The negative outlook on HOL reflects our view that the Avista acquisition signals a shift in HOL’s business strategy, which will align the company with its global peers removing the historical rationale for a one-notch rating uplift. The negative outlook also reflects the execution and financing risk inherent in any large acquisition. We recognize that the use of the convertible debentures will create a temporary impact on credit metrics, with AFFO-to-debt forecast at about 9% until conversion. However, we expect the debentures will be converted to equity in full.

As as for Avista:

  • •Toronto, Ontario-based utility Hydro One Ltd. (HOL) has entered into an agreement to acquire U.S.-based Avista Corp. (Avista) for C$6.7 billion in an all-cash transaction.
  • •We are affirming our ratings on Avista, including the ‘BBB’ issuer credit rating, and revising the outlook to positive from stable.
  • •The positive outlook reflects the potential for higher ratings on Avista if the acquisition is completed as proposed.


S&P Global Ratings today said it affirmed its ratings, including the ‘BBB’ issuer credit rating, on Avista Corp. and revised the outlook to positive from stable.

The outlook revision on Avista reflects the potential for higher ratings upon the completion of the acquisition by Hydro One Ltd. (HOL). Post-acquisition, we will view Avista as a highly strategic subsidiary of HOL. Our assessment is based on our view that Avista will be an important member of the HOL group, highly unlikely to be sold, and integral to overall group strategy and operations. Avista will be a significant cash flow contributor to the group, making up about 22% of consolidated EBITDA.

So Avista is already BBB, but according to their 2016 Annual Report, about $1.2-billion of their $1.6-billion total long-term debt matures in and after 2022 and carries an average interest rate of 5.09%, compared to an average coupon of 5.2% on US long term corporates. Maybe it’s Hydro 1 that should be regarded as having the lazy balance sheet, if this is an issue in this acquisition!

PerpetualDiscounts now yield 5.28%, equivalent to 6.86% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little more than 3.80%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 305bp, a slight (and perhaps spurious) widening from the 300bp reported July 12.

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 3.2959 % 2,469.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 3.2959 % 4,532.2
Floater 3.50 % 3.52 % 108,289 18.48 3 3.2959 % 2,611.9
OpRet 0.00 % 0.00 % 0 0.00 0 0.1484 % 3,074.8
SplitShare 4.68 % 4.07 % 56,884 1.42 5 0.1484 % 3,671.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1484 % 2,865.0
Perpetual-Premium 5.38 % 4.75 % 70,290 6.11 21 0.1625 % 2,772.4
Perpetual-Discount 5.29 % 5.28 % 86,657 15.02 15 0.3805 % 2,921.5
FixedReset 4.32 % 4.31 % 183,149 6.40 98 0.1931 % 2,403.5
Deemed-Retractible 5.07 % 5.43 % 118,120 6.15 30 0.3254 % 2,851.9
FloatingReset 2.59 % 2.95 % 43,114 4.29 10 0.1988 % 2,632.1
Performance Highlights
Issue Index Change Notes
BIP.PR.A FixedReset -1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 22.88
Evaluated at bid price : 23.78
Bid-YTW : 5.22 %
GWO.PR.I Deemed-Retractible 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.69
Bid-YTW : 6.86 %
GWO.PR.Q Deemed-Retractible 1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.51
Bid-YTW : 5.55 %
GWO.PR.R Deemed-Retractible 1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.17
Bid-YTW : 6.10 %
HSE.PR.A FixedReset 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 4.61 %
TRP.PR.A FixedReset 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 4.18 %
PWF.PR.S Perpetual-Discount 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 22.57
Evaluated at bid price : 22.91
Bid-YTW : 5.24 %
TRP.PR.H FloatingReset 1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 15.27
Evaluated at bid price : 15.27
Bid-YTW : 3.23 %
TRP.PR.B FixedReset 1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 15.85
Evaluated at bid price : 15.85
Bid-YTW : 4.27 %
MFC.PR.M FixedReset 2.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.33
Bid-YTW : 5.72 %
BAM.PR.K Floater 3.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 14.76
Evaluated at bid price : 14.76
Bid-YTW : 3.52 %
BAM.PR.B Floater 3.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 14.68
Evaluated at bid price : 14.68
Bid-YTW : 3.54 %
BAM.PR.C Floater 3.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 14.75
Evaluated at bid price : 14.75
Bid-YTW : 3.52 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.R FixedReset 553,775 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.09
Bid-YTW : 4.48 %
RY.PR.Q FixedReset 134,714 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-24
Maturity Price : 25.00
Evaluated at bid price : 26.97
Bid-YTW : 3.54 %
BNS.PR.E FixedReset 122,300 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-25
Maturity Price : 25.00
Evaluated at bid price : 26.67
Bid-YTW : 3.57 %
TRP.PR.J FixedReset 121,500 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.90
Bid-YTW : 3.60 %
TD.PF.G FixedReset 90,900 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.68
Bid-YTW : 3.55 %
TD.PF.I FixedReset 86,431 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 23.17
Evaluated at bid price : 25.08
Bid-YTW : 4.39 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CU.PR.E Perpetual-Discount Quote: 23.75 – 24.20
Spot Rate : 0.4500
Average : 0.2911

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 23.27
Evaluated at bid price : 23.75
Bid-YTW : 5.21 %

PWF.PR.T FixedReset Quote: 23.12 – 23.50
Spot Rate : 0.3800
Average : 0.2698

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 22.71
Evaluated at bid price : 23.12
Bid-YTW : 4.19 %

TD.PF.D FixedReset Quote: 23.70 – 24.00
Spot Rate : 0.3000
Average : 0.1987

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 22.82
Evaluated at bid price : 23.70
Bid-YTW : 4.36 %

MFC.PR.N FixedReset Quote: 22.01 – 22.35
Spot Rate : 0.3400
Average : 0.2438

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.01
Bid-YTW : 5.86 %

BAM.PR.M Perpetual-Discount Quote: 21.63 – 21.87
Spot Rate : 0.2400
Average : 0.1510

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 21.36
Evaluated at bid price : 21.63
Bid-YTW : 5.53 %

BIP.PR.A FixedReset Quote: 23.78 – 24.00
Spot Rate : 0.2200
Average : 0.1502

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-19
Maturity Price : 22.88
Evaluated at bid price : 23.78
Bid-YTW : 5.22 %

July 18, 2017

July 18th, 2017

It is my belief that many of today’s economic problems are the result of disruption; we are experiencing change at a historically unprecedented pace. The Industrial Revolution and the Renaissance combined weren’t NUTHIN’ compared to what’s been happening since 1980. And usually the effects of disruption are difficult to foresee:

Japan thought it was on track to beat deflation. Then came the Amazon effect.

The country’s retailers have been cutting prices in response to the rise of online rivals like Amazon.com Inc., disrupting what had seemed like perfect conditions for Japan to get the stable dose of inflation it has long been looking for.

In part as a result, Japan’s central bank is likely to lower its price forecast for the current financial year at its policy meeting on Thursday, said people familiar with its thinking. That reflects continued resistance to price rises, despite Japan’s longest economic expansion in 11 years and its tightest labor market in decades. The Bank of Japan is also likely to raise its view on the economy while keeping its policy settings on hold, the people said.

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 1.5911 % 2,391.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.5911 % 4,387.6
Floater 3.62 % 3.64 % 105,677 18.21 3 1.5911 % 2,528.6
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0078 % 3,070.2
SplitShare 4.69 % 4.29 % 57,784 1.42 5 -0.0078 % 3,666.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0078 % 2,860.7
Perpetual-Premium 5.39 % 4.75 % 71,802 6.11 21 -0.1283 % 2,767.9
Perpetual-Discount 5.31 % 5.30 % 89,828 14.99 15 0.2154 % 2,910.4
FixedReset 4.33 % 4.32 % 180,336 6.39 98 0.0083 % 2,398.9
Deemed-Retractible 5.09 % 5.42 % 116,888 6.15 30 -0.0028 % 2,842.7
FloatingReset 2.59 % 2.93 % 44,881 4.29 10 -0.0767 % 2,626.9
Performance Highlights
Issue Index Change Notes
TRP.PR.H FloatingReset -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 15.06
Evaluated at bid price : 15.06
Bid-YTW : 3.27 %
BAM.PR.X FixedReset -1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 17.33
Evaluated at bid price : 17.33
Bid-YTW : 4.58 %
IAG.PR.G FixedReset -1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.05
Bid-YTW : 5.28 %
GWO.PR.S Deemed-Retractible 1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 5.33 %
BAM.PR.C Floater 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 14.26
Evaluated at bid price : 14.26
Bid-YTW : 3.64 %
BAM.PR.B Floater 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 14.22
Evaluated at bid price : 14.22
Bid-YTW : 3.65 %
BAM.PR.K Floater 1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 14.30
Evaluated at bid price : 14.30
Bid-YTW : 3.63 %
ELF.PR.G Perpetual-Discount 2.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 22.48
Evaluated at bid price : 22.74
Bid-YTW : 5.24 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.Q FixedReset 301,045 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.55
Bid-YTW : 5.44 %
TD.PF.I FixedReset 106,693 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 23.17
Evaluated at bid price : 25.08
Bid-YTW : 4.39 %
TRP.PR.D FixedReset 106,633 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 22.10
Evaluated at bid price : 22.41
Bid-YTW : 4.33 %
RY.PR.M FixedReset 90,612 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 22.54
Evaluated at bid price : 23.25
Bid-YTW : 4.34 %
RY.PR.H FixedReset 54,000 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 21.75
Evaluated at bid price : 22.23
Bid-YTW : 4.27 %
BAM.PR.K Floater 41,600 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 14.30
Evaluated at bid price : 14.30
Bid-YTW : 3.63 %
There were 16 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.Q Deemed-Retractible Quote: 24.25 – 24.81
Spot Rate : 0.5600
Average : 0.3671

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.25
Bid-YTW : 5.72 %

ELF.PR.F Perpetual-Discount Quote: 24.41 – 24.97
Spot Rate : 0.5600
Average : 0.4088

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 24.16
Evaluated at bid price : 24.41
Bid-YTW : 5.45 %

PWF.PR.F Perpetual-Premium Quote: 24.33 – 24.75
Spot Rate : 0.4200
Average : 0.3021

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 24.07
Evaluated at bid price : 24.33
Bid-YTW : 5.40 %

VNR.PR.A FixedReset Quote: 22.45 – 22.77
Spot Rate : 0.3200
Average : 0.2058

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 21.93
Evaluated at bid price : 22.45
Bid-YTW : 4.80 %

EIT.PR.A SplitShare Quote: 25.80 – 26.20
Spot Rate : 0.4000
Average : 0.3003

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2024-03-14
Maturity Price : 25.00
Evaluated at bid price : 25.80
Bid-YTW : 4.34 %

TRP.PR.H FloatingReset Quote: 15.06 – 15.69
Spot Rate : 0.6300
Average : 0.5483

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-18
Maturity Price : 15.06
Evaluated at bid price : 15.06
Bid-YTW : 3.27 %

July 17, 2017

July 17th, 2017
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 0.0000 % 2,353.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0000 % 4,318.9
Floater 3.68 % 3.70 % 97,569 18.09 3 0.0000 % 2,489.0
OpRet 0.00 % 0.00 % 0 0.00 0 0.1017 % 3,070.5
SplitShare 4.69 % 4.13 % 57,166 1.42 5 0.1017 % 3,666.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1017 % 2,861.0
Perpetual-Premium 5.38 % 4.75 % 70,894 6.11 21 -0.1319 % 2,771.4
Perpetual-Discount 5.32 % 5.32 % 91,316 14.99 15 -0.3423 % 2,904.2
FixedReset 4.33 % 4.32 % 179,729 6.40 98 0.0336 % 2,398.7
Deemed-Retractible 5.09 % 5.50 % 117,872 6.15 30 -0.4486 % 2,842.7
FloatingReset 2.59 % 2.85 % 45,280 4.29 10 0.1266 % 2,628.9
Performance Highlights
Issue Index Change Notes
IFC.PR.A FixedReset -1.97 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.41
Bid-YTW : 7.27 %
SLF.PR.B Deemed-Retractible -1.60 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.78
Bid-YTW : 6.38 %
TRP.PR.B FixedReset -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 15.48
Evaluated at bid price : 15.48
Bid-YTW : 4.37 %
SLF.PR.C Deemed-Retractible -1.35 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.21
Bid-YTW : 7.16 %
SLF.PR.D Deemed-Retractible -1.35 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.23
Bid-YTW : 7.14 %
SLF.PR.E Deemed-Retractible -1.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.32
Bid-YTW : 7.13 %
MFC.PR.C Deemed-Retractible -1.19 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.55
Bid-YTW : 6.98 %
BAM.PF.B FixedReset -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 22.39
Evaluated at bid price : 22.75
Bid-YTW : 4.56 %
ELF.PR.G Perpetual-Discount -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 21.97
Evaluated at bid price : 22.20
Bid-YTW : 5.37 %
TRP.PR.G FixedReset -1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 23.04
Evaluated at bid price : 24.27
Bid-YTW : 4.45 %
PWF.PR.L Perpetual-Discount -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 23.69
Evaluated at bid price : 24.00
Bid-YTW : 5.32 %
PWF.PR.S Perpetual-Discount -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 22.30
Evaluated at bid price : 22.60
Bid-YTW : 5.31 %
GWO.PR.R Deemed-Retractible -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.93
Bid-YTW : 6.27 %
MFC.PR.M FixedReset 1.33 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.10
Bid-YTW : 5.88 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.I FixedReset 169,728 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 23.14
Evaluated at bid price : 25.00
Bid-YTW : 4.41 %
NA.PR.W FixedReset 102,111 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 21.38
Evaluated at bid price : 21.70
Bid-YTW : 4.32 %
NA.PR.A FixedReset 92,575 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-15
Maturity Price : 25.00
Evaluated at bid price : 26.54
Bid-YTW : 3.67 %
TD.PF.B FixedReset 86,200 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 21.52
Evaluated at bid price : 21.89
Bid-YTW : 4.29 %
TRP.PR.J FixedReset 85,526 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.84
Bid-YTW : 3.66 %
SLF.PR.H FixedReset 61,632 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.70
Bid-YTW : 6.11 %
There were 27 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PF.D Perpetual-Discount Quote: 22.46 – 22.98
Spot Rate : 0.5200
Average : 0.3800

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 22.19
Evaluated at bid price : 22.46
Bid-YTW : 5.49 %

POW.PR.G Perpetual-Premium Quote: 25.19 – 25.55
Spot Rate : 0.3600
Average : 0.2219

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 24.70
Evaluated at bid price : 25.19
Bid-YTW : 5.57 %

CU.PR.G Perpetual-Discount Quote: 21.68 – 22.00
Spot Rate : 0.3200
Average : 0.2009

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 21.40
Evaluated at bid price : 21.68
Bid-YTW : 5.25 %

IFC.PR.A FixedReset Quote: 19.41 – 19.75
Spot Rate : 0.3400
Average : 0.2284

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.41
Bid-YTW : 7.27 %

GWO.PR.S Deemed-Retractible Quote: 24.70 – 25.00
Spot Rate : 0.3000
Average : 0.2007

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 5.52 %

TRP.PR.G FixedReset Quote: 24.27 – 24.70
Spot Rate : 0.4300
Average : 0.3381

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-17
Maturity Price : 23.04
Evaluated at bid price : 24.27
Bid-YTW : 4.45 %

July PrefLetter Released!

July 17th, 2017

The July, 2017, 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 July edition contains a large number of charts relevant to the FixedReset market, after the pattern of the October 2016 FixedReset Review.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the July, 2017, issue, while the “Next Edition” will be the August, 2017, issue, scheduled to be prepared as of the close August 11 and eMailed to subscribers prior to market-opening on August 14.

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.

But Adrian2 now advises:

Well, as of now, FileApp is free (again?).

S

LCS.PR.A : Annual Report, 2016

July 16th, 2017

Brompton Lifeco Split Corp. has released its Annual Report to December 31, 2016.

LCS / LCS.PR.A Performance
Instrument One
Year
Three
Years
Five
Years
Whole Unit +16.7% +7.9% +19.6%
LCS.PR.A +5.9%% +5.8% +6.0%
LCS +35.7% +11.2% N/A
S&P/TSX Capped Financial Index +24.2% +10.7% +15.0%
S&P/TSX Composite Index +21.1% +7.1% +8.2%

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: 1.03% of the whole unit value, excluding Preferred share distributions (which were largely covered by the Fund’s dividend income) and issuance costs and agents’ fees in connection with the Fund’s treasury offerings (which were paid by new subscribers of the Fund).

Average Net Assets: We need this to calculate portfolio yield; and it’s tricky because there were redemptions during the year. MER of 1.03% on Total Expenses excluding Preferred share distributions (2,951,640) and issuance costs (0) and agents’ fees (0) of $2,951.640, leaves expenses of $827,605 implies $80.35-million average net assets. Preferred Share distributions of 2,951,640 @ 0.575 / share implies 5.133-million shares out on average. Average Unit Value (beginning & end of year) = (15.34 + 17.00) / 2 = 16.17. Therefore 5.133-million @ 16.17 = 83.0-million average net assets. Good agreement between these two methods! Call it $81.7-million average fund assets.

Underlying Portfolio Yield: Dividends, interest and lending income received of 2.754-million divided by average net assets of 81.7-million is 3.37%

Income Coverage: Gross Investment Income (before capital gains & losses and issuance costs and agents’ fees ) of $2,759,028 less expenses of 827,605 is net investment income of 1,931,423 divided by Preferred Share Distributions of 2,951,640 is 65%.

TD.PF.I Firm On Decent Volume

July 14th, 2017

TD.PF.I, a FixedReset, 4.50%+301, NVCC-compliant issue announced 2017-07-05 closed today. It will be tracked by HIMIPref™ and has been assigned to the FixedResets subindex.

The issue traded 775,498 shares today in a tight range of 24.97-02 before closing at 25.00-01. Vital statistics are:

TD.PF.I FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 23.14
Evaluated at bid price : 25.00
Bid-YTW : 4.41 %

Implied Volatility for FixedResets analysis shows:

impvol_td_170714
Click for Big

The numbers show a large change from the parameters determined on issue date, which were GOC5=1.43%; Spread=204bp and Implied Volatility=26%. Plugging in the new values for the last two parameters demonstrates a clear steepening during the interval.

impvol_td_170714adj
Click for Big

The new fit is significantly better, with a sum of squared errors of 1.40 compared to 1.86 when today’s data is imposed on the prior parameters.

One thing that hasn’t change is the apparent richness of TD.PF.I – the theoretical price is now 24.28 compared to 24.30 on announcement day.

July 14, 2017

July 14th, 2017

A red letter day today! Aided by a small bump in the GOC-5 rate, the calculated median YTW for the FixedResets subindex is greater than its mean current yield for the first time since 2008!

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 -1.7499 % 2,353.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.7499 % 4,318.9
Floater 3.68 % 3.70 % 97,796 18.09 3 -1.7499 % 2,489.0
OpRet 0.00 % 0.00 % 0 0.00 0 0.0783 % 3,067.3
SplitShare 4.69 % 4.21 % 57,892 1.43 5 0.0783 % 3,663.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0783 % 2,858.1
Perpetual-Premium 5.37 % 4.73 % 69,759 5.93 21 -0.1468 % 2,775.1
Perpetual-Discount 5.30 % 5.29 % 92,632 14.99 15 -0.2113 % 2,914.2
FixedReset 4.33 % 4.34 % 180,669 6.41 98 -0.0626 % 2,397.9
Deemed-Retractible 5.07 % 5.41 % 117,300 6.16 30 -0.2596 % 2,855.5
FloatingReset 2.60 % 2.99 % 45,439 4.30 10 -0.0497 % 2,625.6
Performance Highlights
Issue Index Change Notes
BAM.PR.K Floater -2.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 13.93
Evaluated at bid price : 13.93
Bid-YTW : 3.73 %
PWF.PR.P FixedReset -1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 16.93
Evaluated at bid price : 16.93
Bid-YTW : 4.37 %
BAM.PR.C Floater -1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 14.05
Evaluated at bid price : 14.05
Bid-YTW : 3.70 %
GWO.PR.I Deemed-Retractible -1.32 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.64
Bid-YTW : 6.88 %
ELF.PR.H Perpetual-Premium -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 24.18
Evaluated at bid price : 24.69
Bid-YTW : 5.58 %
BAM.PR.B Floater -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 14.13
Evaluated at bid price : 14.13
Bid-YTW : 3.68 %
CU.PR.H Perpetual-Premium -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 24.59
Evaluated at bid price : 25.01
Bid-YTW : 5.30 %
CU.PR.F Perpetual-Discount -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 21.56
Evaluated at bid price : 21.56
Bid-YTW : 5.29 %
IAG.PR.A Deemed-Retractible -1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.51
Bid-YTW : 6.35 %
HSE.PR.A FixedReset -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 16.30
Evaluated at bid price : 16.30
Bid-YTW : 4.72 %
IFC.PR.C FixedReset 1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.70
Bid-YTW : 5.21 %
VNR.PR.A FixedReset 2.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 21.89
Evaluated at bid price : 22.39
Bid-YTW : 4.81 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.I FixedReset 775,498 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 23.14
Evaluated at bid price : 25.00
Bid-YTW : 4.41 %
MFC.PR.O FixedReset 298,785 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.78
Bid-YTW : 3.77 %
TRP.PR.J FixedReset 176,767 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.87
Bid-YTW : 3.62 %
CM.PR.R FixedReset 176,654 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 4.44 %
RY.PR.R FixedReset 103,900 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.95
Bid-YTW : 3.67 %
BMO.PR.B FixedReset 79,483 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 3.84 %
There were 23 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BMO.PR.Q FixedReset Quote: 21.50 – 21.99
Spot Rate : 0.4900
Average : 0.3274

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.50
Bid-YTW : 5.48 %

PWF.PR.P FixedReset Quote: 16.93 – 17.43
Spot Rate : 0.5000
Average : 0.3403

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 16.93
Evaluated at bid price : 16.93
Bid-YTW : 4.37 %

BAM.PF.E FixedReset Quote: 22.65 – 23.08
Spot Rate : 0.4300
Average : 0.2742

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 22.25
Evaluated at bid price : 22.65
Bid-YTW : 4.54 %

CU.PR.H Perpetual-Premium Quote: 25.01 – 25.40
Spot Rate : 0.3900
Average : 0.2464

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 24.59
Evaluated at bid price : 25.01
Bid-YTW : 5.30 %

GWO.PR.I Deemed-Retractible Quote: 21.64 – 22.05
Spot Rate : 0.4100
Average : 0.2675

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.64
Bid-YTW : 6.88 %

BAM.PR.K Floater Quote: 13.93 – 14.35
Spot Rate : 0.4200
Average : 0.2826

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-14
Maturity Price : 13.93
Evaluated at bid price : 13.93
Bid-YTW : 3.73 %