November 13, 2018

November 13th, 2018
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 -0.0411 % 3,066.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.0411 % 5,626.5
Floater 3.79 % 4.02 % 40,278 17.33 4 -0.0411 % 3,242.6
OpRet 0.00 % 0.00 % 0 0.00 0 0.1194 % 3,221.9
SplitShare 4.47 % 4.76 % 52,520 4.16 6 0.1194 % 3,847.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1194 % 3,002.1
Perpetual-Premium 5.86 % 0.37 % 52,330 0.09 3 0.2245 % 2,895.5
Perpetual-Discount 5.59 % 5.69 % 75,580 14.31 31 -0.0941 % 2,930.9
FixedReset Disc 4.52 % 5.37 % 163,007 14.90 58 -0.4773 % 2,462.7
Deemed-Retractible 5.33 % 6.64 % 68,792 5.18 27 -0.1146 % 2,911.7
FloatingReset 3.84 % 4.30 % 38,756 5.41 6 -0.6087 % 2,739.2
FixedReset Prem 5.05 % 4.47 % 218,600 2.55 22 -0.0499 % 2,533.2
FixedReset Bank Non 2.96 % 3.74 % 116,156 0.28 6 0.1028 % 2,581.1
FixedReset Ins Non 4.56 % 6.37 % 127,950 5.28 22 -0.3026 % 2,462.6
Performance Highlights
Issue Index Change Notes
BAM.PR.R FixedReset Disc -3.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 19.22
Evaluated at bid price : 19.22
Bid-YTW : 5.88 %
IFC.PR.G FixedReset Ins Non -1.95 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.58
Bid-YTW : 6.19 %
BAM.PF.F FixedReset Disc -1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 22.64
Evaluated at bid price : 23.21
Bid-YTW : 5.71 %
TRP.PR.B FixedReset Disc -1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 15.61
Evaluated at bid price : 15.61
Bid-YTW : 5.78 %
PWF.PR.Q FloatingReset -1.87 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 20.52
Evaluated at bid price : 20.52
Bid-YTW : 4.06 %
TRP.PR.A FixedReset Disc -1.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 18.61
Evaluated at bid price : 18.61
Bid-YTW : 5.81 %
BAM.PF.B FixedReset Disc -1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 21.77
Evaluated at bid price : 22.21
Bid-YTW : 5.72 %
TRP.PR.H FloatingReset -1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 4.73 %
BAM.PR.N Perpetual-Discount -1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 20.12
Evaluated at bid price : 20.12
Bid-YTW : 6.00 %
BAM.PR.T FixedReset Disc -1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 19.75
Evaluated at bid price : 19.75
Bid-YTW : 5.73 %
BAM.PF.G FixedReset Disc -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 22.91
Evaluated at bid price : 23.31
Bid-YTW : 5.63 %
BAM.PF.H FixedReset Prem -1.40 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 4.73 %
CU.PR.C FixedReset Disc -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 21.35
Evaluated at bid price : 21.35
Bid-YTW : 5.34 %
MFC.PR.F FixedReset Ins Non -1.37 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.31
Bid-YTW : 9.93 %
VNR.PR.A FixedReset Disc -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 22.88
Evaluated at bid price : 24.03
Bid-YTW : 5.30 %
PWF.PR.L Perpetual-Discount -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 22.05
Evaluated at bid price : 22.28
Bid-YTW : 5.76 %
SLF.PR.G FixedReset Ins Non -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.40
Bid-YTW : 9.16 %
GWO.PR.T Deemed-Retractible -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.78
Bid-YTW : 7.11 %
BAM.PF.D Perpetual-Discount 1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 21.16
Evaluated at bid price : 21.16
Bid-YTW : 5.88 %
Volume Highlights
Issue Index Shares
Traded
Notes
BAM.PF.I FixedReset Prem 60,000 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 5.42 %
PWF.PR.R Perpetual-Discount 57,096 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 24.11
Evaluated at bid price : 24.44
Bid-YTW : 5.66 %
RY.PR.W Perpetual-Discount 45,790 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 23.67
Evaluated at bid price : 23.94
Bid-YTW : 5.12 %
BNS.PR.E FixedReset Prem 45,000 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-25
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.90 %
RY.PR.Z FixedReset Disc 33,154 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 21.78
Evaluated at bid price : 22.23
Bid-YTW : 5.20 %
RY.PR.M FixedReset Disc 32,100 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 22.96
Evaluated at bid price : 23.29
Bid-YTW : 5.25 %
There were 22 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.R FixedReset Disc Quote: 19.22 – 20.60
Spot Rate : 1.3800
Average : 0.8380

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 19.22
Evaluated at bid price : 19.22
Bid-YTW : 5.88 %

BAM.PF.B FixedReset Disc Quote: 22.21 – 22.85
Spot Rate : 0.6400
Average : 0.4373

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 21.77
Evaluated at bid price : 22.21
Bid-YTW : 5.72 %

BAM.PR.N Perpetual-Discount Quote: 20.12 – 20.75
Spot Rate : 0.6300
Average : 0.4482

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 20.12
Evaluated at bid price : 20.12
Bid-YTW : 6.00 %

NA.PR.W FixedReset Disc Quote: 21.40 – 21.88
Spot Rate : 0.4800
Average : 0.3089

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 21.40
Evaluated at bid price : 21.40
Bid-YTW : 5.44 %

VNR.PR.A FixedReset Disc Quote: 24.03 – 24.49
Spot Rate : 0.4600
Average : 0.3057

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 22.88
Evaluated at bid price : 24.03
Bid-YTW : 5.30 %

PWF.PR.Q FloatingReset Quote: 20.52 – 21.24
Spot Rate : 0.7200
Average : 0.5714

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-13
Maturity Price : 20.52
Evaluated at bid price : 20.52
Bid-YTW : 4.06 %

November 12, 2018

November 12th, 2018
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 0.1372 % 3,067.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.1372 % 5,628.8
Floater 3.79 % 4.02 % 41,907 17.34 4 0.1372 % 3,243.9
OpRet 0.00 % 0.00 % 0 0.00 0 0.0332 % 3,218.0
SplitShare 4.48 % 4.75 % 49,880 4.17 6 0.0332 % 3,843.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0332 % 2,998.5
Perpetual-Premium 5.88 % 0.36 % 52,844 0.08 3 -0.1187 % 2,889.0
Perpetual-Discount 5.59 % 5.67 % 78,251 14.34 31 0.2618 % 2,933.6
FixedReset Disc 4.50 % 5.37 % 166,198 14.94 58 -0.1996 % 2,474.5
Deemed-Retractible 5.32 % 6.63 % 69,514 5.18 27 0.1293 % 2,915.1
FloatingReset 3.82 % 4.31 % 39,298 5.42 6 -0.7092 % 2,756.0
FixedReset Prem 5.04 % 4.31 % 174,888 2.55 22 -0.0606 % 2,534.5
FixedReset Bank Non 2.96 % 4.04 % 117,809 0.28 6 0.0000 % 2,578.4
FixedReset Ins Non 4.54 % 6.32 % 129,277 5.28 22 -0.5193 % 2,470.1
Performance Highlights
Issue Index Change Notes
CM.PR.P FixedReset Disc -2.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-12
Maturity Price : 21.46
Evaluated at bid price : 21.46
Bid-YTW : 5.40 %
MFC.PR.K FixedReset Ins Non -2.61 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.27
Bid-YTW : 7.91 %
TRP.PR.F FloatingReset -1.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-12
Maturity Price : 19.08
Evaluated at bid price : 19.08
Bid-YTW : 4.81 %
MFC.PR.G FixedReset Ins Non -1.74 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.21
Bid-YTW : 6.13 %
BAM.PR.X FixedReset Disc -1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-12
Maturity Price : 17.90
Evaluated at bid price : 17.90
Bid-YTW : 5.53 %
PWF.PR.Q FloatingReset -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-12
Maturity Price : 20.91
Evaluated at bid price : 20.91
Bid-YTW : 3.98 %
MFC.PR.J FixedReset Ins Non -1.37 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.80
Bid-YTW : 6.15 %
BAM.PF.I FixedReset Prem -1.15 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 24.85
Bid-YTW : 5.22 %
SLF.PR.H FixedReset Ins Non -1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.30
Bid-YTW : 7.70 %
IAG.PR.G FixedReset Ins Non -1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.61
Bid-YTW : 6.38 %
TRP.PR.E FixedReset Disc -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-12
Maturity Price : 20.95
Evaluated at bid price : 20.95
Bid-YTW : 5.72 %
HSE.PR.G FixedReset Disc 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-12
Maturity Price : 23.09
Evaluated at bid price : 23.49
Bid-YTW : 6.26 %
W.PR.M FixedReset Prem 1.15 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-15
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 4.71 %
SLF.PR.B Deemed-Retractible 1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.55
Bid-YTW : 7.81 %
W.PR.H Perpetual-Discount 1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-12
Maturity Price : 24.34
Evaluated at bid price : 24.65
Bid-YTW : 5.63 %
EMA.PR.H FixedReset Disc 3.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-12
Maturity Price : 23.09
Evaluated at bid price : 24.75
Bid-YTW : 4.93 %
Volume Highlights
Issue Index Shares
Traded
Notes
W.PR.K FixedReset Prem 32,540 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-01-15
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 4.50 %
BNS.PR.R FixedReset Bank Non 24,277 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-01-26
Maturity Price : 25.00
Evaluated at bid price : 25.03
Bid-YTW : 4.08 %
TD.PF.A FixedReset Disc 23,700 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-12
Maturity Price : 21.78
Evaluated at bid price : 22.25
Bid-YTW : 5.22 %
BMO.PR.E FixedReset Prem 18,900 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-12
Maturity Price : 23.11
Evaluated at bid price : 24.85
Bid-YTW : 5.05 %
RY.PR.I FixedReset Bank Non 18,100 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 3.12 %
GWO.PR.R Deemed-Retractible 14,256 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.75
Bid-YTW : 7.62 %
There were 10 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IFC.PR.G FixedReset Ins Non Quote: 24.05 – 24.75
Spot Rate : 0.7000
Average : 0.4295

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.05
Bid-YTW : 5.81 %

CM.PR.P FixedReset Disc Quote: 21.46 – 22.00
Spot Rate : 0.5400
Average : 0.3535

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-12
Maturity Price : 21.46
Evaluated at bid price : 21.46
Bid-YTW : 5.40 %

HSE.PR.A FixedReset Disc Quote: 16.05 – 16.68
Spot Rate : 0.6300
Average : 0.4611

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-12
Maturity Price : 16.05
Evaluated at bid price : 16.05
Bid-YTW : 6.12 %

MFC.PR.K FixedReset Ins Non Quote: 21.27 – 21.71
Spot Rate : 0.4400
Average : 0.2900

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.27
Bid-YTW : 7.91 %

EIT.PR.A SplitShare Quote: 25.10 – 25.56
Spot Rate : 0.4600
Average : 0.3236

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2024-03-14
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 4.91 %

CU.PR.I FixedReset Prem Quote: 25.67 – 26.04
Spot Rate : 0.3700
Average : 0.2476

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-01
Maturity Price : 25.00
Evaluated at bid price : 25.67
Bid-YTW : 3.04 %

November PrefLetter Released!

November 11th, 2018

The November, 2018, 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.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the November, 2018, issue, while the “Next Edition” will be the December, 2018, issue, scheduled to be prepared as of the close December 14 and eMailed to subscribers prior to market-opening on December 17.

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?).

ENB Outlook Positive, says Moody’s

November 11th, 2018

Moody’s Investors Service has announced:

Moody’s changed the rating outlook on ENB to positive from stable and changed the rating outlook on EIF to positive from negative.

The positive outlook at ENB reflects the improvement in its financial profile that is the result of several factors. First, EBITDA continues to grow as the company executes its large capital program. The company expects to bring into service about CAD22 billion of projects by 2020, of which by FYE 2018 about CAD7 billion will be generating cash flow. Second, assets sales totaling CAD7.5 billion, of which CAD5.7 billion have closed, is well above the target of CAD$3 billion announced late last year. The proceeds from these sales, combined with equity and equity-like issuance helped the company reduce its debt by about CAD$3 billion in the year to date as it progresses its large capital program. Prospectively, Moody’s sees the size of the capital program declining, both in nominal terms and relative to the size of the company, which reduces pressure on forecasted financial metrics.

Enbridge Inc’s (ENB) Baa3 ratings reflect the company’s large size and scale and its diverse, low risk asset base offset by high, but improving leverage and structural subordination. The company’s portfolio of assets will continue to generate stable cash flow based on a combination of rate regulation, a favorable contractual profile and a strong competitive position.

EIF has seen its ratio of debt to EBITDA improve substantially to 4.4x over the last twelve months ending Sept 30 2018 from 6.1x at FYE2017 a key driver of the change in outlook to positive from negative. The improvement is a result of strong operating performance, completed projects generating cash flow, increasing tolls and corporate actions that have led to reduction in debt even as the company progresses its CAD$5.3 billion share of the twice delayed CAD$9 billion Line 3 Replacement (L3R) project.

ENB What Could Change the Rating — Up

• Moody’s adjusted debt to EBITDA is sustained comfortably below 5.5x.

• A large reduction in its organizational complexity and structural subordination

ENB What Could Change the Rating — Down

• Moody’s adjusted debt to EBITDA is sustained well above 6x.

• Increases in structural subordination, more aggressive financial policies or a material change in the company’s business risk could also lead to a downgrade.

ENB is rated Pfd-3(high) [Stable] by DBRS and P-2(low) [Stable] by S&P.

Affected issues are (deep breath): ENB.PF.A, ENB.PF.C, ENB.PF.E, ENB.PF.G, ENB.PF.I, ENB.PF.K, ENB.PR.A, ENB.PR.B, ENB.PR.C, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T and ENB.PR.Y.

HSE on Watch Negative, says S&P

November 11th, 2018

Standard & Poor’s has announced (on October 1):

  • •We are placing our ratings on Husky Energy Inc. on CreditWatch with negative implications, following its announced unsolicited bid to acquire oil sands bitumen producer, MEG Energy Corp.
  • •We are also placing our ‘BBB-‘ global scale and ‘P-2(Low)’ Canada scale preferred share ratings on CreditWatch with negative implications, as we would lower them to ‘BB+’ and ‘P-3(High)’, respectively, concurrent with a downgrade on the company to ‘BBB’.
  • •We are assuming Husky’s major shareholder will retain its majority ownership in the company, so we expect the one-notch uplift to its rating, which is supported by this ownership, should remain in effect.
  • •The negative CreditWatch reflects the potential deterioration of Husky’s cash flow and leverage metrics, with the addition of MEG’s existing C$3.6 billion of debt (at June 30, 2018), and the resulting deterioration of the company’s financial risk profile, which could lead to a downgrade.


S&P Global Ratings today placed its ratings on Calgary, Alta.-based Husky Energy Inc. on CreditWatch with negative implications, following the company’s announced offer to acquire MEG Energy Corp. The estimated value of the acquisition is C$6.4 billion, which includes the assumption of MEG’s debt of C$3.6 billion, and MEG’s June 30, 2018 cash balance of C$564 million. Husky intends to issue shares from its treasury and pay C$1 billion of cash in exchange for MEG’s equity outstanding.

The negative CreditWatch reflects S&P Global Ratings’ opinion that Husky’s acquisition of MEG, with the assumption of about C$3.6 billion of debt, could weaken the company’s overall cash flow and leverage metrics below the minimum thresholds required to support the ‘BBB+’ rating. Without the company having a clearly articulated plan to delever its balance sheet immediately following the acquisition, Husky’s financial risk profile could weaken by one category, which would, in turn, cause us to lower the credit rating to ‘BBB’.

We expect to resolve the CreditWatch placement when the transaction closes. This should occur in early 2019.

DBRS commented (also on October 1):

Husky’s unsolicited offer has not been endorsed by MEG’s Board of Directors (Board). With the absence of Board support, Husky intends to commence an offer directly to MEG common shareholders by way of a takeover bid, which requires 66 2/3% of the total fully diluted shares tendered to Husky’s offer. DBRS notes the uncertainty in that Husky may not be successful with its proposal in the current form. DBRS also notes uncertainty as to (1) the time necessary to complete a successful offer and (2) the possibility that Husky may have to alter its offer to secure approval from MEG’s Board and/or common shareholders. Because of the uncertainties regarding the outcome of Husky’s offer, DBRS plans no rating action at the current time. However, should Husky be successful with its offer either in its current form or a modified form, DBRS may be compelled to take a rating action.

Nevertheless, DBRS notes that if Husky’s offer is successful in its current form, the addition of MEG’s assets would be mildly positive for Husky’s business risk profile. The inclusion of MEG’s assets (1) adds to Husky’s size, (2) improves the Company’s proven reserve life index, (3) complements Husky’s other thermal oil developments in Western Canada and (4) enhances Husky’s heavy oil integration plans. Tempering the improvement in the business risk profile is a higher level of asset concentration in Western Canada and a higher proportion of thermal oil in the Company’s production mix.

DBRS notes that Husky’s credit metrics (assuming Husky’s offer is successful in its current form) are modestly negatively affected initially due to the sizable amount of MEG debt that the Company would incur. On a pro forma basis (last 12 months ended June 30, 2018), Husky’s lease-adjusted debt-to-cash flow ratio rises from approximately 1.6 times (x) to 2.3x (outside the “A” range). However, Husky has noted that approximately $200 million in synergies could be realized annually from the acquisition of the MEG assets. Also, the combined entity is expected to generate material free cash flow (cash flow after capital spending and dividends) that can be deployed to reducing net debt and financial leverage. The Company anticipates a net debt-to-cash flow ratio of the combined entity (based on current strip pricing in 2019 for West Texas Intermediate oil of USD 70.50/bbl and a heavy light oil differential in Western Canada of USD 26.26/bbl) to be approximately 1.0x in 2019.

Affected issues are HSE.PR.A, HSE.PR.B, HSE.PR.C, HSE.PR.E AND HSE.PR.G.

Update, 2018-11-11: Moody’s considers the proposed acquisition credit negative:

If the transaction closes as structured it would be credit negative for Husky because of its leveraging nature and increased exposure to heavy oil differentials, but should be absorbed within Husky’s currently strong financial position and we would likely affirm Husky’s ratings.

Husky would benefit from the addition of MEG’s high quality, long-lived reserves, a well understood reservoir with an established history of performance, future development opportunities, and a doubling Husky’s proved reserves. However, the assumption of MEG’s high Moody’s adjusted debt of about C$3.7 billion would be leveraging, reducing Husky’s expected 2019 retained cash flow to debt to about 35% from 45%. The addition of 2019 bitumen production would reduce Husky’s currently full integration of North American bitumen and heavy oil production, increasing its exposure to heavy oil differentials.

Husky (Baa2 stable) benefits from: 1) its integrated North American onshore upstream and downstream refining operations that provide diversity and lessen cash flow volatility; 2) the favorably priced contracts for its natural gas production offshore China; and 3) favorable cash flow-based leverage and interest coverage metrics. Husky is challenged by: 1) its exposure to volatile commodity prices in its North American heavy oil and natural gas segments and; 2) low margin upstream production, particularly at its Sunrise operation.

PPL.PR.A : Convert or Hold?

November 9th, 2018

It will be recalled that PPL.PR.A will reset at 4.906% effective December 1.

PPL.PR.A is a FixedReset, 4.25%+247, that commenced trading 2013-7-26 after being announced 2013-7-17. It is tracked by HIMIPref™ and assigned to the “Scraps – FixedResets (Discount)” subindex, relegated there due to credit concerns.

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

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_fr_181109
Click for Big

The market appears to be becoming interested in floating rate product; the implied rates until the next interconversion are above the current 3-month bill rate as the averages for investment-grade and junk issues are at +2.11% and +1.78%, respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the PPL.PR.A FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for PPL.PR.A) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 2.50% 2.00% 1.50%
PPL.PR.A 20.40 247bp 20.46 19.98 19.49

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts, PPL.PR.A. Therefore I recommend that holders of PPL.PR.A continue to hold the issue and not to convert. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Those who wish to convert anyway are advised that the deadline for notifying the company of such a desire is < 3:00 p.m. (MST) / 5:00 p.m. (EST) on November 16, 2018. Brokers and other intermediaries generally set their internal deadlines a day or two in advance of this date, so if you wish to convert there’s not much time to waste! Note that brokers will, in general, try to execute the instruction on a ‘best efforts’ basis if received between the two deadlines, provided that the procrastinating shareholder grovels entertainingly enough.

ENB.PR.N : Convert or Hold?

November 9th, 2018

It will be recalled that ENB.PR.N will reset at 5.086% effective December 1.

ENB.PR.N is a FixedReset, 4.00%+265, that commenced trading 2012-7-17 after being announced 2012-7-9. It is tracked by HIMIPref™ and assigned to the “Scraps – FixedResets (Discount)” subindex, relegated there due to credit concerns.

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

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_fr_181109
Click for Big

The market appears to be becoming interested in floating rate product; the implied rates until the next interconversion are above the current 3-month bill rate as the averages for investment-grade and junk issues are at +2.11% and +1.78%, respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the ENB.PR.N FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for ENB.PR.N) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 2.50% 2.00% 1.50%
ENB.PR.N 19.87 265bp 19.93 19.45 18.98

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts, ENB.PR.N. Therefore I recommend that holders of ENB.PR.N continue to hold the issue and not to convert. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Those who wish to convert anyway are advised that the deadline for notifying the company of such a desire is 5:00 p.m. (EST) on November 16, 2018. Brokers and other intermediaries generally set their internal deadlines a day or two in advance of this date, so if you wish to convert there’s not much time to waste! Note that brokers will, in general, try to execute the instruction on a ‘best efforts’ basis if received between the two deadlines, provided that the procrastinating shareholder grovels entertainingly enough.

November 9, 2018

November 9th, 2018
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 -1.7388 % 3,063.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.7388 % 5,621.1
Floater 3.79 % 4.05 % 38,815 17.30 4 -1.7388 % 3,239.5
OpRet 0.00 % 0.00 % 0 0.00 0 0.1195 % 3,217.4
SplitShare 4.62 % 4.96 % 51,949 4.65 5 0.1195 % 3,842.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1195 % 2,997.9
Perpetual-Premium 5.67 % 5.09 % 82,127 14.20 12 0.0067 % 2,893.8
Perpetual-Discount 5.63 % 5.74 % 77,763 14.27 21 -0.3453 % 2,922.4
FixedReset Disc 4.40 % 5.36 % 156,068 15.07 46 -0.7519 % 2,480.9
Deemed-Retractible 5.33 % 6.54 % 69,990 5.19 27 -0.1436 % 2,911.3
FloatingReset 3.82 % 3.93 % 46,505 5.43 4 -0.9832 % 2,766.1
FixedReset Prem 4.96 % 4.59 % 234,237 3.04 34 -0.5845 % 2,530.5
FixedReset Bank Non 2.96 % 3.73 % 110,969 0.29 6 0.0069 % 2,578.4
FixedReset Ins Non 4.52 % 6.17 % 129,344 5.29 22 -0.7719 % 2,483.0
Performance Highlights
Issue Index Change Notes
EMA.PR.H FixedReset Prem -3.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 22.73
Evaluated at bid price : 23.85
Bid-YTW : 5.15 %
HSE.PR.G FixedReset Prem -3.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 22.85
Evaluated at bid price : 23.25
Bid-YTW : 6.32 %
HSE.PR.A FixedReset Disc -3.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 16.15
Evaluated at bid price : 16.15
Bid-YTW : 6.08 %
BAM.PR.K Floater -2.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 17.19
Evaluated at bid price : 17.19
Bid-YTW : 4.06 %
HSE.PR.E FixedReset Prem -2.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 23.06
Evaluated at bid price : 23.51
Bid-YTW : 6.29 %
GWO.PR.N FixedReset Ins Non -2.37 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.10
Bid-YTW : 9.06 %
BAM.PR.B Floater -2.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 17.20
Evaluated at bid price : 17.20
Bid-YTW : 4.06 %
BAM.PR.C Floater -2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 17.25
Evaluated at bid price : 17.25
Bid-YTW : 4.05 %
TRP.PR.C FixedReset Disc -2.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 16.55
Evaluated at bid price : 16.55
Bid-YTW : 5.71 %
SLF.PR.H FixedReset Ins Non -2.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.53
Bid-YTW : 7.48 %
BMO.PR.W FixedReset Disc -1.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 21.54
Evaluated at bid price : 21.90
Bid-YTW : 5.25 %
BMO.PR.T FixedReset Disc -1.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 21.61
Evaluated at bid price : 22.00
Bid-YTW : 5.27 %
TRP.PR.A FixedReset Disc -1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 5.69 %
MFC.PR.N FixedReset Ins Non -1.70 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.92
Bid-YTW : 7.15 %
W.PR.H Perpetual-Discount -1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 24.05
Evaluated at bid price : 24.30
Bid-YTW : 5.71 %
PWF.PR.P FixedReset Disc -1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 17.71
Evaluated at bid price : 17.71
Bid-YTW : 5.42 %
SLF.PR.J FloatingReset -1.52 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.76
Bid-YTW : 8.42 %
W.PR.J Perpetual-Discount -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 24.17
Evaluated at bid price : 24.43
Bid-YTW : 5.79 %
TRP.PR.F FloatingReset -1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 19.44
Evaluated at bid price : 19.44
Bid-YTW : 4.72 %
CU.PR.C FixedReset Disc -1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 5.30 %
MFC.PR.M FixedReset Ins Non -1.43 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.10
Bid-YTW : 7.12 %
TRP.PR.G FixedReset Disc -1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 22.69
Evaluated at bid price : 23.01
Bid-YTW : 5.72 %
BAM.PF.E FixedReset Disc -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 21.92
Evaluated at bid price : 22.48
Bid-YTW : 5.52 %
BMO.PR.S FixedReset Disc -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 21.89
Evaluated at bid price : 22.40
Bid-YTW : 5.28 %
W.PR.M FixedReset Prem -1.33 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-15
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 5.13 %
RY.PR.H FixedReset Disc -1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 21.76
Evaluated at bid price : 22.21
Bid-YTW : 5.24 %
TRP.PR.D FixedReset Disc -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 21.12
Evaluated at bid price : 21.12
Bid-YTW : 5.73 %
MFC.PR.Q FixedReset Ins Non -1.31 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.44
Bid-YTW : 6.15 %
BAM.PR.R FixedReset Disc -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 19.99
Evaluated at bid price : 19.99
Bid-YTW : 5.65 %
TD.PF.K FixedReset Prem -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 23.00
Evaluated at bid price : 24.55
Bid-YTW : 5.03 %
MFC.PR.F FixedReset Ins Non -1.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.48
Bid-YTW : 9.72 %
SLF.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 : 20.01
Bid-YTW : 8.84 %
BAM.PR.M Perpetual-Discount -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 20.21
Evaluated at bid price : 20.21
Bid-YTW : 5.97 %
PWF.PR.Q FloatingReset -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 21.20
Evaluated at bid price : 21.20
Bid-YTW : 3.93 %
PWF.PR.S Perpetual-Discount -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 21.28
Evaluated at bid price : 21.28
Bid-YTW : 5.69 %
MFC.PR.K FixedReset Ins Non -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.84
Bid-YTW : 7.38 %
MFC.PR.L FixedReset Ins Non -1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.59
Bid-YTW : 7.46 %
BAM.PF.B FixedReset Disc -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 22.14
Evaluated at bid price : 22.80
Bid-YTW : 5.56 %
SLF.PR.B Deemed-Retractible -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.29
Bid-YTW : 8.03 %
RY.PR.M FixedReset Disc -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 22.98
Evaluated at bid price : 23.31
Bid-YTW : 5.24 %
BIP.PR.E FixedReset Disc -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 22.51
Evaluated at bid price : 23.36
Bid-YTW : 5.72 %
CM.PR.S FixedReset Disc -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 22.57
Evaluated at bid price : 23.45
Bid-YTW : 5.09 %
IFC.PR.C FixedReset Ins Non -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.50
Bid-YTW : 6.31 %
BAM.PF.J FixedReset Prem 1.02 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-12-31
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 5.25 %
IFC.PR.E Deemed-Retractible 1.95 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.50
Bid-YTW : 6.54 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.O FixedReset Ins Non 80,175 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-06-19
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 4.48 %
BMO.PR.E FixedReset Prem 47,115 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 23.15
Evaluated at bid price : 24.97
Bid-YTW : 5.01 %
RY.PR.Q FixedReset Prem 41,790 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.77
Bid-YTW : 4.14 %
RY.PR.D Deemed-Retractible 41,000 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-09
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 3.24 %
TD.PF.G FixedReset Prem 36,400 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.99
Bid-YTW : 3.88 %
RY.PR.S FixedReset Disc 34,260 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 22.99
Evaluated at bid price : 24.57
Bid-YTW : 4.83 %
There were 20 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
EMA.PR.H FixedReset Prem Quote: 23.85 – 25.00
Spot Rate : 1.1500
Average : 0.6435

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 22.73
Evaluated at bid price : 23.85
Bid-YTW : 5.15 %

HSE.PR.G FixedReset Prem Quote: 23.25 – 24.20
Spot Rate : 0.9500
Average : 0.6321

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 22.85
Evaluated at bid price : 23.25
Bid-YTW : 6.32 %

BMO.PR.T FixedReset Disc Quote: 22.00 – 22.45
Spot Rate : 0.4500
Average : 0.2793

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 21.61
Evaluated at bid price : 22.00
Bid-YTW : 5.27 %

HSE.PR.E FixedReset Prem Quote: 23.51 – 24.04
Spot Rate : 0.5300
Average : 0.3625

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 23.06
Evaluated at bid price : 23.51
Bid-YTW : 6.29 %

BAM.PR.K Floater Quote: 17.19 – 17.62
Spot Rate : 0.4300
Average : 0.2831

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 17.19
Evaluated at bid price : 17.19
Bid-YTW : 4.06 %

W.PR.H Perpetual-Discount Quote: 24.30 – 24.80
Spot Rate : 0.5000
Average : 0.3611

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-09
Maturity Price : 24.05
Evaluated at bid price : 24.30
Bid-YTW : 5.71 %

November 8, 2018

November 8th, 2018
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 -0.5363 % 3,117.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.5363 % 5,720.6
Floater 3.73 % 3.94 % 38,609 17.52 4 -0.5363 % 3,296.8
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1194 % 3,213.6
SplitShare 4.63 % 4.97 % 52,221 4.65 5 -0.1194 % 3,837.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1194 % 2,994.3
Perpetual-Premium 5.67 % 5.07 % 66,397 14.21 12 0.0000 % 2,893.6
Perpetual-Discount 5.61 % 5.71 % 75,328 14.32 21 0.2680 % 2,932.6
FixedReset Disc 4.37 % 5.35 % 158,278 15.11 46 -0.3388 % 2,499.7
Deemed-Retractible 5.32 % 6.89 % 71,233 5.19 27 -0.0758 % 2,915.5
FloatingReset 3.78 % 3.88 % 46,794 5.45 4 -0.0710 % 2,793.6
FixedReset Prem 4.93 % 4.52 % 235,493 3.05 34 -0.1103 % 2,545.4
FixedReset Bank Non 2.96 % 3.69 % 108,222 0.29 6 0.0274 % 2,578.3
FixedReset Ins Non 4.49 % 6.00 % 126,626 5.30 22 -0.2580 % 2,502.3
Performance Highlights
Issue Index Change Notes
TRP.PR.B FixedReset Disc -4.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 15.91
Evaluated at bid price : 15.91
Bid-YTW : 5.68 %
HSE.PR.C FixedReset Disc -2.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 22.54
Evaluated at bid price : 23.02
Bid-YTW : 6.01 %
BAM.PF.J FixedReset Prem -2.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 23.03
Evaluated at bid price : 24.45
Bid-YTW : 5.46 %
TRP.PR.E FixedReset Disc -2.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 21.29
Evaluated at bid price : 21.29
Bid-YTW : 5.64 %
SLF.PR.G FixedReset Ins Non -1.68 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.78
Bid-YTW : 8.76 %
TRP.PR.A FixedReset Disc -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 19.33
Evaluated at bid price : 19.33
Bid-YTW : 5.60 %
IFC.PR.A FixedReset Ins Non -1.56 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.50
Bid-YTW : 8.31 %
IFC.PR.E Deemed-Retractible -1.45 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.05
Bid-YTW : 6.92 %
BAM.PF.C Perpetual-Discount -1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 20.62
Evaluated at bid price : 20.62
Bid-YTW : 5.97 %
TRP.PR.C FixedReset Disc -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 16.89
Evaluated at bid price : 16.89
Bid-YTW : 5.61 %
PWF.PR.A Floater -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 21.28
Evaluated at bid price : 21.28
Bid-YTW : 3.24 %
IAG.PR.I FixedReset Ins Non -1.31 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.15
Bid-YTW : 5.69 %
TRP.PR.F FloatingReset -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 19.73
Evaluated at bid price : 19.73
Bid-YTW : 4.65 %
TRP.PR.G FixedReset Disc -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 23.01
Evaluated at bid price : 23.34
Bid-YTW : 5.65 %
CU.PR.D Perpetual-Discount -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 21.85
Evaluated at bid price : 21.85
Bid-YTW : 5.62 %
IFC.PR.C FixedReset Ins Non 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.73
Bid-YTW : 6.12 %
PWF.PR.K Perpetual-Discount 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 21.43
Evaluated at bid price : 21.69
Bid-YTW : 5.74 %
POW.PR.B Perpetual-Discount 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 23.13
Evaluated at bid price : 23.39
Bid-YTW : 5.77 %
GWO.PR.R Deemed-Retractible 1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.70
Bid-YTW : 7.65 %
PWF.PR.S Perpetual-Discount 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 21.53
Evaluated at bid price : 21.53
Bid-YTW : 5.62 %
PWF.PR.Q FloatingReset 1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 21.45
Evaluated at bid price : 21.45
Bid-YTW : 3.88 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.R FixedReset Prem 515,200 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 24.94
Bid-YTW : 4.53 %
CM.PR.O FixedReset Disc 50,596 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 21.97
Evaluated at bid price : 22.53
Bid-YTW : 5.24 %
CM.PR.S FixedReset Disc 41,999 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 22.69
Evaluated at bid price : 23.69
Bid-YTW : 5.04 %
RY.PR.H FixedReset Disc 41,393 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 21.95
Evaluated at bid price : 22.51
Bid-YTW : 5.17 %
BIP.PR.B FixedReset Prem 41,200 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 4.93 %
CU.PR.C FixedReset Disc 38,893 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 21.47
Evaluated at bid price : 21.82
Bid-YTW : 5.21 %
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.J FixedReset Prem Quote: 24.45 – 25.22
Spot Rate : 0.7700
Average : 0.4816

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 23.03
Evaluated at bid price : 24.45
Bid-YTW : 5.46 %

PWF.PR.A Floater Quote: 21.28 – 22.00
Spot Rate : 0.7200
Average : 0.4739

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 21.28
Evaluated at bid price : 21.28
Bid-YTW : 3.24 %

CU.PR.D Perpetual-Discount Quote: 21.85 – 22.40
Spot Rate : 0.5500
Average : 0.3199

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 21.85
Evaluated at bid price : 21.85
Bid-YTW : 5.62 %

BAM.PF.C Perpetual-Discount Quote: 20.62 – 21.25
Spot Rate : 0.6300
Average : 0.4294

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 20.62
Evaluated at bid price : 20.62
Bid-YTW : 5.97 %

HSE.PR.C FixedReset Disc Quote: 23.02 – 23.99
Spot Rate : 0.9700
Average : 0.7827

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 22.54
Evaluated at bid price : 23.02
Bid-YTW : 6.01 %

TRP.PR.B FixedReset Disc Quote: 15.91 – 16.46
Spot Rate : 0.5500
Average : 0.3782

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-11-08
Maturity Price : 15.91
Evaluated at bid price : 15.91
Bid-YTW : 5.68 %

BSD.PR.A – Selling Opportunity?

November 8th, 2018

It is the time of year for the annual retraction privilege for BSD.UN Capital Units and the Whole Units:

Concurrent Annual Redemption: A Unitholder who surrenders a Capital Unit together with a Preferred Security will receive an amount equal to the Redemption Proceeds Per Combined Security minus an amount equal to the aggregate of all brokerage fees, commissions and other costs incurred by the Trust in connection with such payment, including, but not limited to, expenses incurred in liquidating underlying Portfolio securities and securities movement charges.

Annual Redemption of Capital Units: A Unitholder who surrenders a Capital Unit for redemption (without surrendering a corresponding Preferred Security for repayment) will receive an amount equal to the Redemption Proceeds Per Combined Security, minus the price paid by the Trust for one Preferred Security in the market or, if the Trust is unable to purchase a Preferred Security in the market, pursuant to the Call Right (as hereinafter defined), and minus an amount equal to the aggregate of all brokerage fees, commissions and other costs incurred by the Trust in connection with such payment, including, but not limited to, expenses incurred in liquidating underlying Portfolio securities, securities movement charges and costs relating to the purchase of one Preferred Security. The price paid by the Trust for Preferred Securities in the market may be higher than the price the Trust would pay if it redeemed Preferred Securities pursuant to the Call Right.

The Preferred Securities don’t get the ‘naked’ privilege – they can only be retracted as part of a Whole Unit.

This means that a surplus of Capital Unit retractions can be expected; the only practical question is the degree of the surplus:

In 2017, unitholders tendered 81,978 combined securities (2016 – 139,491 combined securities) (being one capital unit and a $10.00 principal amount of preferred securities) and 88,614 capital units (2016 – 155,236 capital units) were tendered alone. In accordance with the Declaration of Trust, 88,614 preferred securities (2016 – 155,236 preferred securities) were purchased in the market at a total price of $914,253 (2016 – $1,574,295) to match the capital units tendered alone, and total redemption proceeds of $1,154,257 (2016 – $1,989,918) were paid to settle the capital units and combined securities surrendered through the redemption process.

Performance has long been an issue with this fund, and in the 2017 Annual Report it was stated:

If interest on the preferred securities are included, the return based on NAV of the combined units for the twelve-month period ended December 31, 2017 is positive 1.55%. During the same timeframe the S&P/TSX Composite increased 9.10%.

Sadly, but understandably, the company did not disclose Whole Unit performance for a longer period; only for the components, as required by regulations. But performance is horrible, as illustrated by the following table for the Capital Units:

Capital Units
  2017 2016 3-Year 5-Year Since
Inception
Trust – Net asset value (17.1%) 298.2% (4.5%) (0.9%) (14.1%)
Trust – Total return, including distributions (17.1%) 298.2% (4.5%) (0.9%) (6.0%)
S&P/TSX Composite Return Index 9.1% 21.1% 6.6% 8.6% 7.5

Amusingly, the above table includes the preceding year, a decidedly non-standard presentation. I can only suppose the Manager wanted to highlight his one good year … but rational investors will look at the longer term periods, which include that run of luck, laugh and move on.

However, it seems likely that there will be quite a few Capital Unit retractions this year. given that the Capital Unit NAV has declined from 1.98 on 2017-12-29 to 0.83 on 2018-11-2, while income on these units is … sporadic:

On October 23, 2008, the Trust announced that it was suspending its distributions on its capital units, in accordance with its Declaration of Trust, as the Trust’s net asset value was below the required 1.4 times coverage ratio. The distribution was suspended for the remainder of 2008 and was suspended for each month from January 2009 to January 2011. On February 17, 2011, when it was anticipated that a distribution could be paid without violating the 1.4 times coverage ratio, a quarterly distribution of $0.01 per capital unit was declared, reflecting a current annualized rate of $0.04 per unit. Subsequent to the June 2011 payment, the Trust suspended the distribution.

So, there might be a lot of naked Capital Unit retractions in the works, which – if true – will give rise to a fair amount of buying pressure for the highly illiquid BSD.PR.A shares. Shareholders who are – quite justifiably – getting nervous about the prospects for default on the scheduled maturity date of 2020-3-31 (there is also a “Preferred Special Repayment Right” in case they get extended again), may wish to watch the market closely for signs that demand forced by Capital Unit retractions is outpacing supply. At the moment the quote is 9.65-84, 200×176, a reasonably rational level but huge size considering the average trading volume on this instrument.

As an aside, I note that the manager charged management fees of 273,655 in 2017, which is nice work if you can get it.

Long time Assiduous Readers will remember that I was outraged when the company decided to suspend retractions; I am pleased to pass on the news that:

On March 16, 2015, the Trust announced that the annual redemption right available to preferred securities (together with an equal number of capital units) in November of each year would no longer be suspended in circumstances where the asset coverage on the preferred securities is less than 1.4 times. Recent changes in applicable securities laws have resulted in the Trust terminating the suspension of the annual redemption right in these circumstances.

A change in applicable securities laws. Sometimes even a blind squirrel can find the nut.