BCE.PR.K Firm on Excellent Volume

July 6th, 2011

BCE Inc. has announced:

that it has closed its previously announced public offering of Cumulative Redeemable First Preferred Shares, Series AK (series AK preferred shares), by a syndicate of underwriters led by CIBC World Markets Inc., RBC Dominion Securities Inc. and Scotia Capital Inc. As a result of the underwriters exercising in full their option to purchase an additional 1,800,000 series AK preferred shares, BCE issued 13,800,000 series AK preferred shares for gross proceeds of $345 million. The series AK preferred shares will begin trading on the TSX today under the symbol BCE.PR.K.

The series AK preferred shares will pay on a quarterly basis (with the first quarterly dividend to be paid September 30, 2011), for the initial fixed rate period ending December 30, 2016, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual fixed dividend rate of 4.15%. The dividend rate will be reset on December 31, 2016 and every five years thereafter at a rate equal to the 5-year Government of Canada bond yield plus 1.88%. The series AK preferred shares will be redeemable by the issuer on December 31, 2016 and on December 31 every five years thereafter, in accordance with their terms.

Holders of the series AK preferred shares will have the right, at their option, to convert their shares into Cumulative Redeemable First Preferred Shares, Series AL, (series AL preferred shares) subject to certain conditions, on December 31, 2016 and on December 31 every five years thereafter. Holders of the series AL preferred shares will be entitled to receive quarterly floating adjustable cash dividends as and when declared by the Board of Directors of BCE, at a rate equal to the three-month Government of Canada Treasury Bill yield plus 1.88%.

The net proceeds of this offering will be used for general corporate purposes.

BCE.PR.K is a FixedReset, 4.15%+188, announced June 20. It is tracked by HIMIPref™, but has been relegated to the Scraps index on credit concerns.

BCE.PR.K traded 558,795 shares today in a range of 24.74-99 before closing at 24.98-99, 8×17. Vital statisics are:

BCE.PR.K FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-07-05
Maturity Price : 23.13
Evaluated at bid price : 24.98
Bid-YTW : 4.02 %

FCS.PR.B Credit Quality to Deteriorate

July 6th, 2011

Faircourt Asset Management has announced:

that 164,456 Combined Units (consisting of one Trust Unit and one Preferred Security) and 1,399,639 Trust Units (without matching Preferred Securities) were submitted for redemption on May 31, 2011. Securityholders who tendered Combined Units for redemption will be entitled to receive $17.3310 per Combined Unit, which is equal to $7.3173, being the Net Asset Value per Trust Unit calculated using a three day volume weighted average price for exchange-traded securities held by the Trust, determined as of June 30, 2011 less costs of funding the redemption, including commissions, plus the $10.00 principal amount of the Preferred Security, plus all accrued and unpaid interest thereon to but excluding July 8, 2011 (the “Payment Date”). Securityholders who submitted unmatched Trust Units will receive $7.3173 per Trust Unit. Payment in respect of the redemptions of Combined Units and unmatched Trust Units will be made in full on the Payment Date.

The Manager also announced that effective June 30, 2011, NAV per Trust Unit has been reduced by $0.21 as a result of a corporate action involving one of the Trust’s investments having been improperly reflected in the NAV.

Faircourt Split Trust is an odd beast among Split Share Corporations because the number of preferred shares outstanding is not set equal to the number of capital shares. The unmatched retraction of 1,399,639 Trust Units represents over one-quarter of the 5,302,037 Trust Units outstanding on 2010-12-31.

The Asset Coverage on 2010-12-31 was about 1.57:1; applying the May 31 retraction on a pro-forma basis as of that date results in a pro-forma Asset Coverage of about 1.42:1.

FCS.PR.B was last mentioned on PrefBlog when it was exchanged from FCS.PR.A. FCS.PR.B is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

July 4, 2011

July 4th, 2011

Nortel’s carcass is worth big bucks:

Apple Inc. (AAPL) joined with rivals Microsoft Corp. (MSFT) and Research in Motion Ltd. (RIM) to outbid Google Inc. (GOOG) for a patent portfolio from Nortel Networks Corp. and gain rights to technologies for mobile phones and tablet computers.

The group, which also includes Sony Corp. (6758), Ericsson AB and EMC Corp., agreed to pay $4.5 billion in cash for the assets, Ontario-based Nortel said in a statement. The companies aim to complete the sale this quarter pending approval from U.S. and Canadian courts, it said.

The purchase will give Apple, RIM and their bidding partners control over more than 6,000 patents and applications that cover wireless and Internet technologies. The winning offer came after several rounds of bidding and was five times the $900 million Google had offered before the auction for Nortel’s remaining intellectual property.

Nortel, which filed for bankruptcy in 2009, fetched more for the patents than the $3 billion it had previously raised by selling almost all its businesses. RIM, maker of the BlackBerry smartphone, will pay about $770 million for its share of the patents, the Waterloo, Ontario-based company said in a statement. Ericsson will pay $340 million, the Stockholm-based networking-equipment maker said. Steve Dowling, a spokesman for Apple, declined to comment beyond the Nortel statement.

The Greek problem has been papered over – at least for now:

The euro area approved its share of a 12 billion-euro ($17.4 billion) aid payment for Greece and pledged to complete work in the coming weeks on a second rescue package for the cash-strapped nation to prevent a default and contagion.

Finance ministers agreed to disburse 8.7 billion euros of loans under last year’s 110 billion-euro bailout, rewarding Greek Premier George Papandreou for pushing an extra austerity plan through parliament. The International Monetary Fund is due to provide the rest of the July aid installment, the fifth under the 2010 package.

The spotlight now turns to a second bailout to which banks and insurers plan to contribute following German demands for taxpayer relief. Euro-area governments and investors will provide 70 percent of new aid that may total as much as 85 billion euros, with the IMF offering the rest, Thomas Wieser, an Austrian Finance Ministry official, said on June 30.

S&P will likely label a Greek term extension as a selective default:

In summary, the growing risk that the Hellenic Republic might engage in a distressed debt restructuring was one of the reasons we lowered its rating on June 13 (see, “Long-term Sovereign Rating On Greece Cut To ‘CCC’; Outlook
Negative”). While we would likely view the FBF proposal, if it proceeds in its current form, as an effective default, we recognize that it is just one of a number of proposals attempting to address the Greek government’s 2011-2014 financing needs and the sustainability of its future debt burden. We
understand that the FBF proposal may change, and it is possible that it could take a form that results in a different rating outcome. Regardless of whether the current FBF proposal is implemented, however, we continue to believe the Hellenic Republic’s uncertain ability to implement the revised EU/IMF program
is a key risk weighing on its credit standing.

This has European shorts in a knot:

That may leave the European Central Bank unable to accept Greek government debt as collateral, impairing the lifeline it has provided the country’s banks.

“It sends all the officials and banks back to drawing board to think something new,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG in Frankfurt. “The ECB is saying it won’t accept debt in a default. Someone needs to give in — either Germany or the ratings agencies or the ECB. One of three will have to compromise.”

Despite all this, Greek notes had a good day:

Greek two-year note yield dropped below 26 percent for the first time since June 14.

Greek two-year yields slid 73 points to 26.11 percent, at one point dipping to 25.76 percent. The cost of insuring Greek debt against default rose four basis points to 1,865, signaling 80 percent odds the country will miss a bond payment in five years. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed four basis points to 222. The euro slipped 0.1 percent against the dollar and the yen.

There’s a new chapter in the Sino-Forest saga:

Sino-Forest Corp. (TRE), the Chinese tree- plantation operator accused by a short seller of overstating timber holdings, climbed in Toronto after Wellington Management Co. said it owned 11.5 percent of the company.

Sino-Forest rose as much as 56 percent after the Boston- based investment firm said in a regulatory filing it held 28.3 million shares as of June 30. Wellington, which manages $663 billion, held 79,700 Sino-Forest shares, or 0.03 percent, as of Dec. 31, according to data compiled by Bloomberg.

I just finished reading The Taste of Conquest by Michael Krondl. Excellent, and a worthy companion to William Bernstein’s A Splendid Exchange.

After our beloved mayor turned down a chance to say hello to umpteen thousand tourists with deep pockets, another councillor suggested cutting off funds for the city’s #2 tourist event – even if it means #1 will become collateral damage. Meanwhile, crappy pseudo-festivals organized by the well-connected get megabucks. Just what exactly do we need to do in this city to get a competent, pro-business administration?

The month – and the quarter – started off on an upbeat for the Canadian preferred share market, with PerpetualDiscounts gaining 4bp, FixedResets up 11bp and DeemedRetractibeswinning 21bp. Decent volatility, volume was average. RBC had a nice day.

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 -0.7310 % 2,427.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.7310 % 3,650.4
Floater 2.49 % 2.29 % 41,234 21.50 4 -0.7310 % 2,620.7
OpRet 4.87 % 2.80 % 65,221 1.82 9 0.1762 % 2,435.7
SplitShare 5.24 % 1.94 % 55,392 0.64 6 0.0579 % 2,508.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1762 % 2,227.3
Perpetual-Premium 5.68 % 5.08 % 140,533 1.28 13 0.1922 % 2,083.7
Perpetual-Discount 5.45 % 5.47 % 118,489 14.66 17 0.0398 % 2,188.0
FixedReset 5.17 % 3.26 % 217,727 2.69 57 0.1090 % 2,311.8
Deemed-Retractible 5.08 % 4.86 % 277,383 8.14 47 0.2105 % 2,155.9
Performance Highlights
Issue Index Change Notes
PWF.PR.A Floater -2.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-07-04
Maturity Price : 22.49
Evaluated at bid price : 22.75
Bid-YTW : 2.29 %
IGM.PR.B Perpetual-Premium 1.03 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 5.57 %
BAM.PR.O OpRet 1.06 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.77
Bid-YTW : 3.44 %
CM.PR.I Deemed-Retractible 1.14 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.88
Bid-YTW : 4.74 %
BAM.PR.R FixedReset 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-07-04
Maturity Price : 23.42
Evaluated at bid price : 25.85
Bid-YTW : 4.48 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.S FixedReset 355,342 RBC crossed four blocks: 275,000 shares, 25,000 shares, 30,000 and 20,000, all at 26.15.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.12
Bid-YTW : 3.21 %
TD.PR.Q Deemed-Retractible 246,500 RBC crossed 240,000 at 26.29.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-01-31
Maturity Price : 25.25
Evaluated at bid price : 26.40
Bid-YTW : 4.69 %
BNS.PR.T FixedReset 130,550 RBC crossed four blocks: two of 50,000 each, 15,000 shares and 10,000, all at 27.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-25
Maturity Price : 25.00
Evaluated at bid price : 27.19
Bid-YTW : 2.84 %
MFC.PR.D FixedReset 101,202 RBC crossed 99,900 at 27.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 27.12
Bid-YTW : 3.68 %
RY.PR.R FixedReset 83,900 TD crossed 69,900 at 27.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 27.20
Bid-YTW : 3.05 %
SLF.PR.F FixedReset 79,600 RBC bought 25,000 from Scotia at 26.90, then crossed 41,900 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.80
Bid-YTW : 3.49 %
There were 31 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.A Floater Quote: 22.75 – 23.40
Spot Rate : 0.6500
Average : 0.4243

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-07-04
Maturity Price : 22.49
Evaluated at bid price : 22.75
Bid-YTW : 2.29 %

BNS.PR.Z FixedReset Quote: 24.85 – 25.50
Spot Rate : 0.6500
Average : 0.4787

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.85
Bid-YTW : 3.69 %

SLF.PR.F FixedReset Quote: 26.80 – 27.24
Spot Rate : 0.4400
Average : 0.3017

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.80
Bid-YTW : 3.49 %

TRP.PR.B FixedReset Quote: 25.18 – 25.51
Spot Rate : 0.3300
Average : 0.1928

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-07-04
Maturity Price : 23.31
Evaluated at bid price : 25.18
Bid-YTW : 3.46 %

TRP.PR.C FixedReset Quote: 25.50 – 25.88
Spot Rate : 0.3800
Average : 0.2549

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-07-04
Maturity Price : 23.35
Evaluated at bid price : 25.50
Bid-YTW : 3.68 %

TCA.PR.Y Perpetual-Premium Quote: 50.10 – 50.39
Spot Rate : 0.2900
Average : 0.1941

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-05
Maturity Price : 50.00
Evaluated at bid price : 50.10
Bid-YTW : 5.37 %

LSC.PR.C: Partial Call for Redemption

July 4th, 2011

Lifeco Split Corporation, sponsored by Scotia Managed Companies, has announced:

that it has called 34,146 Preferred Shares for cash redemption on July 29, 2011 (in accordance with the Company’s Articles) representing approximately 11.435% of the outstanding Preferred Shares as a result of the special annual retraction of 68,292 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on July 28, 2011 will have approximately 11.435% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $36.84 per share.

Holders of Preferred Shares that are on record for dividends but have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to but not including July 29, 2011.

Payment of the amount due to holders of Preferred Shares will be made by the Company on July 29, 2011. From and after July 29, 2011 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

Lifeco Split Corporation Inc. is a mutual fund corporation created to hold a portfolio of common shares of selected publicly listed Canadian life insurance companies. Capital Shares and Preferred Shares of Lifeco Split Corporation Inc. are listed for trading on The Toronto Stock Exchange under the symbols LSC and LSC.PR.C respectively.

LSC.PR.C was last mentioned on PrefBlog when there was a partial redemption and change of terms last year. LSC.PR.C is not tracked by HIMIPref™.

MAPF Performance: June 2011

July 3rd, 2011

The fund had a poor month, dragged down by its holdings in YLO preferreds and SLF DeemedRetractibles.

Some Preferred Share Returns
5/31 – 6/30
Ticker Performance Percentage of
MAPF Holdings
5/31
SLF.PR.A -1.61% 0
SLF.PR.B -2.26% 0
SLF.PR.C -2.17% 7.3
SLF.PR.D -1.87% 6.9
SLF.PR.E -1.77% 5.5
YLO.PR.A -1.23% 0
YLO.PR.B -6.88% 2.0
YLO.PR.C -7.61% 1.7
YLO.PR.D -9.61% 0

This is unfortunate, but bound to happen from time to time. The fund has taken advantage of the drops in price, and of cash flows, to top up its holdings of both issuers.

I estimate the effect on returns of the fund due to holdings of YLO preferreds to be about -0.23% for the month; for the quarter, -1.12%. It would have been a good quarter without them! However, until I can figure out just what exactly is so horrible about the credit quality of the YLO preferreds, the fund will continue to hold them – in a proportion dictated by the recognition that although these issues are “good junk”, they are still junk and exposure should be held within prudent limits.

The fund’s Net Asset Value per Unit as of the close June 30 was $11.1194 after a dividend distribution of 0.137607.

Returns to June 30, 2011
Period MAPF Index CPD
according to
Claymore
One Month -0.64% -0.02% -0.01%
Three Months +1.82% +2.17% +1.31%
One Year +19.69% +14.23% +10.45%
Two Years (annualized) +20.21% +13.45% N/A
Three Years (annualized) +27.13% +8.71% +6.22%
Four Years (annualized) +18.39% +5.29%  
Five Years (annualized) +15.64% +4.15%  
Six Years (annualized) +13.71% +3.91%  
Seven Years (annualized) +13.14% +4.28%  
Eight Years (annualized) +14.03% +4.28%  
Nine Years (annualized) +13.24% +4.68%  
Ten Years (annualized) +13.45% +4.53%  
The Index is the BMO-CM “50”
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
CPD Returns are for the NAV and are after all fees and expenses.
* CPD does not directly report its two-year returns.
Figures for Omega Preferred Equity (which are after all fees and expenses) for 1-, 3- and 12-months are -0.03%, +1.48% and +11.51%, respectively, according to Morningstar after all fees & expenses. Three year performance is +7.18%.
Figures for Jov Leon Frazer Preferred Equity Fund Class I Units (which are after all fees and expenses) for 1-, 3- and 12-months are +0.13%, +0.80% and +6.69% respectively, according to Morningstar
Figures for Manulife Preferred Income Fund (formerly AIC Preferred Income Fund) (which are after all fees and expenses) for 1-, 3- and 12-months are -0.00%, +1.78% & +8.02%, respectively
Figures for Horizons AlphaPro Preferred Share ETF are not yet available (inception date 2010-11-23)

MAPF returns assume reinvestment of dividends, and are shown after expenses but before fees. Past performance is not a guarantee of future performance. You can lose money investing in Malachite Aggressive Preferred Fund or any other fund. For more information, see the fund’s main page. The fund is available either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited.

Sometimes everything works … sometimes the trading works, but sectoral shifts overwhelm the increment … sometimes nothing works. The fund seeks to earn incremental return by selling liquidity (that is, taking the other side of trades that other market participants are strongly motivated to execute), which can also be referred to as ‘trading noise’. There were a lot of strongly motivated market participants during the Panic of 2007, generating a lot of noise! Unfortunately, the conditions of the Panic may never be repeated in my lifetime … but the fund will simply attempt to make trades when swaps seem profitable, without worrying about the level of monthly turnover.

There’s plenty of room for new money left in the fund. I have shown in recent issues of PrefLetter that market pricing for FixedResets is demonstrably stupid and I have lots of confidence – backed up by my bond portfolio management experience in the markets for Canadas and Treasuries, and equity trading on the NYSE & TSX – that there is enough demand for liquidity in any market to make the effort of providing it worthwhile (although the definition of “worthwhile” in terms of basis points of outperformance changes considerably from market to market!) I will continue to exert utmost efforts to outperform but it should be borne in mind that there will almost inevitably be periods of underperformance in the future.

The yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW
Leverage
Divisor
Securities
Average
YTW
Capital
Gains
Multiplier
Sustainable
Income
per
current
Unit
June, 2007 9.3114 5.16% 1.03 5.01% 1.2857 0.3628
September 9.1489 5.35% 0.98 5.46% 1.2857 0.3885
December, 2007 9.0070 5.53% 0.942 5.87% 1.2857 0.4112
March, 2008 8.8512 6.17% 1.047 5.89% 1.2857 0.4672
June 8.3419 6.034% 0.952 6.338% 1.2857 $0.4112
September 8.1886 7.108% 0.969 7.335% 1.2857 $0.4672
December, 2008 8.0464 9.24% 1.008 9.166% 1.2857 $0.5737
March 2009 $8.8317 8.60% 0.995 8.802% 1.2857 $0.6046
June 10.9846 7.05% 0.999 7.057% 1.2857 $0.6029
September 12.3462 6.03% 0.998 6.042% 1.2857 $0.5802
December 2009 10.5662 5.74% 0.981 5.851% 1.0819 $0.5714
March 2010 10.2497 6.03% 0.992 6.079% 1.0819 $0.5759
June 10.5770 5.96% 0.996 5.984% 1.0819 $0.5850
September 11.3901 5.43% 0.980 5.540% 1.0819 $0.5832
December 2010 10.7659 5.37% 0.993 5.408% 1.0000 $0.5822
March, 2011 11.0560 6.00% 0.994 5.964% 1.0000 $0.6594
June, 2011 11.1194 5.87% 1.018 5.976% 1.0000 $0.6645
NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains.
Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00%
The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99
Securities YTW divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings.
The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested.
Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company (definition refined in May). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31, in addition to the call schedule explicitly defined. See OSFI Does Not Grandfather Extant Tier 1 Capital, CM.PR.D, CM.PR.E, CM.PR.G: Seeking NVCC Status and the January, February, March and June, 2011, editions of PrefLetter for the rationale behind this analysis.

Significant positions were held in DeemedRetractible and FixedReset issues on June 30; all of the former and most of the latter currently have their yields calculated with the presumption that they will be called by the issuers at par prior to 2022-1-31. This presents another complication in the calculation of sustainable yield. The fund also holds a position in a SplitShare (BNA.PR.C) and an OperatingRetractible Scrap (YLO.PR.B) which also have their yields calculated with the expectation of a maturity.

However, if the entire portfolio except for the PerpetualDiscounts were to be sold and reinvested in these issues, the yield of the portfolio would be the 5.65% shown in the MAPF Portfolio Composition: May 2011 analysis (which is greater than the 5.48% index yield on June 30). Given such reinvestment, the sustainable yield would be $11.1194 * 0.0565 = $0.6282, a decrease from the $11.3297 * 0.0568 = $0.6435 reported in May; about half the decrease over the month is due simply to the distribution of the dividend.

Different assumptions lead to different results from the calculation, but the overall positive trend is apparent. I’m very pleased with the results! It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

  • the very good performance against the index
  • the long term increases in sustainable income per unit

As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance is due to constant exploitation of trading anomalies.

Again, there are no predictions for the future! The fund will continue to trade between issues in an attempt to exploit market gaps in liquidity, in an effort to outperform the index and keep the sustainable income per unit – however calculated! – growing.

MAPF Portfolio Composition: June 2011

July 3rd, 2011

Turnover declined to a trickle in June, to about 3%.

Trades were, as ever, triggered by a desire to exploit transient mispricing in the preferred share market (which may be thought of as “selling liquidity”), rather than any particular view being taken on market direction, sectoral performance or credit anticipation.

MAPF Sectoral Analysis 2011-6-30
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 9.2% (0) 6.47% 6.25
Interest Rearing 0% N/A N/A
PerpetualPremium 0.0% (0) N/A N/A
PerpetualDiscount 11.3% (-1.2) 5.65% 14.45
Fixed-Reset 9.4% (-0.8) 3.12% 2.61
Deemed-Retractible 59.2% (+1.7) 5.89% 8.16
Scraps (Various) 9.2% (-0.5) 9.45% 8.76
Cash +1.8% (+0.9) 0.00% 0.00
Total 100% 5.87% 8.08
Totals and changes will not add precisely due to rounding. Bracketted figures represent change from May month-end. Cash is included in totals with duration and yield both equal to zero.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31, in addition to the call schedule explicitly defined. See OSFI Does Not Grandfather Extant Tier 1 Capital, CM.PR.D, CM.PR.E, CM.PR.G: Seeking NVCC Status and the January, February, March and June, 2011, editions of PrefLetter for the rationale behind this analysis.

The “total” reflects the un-leveraged total portfolio (i.e., cash is included in the portfolio calculations and is deemed to have a duration and yield of 0.00.). MAPF will often have relatively large cash balances, both credit and debit, to facilitate trading. Figures presented in the table have been rounded to the indicated precision.

Credit distribution is:

MAPF Credit Analysis 2011-6-30
DBRS Rating Weighting
Pfd-1 0 (0)
Pfd-1(low) 48.5% (+1.4)
Pfd-2(high) 22.0% (-0.7)
Pfd-2 0 (0)
Pfd-2(low) 20.3% (+0.7)
Pfd-3(high) 6.4% (-0.1)
Pfd-3 2.8% (-0.4)
Cash +1.8% (+0.9)
Totals will not add precisely due to rounding. Bracketted figures represent change from May month-end.
A position held in ELF preferreds has been assigned to Pfd-2(low)

Liquidity Distribution is:

MAPF Liquidity Analysis 2011-6-30
Average Daily Trading Weighting
<$50,000 5.5% (-1.3)
$50,000 – $100,000 19.6% (+8.6)
$100,000 – $200,000 23.3% (-12.8)
$200,000 – $300,000 16.6% (+1.3)
>$300,000 33.2% (+3.3)
Cash +1.8% (+0.9)
Totals will not add precisely due to rounding. Bracketted figures represent change from May month-end.

MAPF is, of course, Malachite Aggressive Preferred Fund, a “unit trust” managed by Hymas Investment Management Inc. Further information and links to performance, audited financials and subscription information are available the fund’s web page. The fund may be purchased either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited. A “unit trust” is like a regular mutual fund, but is sold by offering memorandum rather than prospectus. This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission) or those who subscribe for $150,000+. Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.

A similar portfolio composition analysis has been performed on the Claymore Preferred Share ETF (symbol CPD) as of August 31, 2010, and published in the September, 2010, PrefLetter. While direct comparisons are difficult due to the introduction of the DeemedRetractible class of preferred share (see above) it is fair to say:

  • MAPF credit quality is better
  • MAPF liquidity is a higher
  • MAPF Yield is higher
  • Weightings in
    • MAPF is much more exposed to DeemedRetractibles
    • MAPF is much less exposed to Operating Retractibles
    • MAPF is slightly more exposed to SplitShares
    • MAPF is less exposed to FixFloat / Floater / Ratchet
    • MAPF weighting in FixedResets is much lower

WFS.PR.A Credit Quality Improves after Massive Retraction

July 2nd, 2011

Mulvihill Asset Management has announced:

In connection with the special retraction right granted to shareholders pursuant to the extension of the term of the Company approved by shareholders on May 31, 2011, the Company is announcing a consolidation of the Class A shares effective the opening of trading on July 4, 2011. The consolidation will ensure that an equal number of Class A shares and Preferred shares are outstanding subsequent to the special retraction. Each Class A shareholder will receive 0.562426082 Class A shares for each Class A share held. The total value of a shareholder’s investment will not change, however, the number of Class A shares reflected in the shareholder’s account will decline and the net asset value per share will increase proportionately. Investors are advised that the CUSIP number will change to 98146P301. No fractional shares will be issued and shareholders are not required to take any action for the consolidation to be effective.

Given that the Whole Unit NAV on June 23 was only 10.58, even the retraction of nearly half of the preferred shares and consolidation of the capital units doesn’t help much: asset coverage will still be only about 1.1:1 following the reorganization.

WFS.PR.A was last discussed on PrefBlog in the post WFS.PR.A Term Extension Approved. WFS.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

June 30, 2011

July 1st, 2011

Looks like some people think the LSE’s not a bad partner:

The biggest rally in three months for Nasdaq OMX Group Inc. (NDAQ) may be the clearest sign yet that investors expect the New York-based exchange operator to buy London Stock Exchange Group Plc. (LSE)

Nasdaq OMX gained 4.7 percent to $25.14 yesterday, climbing the most since April 1, after LSE dropped its offer for TMX Group Inc. (X), saying too few shareholders supported the C$3.32 billion ($3.4 billion) merger. The gain in Nasdaq OMX was the largest since the day it announced a plan to buy NYSE Euronext with IntercontinentalExchange Inc. (ICE), and signals speculation the company will expand with LSE, according to Capstone Holdings Group LLC and Aite Group LLC.

Julie Dickson gave a speech to to the Canadian Institute of Actuaries Annual Meeting 2011; there were two snippets of interest:

Regulators are increasingly considering the adequacy of group capital. This brings into question the risks entailed by non-regulated entities, concentration risk, fungibility of capital, liquidity risk, the impact of intra-group support measures, diversification of risk, etc. The list is lengthy. Again, the actuarial profession has the tools and expertise to consider these issues and to help provide solutions.

.. which may reflect a desire to regulate insurance companies at the holding company level. Or it may not.

The other snippet is:

One of the most troubling issues we face as a regulator is the manner of response from industry, as well as your profession, to regulatory requirements. Frequently, the response to our requirements appears to be driven only by the need to comply, rather than by using the exercise as a means of identifying and reporting on important aspects of the way in which organizations manage risks.

This response is troubling because it implies a mechanical response, which may be conducted as cost effectively as possible, but that is not connected to any real business or risk management practices employed by the organization.

Consider Enterprise Risk Management as an example. The need for sound ERM practices has never been more pressing and yet we find that our requests for demonstrations of sound risk management via Dynamic Capital Adequacy testing (DCAT), stress testing, governance practices, etc. are frequently completed as if they were just regulatory compliance exercises rather than important demonstrations of real life ERM.

In our view, this type of response is not in anyone’s best interests.

“We’re from the government and we’re here to help you!”

Preet Bannerjee writes an interesting piece in the Globe titled How is your fund manager performing?. He references a newletter from Research Affiliates:

The selection of active managers, whose philosophy and process are geared to produce market-beating results, is an exhaustive and time-consuming activity. Certainly, some can take a shortcut, relying on historical track records (such as the typical trailing five years of returns) to gauge skill but, as mutual fund advertisements proclaim, “past performance is no guarantee of future results.” Indeed, the goal of manager research is to determine if the manager and its strategy will be successful in the dark and unknowable future. And that requires separating the wheat from the chaff or, in this case, manager skill from pure luck. Unfortunately, this is easier said than done. Statistically speaking, it requires a track record of approximately 35 years to determine whether the average active manager has demonstrated skill.[footnote]

Footnote: Using a very optimistic 2% excess return at the typical 6% tracking error level, for an information ratio of 0.33. An information ratio of 0.50 would take 16 years to confirm statistical significance, while a 0.25 ratio would take 62 years!

Another paper referenced was by Fama & French, Luck Versus Skill in the Cross Section of Mutual Fund Returns:

The aggregate portfolio of U.S. equity mutual funds is close to the market portfolio, but the high costs of active management show up intact as lower returns to investors. Bootstrap simulations suggest that few funds produce benchmark adjusted expected returns sufficient to cover their costs. If we add back the costs in expense ratios, there is evidence of inferior and superior performance (non-zero true alpha) in the extreme tails of the cross section of mutual fund alpha estimates.

What happened to Yellow this week?

YLO Issues, 2011-6-30
Ticker Quote
6/24
Quote
6/30
Bid YTW
6/30
YTW
Scenario
6/30
Performance
6/24 – 6/30
(bid/bid)
YLO.PR.A 23.03-20 22.55-69 11.59% Soft Maturity
2012-12-30
-2.08%
YLO.PR.B 15.60-00 15.14-15 15.40% Soft Maturity
2017-06-29
-2.95%
YLO.PR.C 16.05-27 15.21-48 10.44% Limit Maturity -5.23%
YLO.PR.D 16.42-60 15.50-77 10.49% Limit Maturity -5.60%

The Canadian preferred share market closed the half on a strong note, with PerpetualDiscounts winning 19bp, FixedResets up 16bp and DeemedRetractibles gaining 14bp. Volatility was reasonable, with BAM.PR.O continuing its slide (with a wide spread), but ELF.PR.F and ELF.PR.G reversing theirs. Volume was average-ish.

PerpetualDiscounts now yield 5.48%, equivalent to 7.12% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 5.4% (well … a little under) so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now about 170bp, a significant narrowing from the 185bp reported June 29.

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 0.4262 % 2,445.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.4262 % 3,677.3
Floater 2.48 % 2.22 % 41,438 21.71 4 0.4262 % 2,640.0
OpRet 4.88 % 2.78 % 65,478 0.25 9 -0.1116 % 2,431.5
SplitShare 5.24 % 1.98 % 57,684 0.65 6 0.1434 % 2,506.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1116 % 2,223.3
Perpetual-Premium 5.69 % 5.06 % 141,307 0.82 12 0.1174 % 2,079.7
Perpetual-Discount 5.47 % 5.48 % 120,340 14.63 18 0.1919 % 2,187.2
FixedReset 5.17 % 3.23 % 212,365 2.70 57 0.1595 % 2,309.3
Deemed-Retractible 5.09 % 4.89 % 286,691 8.15 47 0.1431 % 2,151.4
Performance Highlights
Issue Index Change Notes
BAM.PR.O OpRet -1.62 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 3.98 %
ELF.PR.F Perpetual-Discount 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-30
Maturity Price : 22.32
Evaluated at bid price : 22.68
Bid-YTW : 5.84 %
BNS.PR.Q FixedReset 1.19 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-25
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 2.70 %
BAM.PR.N Perpetual-Discount 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-30
Maturity Price : 21.42
Evaluated at bid price : 21.71
Bid-YTW : 5.49 %
ELF.PR.G Perpetual-Discount 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-30
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 5.68 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.M FixedReset 70,936 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-25
Maturity Price : 25.00
Evaluated at bid price : 26.09
Bid-YTW : 3.15 %
TD.PR.G FixedReset 46,191 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 27.31
Bid-YTW : 3.20 %
TD.PR.C FixedReset 38,393 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.72
Bid-YTW : 3.20 %
BNS.PR.Q FixedReset 37,648 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-25
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 2.70 %
SLF.PR.D Deemed-Retractible 37,557 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.03
Bid-YTW : 6.02 %
CU.PR.A Perpetual-Premium 29,350 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-03-01
Maturity Price : 25.00
Evaluated at bid price : 25.24
Bid-YTW : 5.06 %
There were 34 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.O OpRet Quote: 25.50 – 26.00
Spot Rate : 0.5000
Average : 0.3381

YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 3.98 %

BAM.PR.P FixedReset Quote: 27.04 – 27.35
Spot Rate : 0.3100
Average : 0.2124

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-30
Maturity Price : 25.00
Evaluated at bid price : 27.04
Bid-YTW : 4.32 %

SLF.PR.F FixedReset Quote: 26.77 – 27.00
Spot Rate : 0.2300
Average : 0.1501

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.77
Bid-YTW : 3.52 %

BNA.PR.E SplitShare Quote: 24.10 – 24.54
Spot Rate : 0.4400
Average : 0.3629

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 24.10
Bid-YTW : 5.61 %

BMO.PR.L Deemed-Retractible Quote: 26.75 – 26.98
Spot Rate : 0.2300
Average : 0.1546

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.75
Evaluated at bid price : 26.75
Bid-YTW : 4.41 %

TD.PR.K FixedReset Quote: 27.44 – 27.69
Spot Rate : 0.2500
Average : 0.1748

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 27.44
Bid-YTW : 3.27 %

CSE.PR.A Crashes on Desultory Volume

July 1st, 2011

Capstone Infrastructure Corporation has announced:

that it has closed its previously announced offering of 3,000,000 Cumulative 5-Year Rate Reset Preferred Shares, Series A (the “Series A Shares”) at a price of $25.00 per Series A Share for aggregate gross proceeds of $75,000,000.

The Series A Shares were sold to a syndicate of underwriters co-led by TD Securities Inc., Macquarie Capital Markets Canada Ltd. and RBC Capital Markets on a bought deal basis. The underwriters are entitled, pursuant to an over-allotment option exercisable in whole or in part at any time up until 30 days after the closing date, to purchase an additional 450,000 Series A Shares at $25.00 per Series A Share.

The Series A Shares will be listed and posted for trading on the Toronto Stock Exchange under the symbol “CSE.PR.A”. The net proceeds of the offering will be used to fund the Corporation’s final equity payment for the construction of the Amherstburg solar power facility, to fund future potential acquisitions and for general corporate purposes.

The Corporation also announced today that the Amherstburg solar power facility has achieved commercial operation under its Renewable Energy Standard Offer Program contract with the Ontario Power Authority and is in the process of finalizing acceptance testing, which is expected to be completed in the first week of July.

CSE.PR.A is a 5.00%+271 FixedReset announced June 13. The issue traded 13,150 shares in a range of 24.00-75 before closing at 24.00-20, 5×10.

Vital statistics are:

CSE.PR.A FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-30
Maturity Price : 22.77
Evaluated at bid price : 24.00
Bid-YTW : 4.88 %

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

June 29, 2011

June 29th, 2011

Yellow Media has announced:

that the Federal Minister of Industry, under the Investment Canada Act, has approved the sale of Trader Corporation to funds advised by Apax Partners. Completion of the sale remains subject to satisfaction of other customary conditions. Yellow Media Inc. currently expects the transaction to close by the end of July 2011.

This release – or perhaps some encouragement from the company – provoked DBRS to comment:

DBRS notes that the Trader sale is expected to accelerate the Company’s de-leveraging efforts. The decision to sell Trader remains a critical component in achieving improved leverage – to around 2.0 times debt-to-EBITDA from 2.74 times currently. As stated in our March 25, 2011, press release, DBRS believes that a stronger financial profile remains prudent given the uncertainty that the Company’s business risk profile faces with its multi-year transition from print to digital.

Despite Yellow Media’s leading position in the directories business, its principal segment following the sale of Trader, DBRS notes that this division continues to face significant risks as it transforms from a print-placement and listing organization into an online/digital media and marketing service provider.

While DBRS notes that the Company has achieved reasonable results through the early stages of this transition (as of Q1 2011, more than 25% of Directories revenue is digital) including relatively steady normalized EBITDA and cash flow from operations, DBRS is increasingly concerned (and will continue to monitor) the potential for weakening in Yellow Media’s future business risk profile as the digital transition continues. As such, as the digital component becomes an ever-larger portion of the Directories segment’s business profile, more meaningful evidence that additional challenges are being dealt with successfully will be required in order to maintain the present ratings.

For some reason known only to the elect, Yellow preferreds had an excellent day, returning from +6.76% (YLO.PR.A) to +9.96% (YLO.PR.C).

They also downgraded Anglo-Irish due to the government’s ursurpation of the proper role of bankruptcy court:

DBRS Inc. (DBRS) has today downgraded the non-guaranteed senior debt and deposit ratings of Anglo Irish Bank Corporation Limited (Anglo Irish or the Bank), including its Issuer Rating, to CCC from B (low). All non-government guaranteed ratings remain Under Review with Negative Implications, where they were placed on 10 September 2010. Today’s rating action does not impact the various Government guaranteed debt and deposits rating of Anglo Irish which remain at ‘A’ with a Negative trend.

As noted in DBRS’s press release on 4 April 2011, DBRS viewed non-guaranteed senior bondholders of Anglo Irish at an increased risk of adverse actions given the state of the Irish banking system and the wind-down mode of Anglo Irish. Today’s rating action reflects the recent statements by the Minister for Finance which, in DBRS’s opinion, firmly underline the Government’s intent to pursue burden sharing by senior bondholders of what the Irish Government defines as ‘non-going concern’ banks, such as Anglo Irish. As such, DBRS sees the probability of adverse actions towards senior bondholders as significantly increased.

DBRS notes that the Irish Government has stated that it will only pursue such actions should it receive approval from the European Central Bank (ECB). However, at this time the ECB and other E.U. members have been firm in their position that no such actions be taken towards senior bondholders of banks.

The Greek austerity plan passed:

Greek Prime Minister George Papandreou clinched enough votes to pass the first part of an austerity plan aimed at meeting European Union aid requirements and staving off default for his debt-laden nation.

Papandreou won by 155 votes to 138, a wider margin than last week’s confidence ballot, as some opposition lawmakers abstained rather than oppose a package that is the condition for further rescue funds.

The yield on Greece’s two-year government bond dropped to 26.94 percent today from 28.54 percent yesterday. The euro traded at $1.4359 at 5:15 p.m. in Athens, compared with $1.4421 when the vote started.

Clouds of gas engulfed the square outside parliament as lawmakers voted on a package whose defeat could have led to the euro area’s first sovereign default. Greece needs to cover 6.6 billion euros of maturing bonds in August and government officials have said they may lack the money to pay wages and pensions by mid-July.

German banks are cooperating with the Greek plans:

German and French lenders are the biggest foreign holders of Greek debt and their participation is key to the European Union goal of getting banks to roll over at least 30 billion euros ($43 billion) of bonds. German firms and the finance ministry are discussing the idea of rolling over bonds maturing until 2020, and not just those running through 2014, as had been first envisaged, said the people, who declined to be identified because the talks are confidential.

“If Greece goes into default, then we would have a disruption in Europe that could more quickly impact other countries in a way that goes far beyond what Lehman Brothers meant for us,” said [Deutsche Bank CEO Josef] Ackermann, 63.

Ackermann, who is also chairman of the Institute of International Finance, which represents more than 400 financial companies, said they are “working around the clock” with special teams, rating companies and bodies overseeing credit- default swaps to test whether any agreement would trigger a credit event. He warned that any agreement is “highly complex” and could force investors to write down their Greek holdings by an estimated 30 percent to 45 percent if done incorrectly.

It’s a black day for Canadian capital market participants:

The proposed merger of TMX Group Inc. (X-T44.611.052.41%) with London Stock Exchange Group PLC is dead.

TMX said a majority of the votes cast by proxy before Wednesday’s deadline in fact supported the deal, but it was clear the two exchange operators wouldn’t get the two-thirds required in a vote scheduled for Thursday.

TMX Group chief executive officer Tom Kloet said the company will now focus on other alternatives, including a rival bid from Maple Group Acquisition Corp., a collection of Canadian financial institutions and pension funds. The bid by Maple, worth about $50 a share, had been conditional on the defeat of the TMX-LSE merger.

The oligarchs are again triumphant; I had been hoping for a little bit of competition in Canada. However, I can still cling to the hope that the Competition Bureau will take the obvious step of killing the Maple bid, leaving the TMX to have to scramble for a partner.

We learnt during the Panic of 2007 just how important US-domiciled Money Market Funds were to European bank financing. So this is interesting:

Institutions pulled out of U.S. prime money-market funds at the fastest pace in 15 months, shifting to funds that invest only in U.S. government-backed securities out of concern the European debt crisis would worsen.

Institutional funds eligible to buy corporate debt lost $39 billion to net withdrawals in the week ended June 28 and $75 billion in the past two weeks, falling to $1.04 trillion, according to data from research firm iMoneyNet in Westborough, Massachusetts. Institutional money funds that buy only U.S. government-backed securities gathered $27 billion in net deposits, rising to $599 billion.

Dan Hallett has a nice piece in the Globe titled Distribution rate does not equal yield.

Canadian inflation popped up:

Canadian inflation gave economists an unpleasant surprise Wednesday when data from May showed it shot up to its highest level in more than eight years, putting all eyes on the Bank of Canada ahead of its July interest-rate decision.

Annual inflation hit a higher-than-expected 3.7% for the month, and while gasoline was the main culprit, core inflation also jumped, from 1.6% in April to 1.8% in May. The core figure, which factors out volatile items like food and gas, came in well above the Bank of Canada’s 1.4% target for the second quarter.

There’s some criticism of Mayor Ford over his refusal to walk over and say hello at the Pride ceremonies … at the same time, Mayor Bloomberg is rubbing his hands with glee at the business that’s going to come with New York’s gay marriage law. Mayor Bloomberg seems to understand that cities are all about doing business – and is gunning for New York to grab market share away from Toronto.

It was a downish day in the Canadian preferred share market, with PerpetualDiscounts losing 19bp, FixedResets up 1bp and DeemedRetractibles down 5bp. Volatility picked up, all to the downside. Volume was fair-to-good.

PerpetualDiscounts now yield 5.52%, equivalent to 7.18% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 5.35%, having had a rough couple of days, and so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now about 185bp, a narrowing from the 195bp reported June 22 due to the move in long-term corporate yields.

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 -0.4479 % 2,434.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.4479 % 3,661.7
Floater 2.49 % 2.23 % 42,854 21.70 4 -0.4479 % 2,628.8
OpRet 4.87 % 2.78 % 63,030 0.25 9 -0.0944 % 2,434.2
SplitShare 5.25 % 1.97 % 58,121 0.66 6 -0.0959 % 2,503.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0944 % 2,225.8
Perpetual-Premium 5.69 % 5.34 % 151,538 1.29 12 0.0397 % 2,077.3
Perpetual-Discount 5.47 % 5.52 % 121,225 14.59 18 -0.1943 % 2,183.0
FixedReset 5.18 % 3.31 % 211,247 2.71 57 0.0093 % 2,305.6
Deemed-Retractible 5.09 % 4.90 % 284,776 8.15 47 -0.0457 % 2,148.3
Performance Highlights
Issue Index Change Notes
ELF.PR.F Perpetual-Discount -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-29
Maturity Price : 22.37
Evaluated at bid price : 22.75
Bid-YTW : 5.93 %
HSB.PR.C Deemed-Retractible -1.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.69
Bid-YTW : 5.28 %
GWO.PR.N FixedReset -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.31
Bid-YTW : 3.76 %
HSB.PR.D Deemed-Retractible -1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 5.28 %
BAM.PR.O OpRet -1.07 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.92
Bid-YTW : 3.11 %
BAM.PR.K Floater -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-29
Maturity Price : 18.91
Evaluated at bid price : 18.91
Bid-YTW : 2.77 %
ELF.PR.G Perpetual-Discount -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-29
Maturity Price : 20.93
Evaluated at bid price : 20.93
Bid-YTW : 5.79 %
BMO.PR.H Deemed-Retractible 1.06 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.77
Bid-YTW : 3.69 %
Volume Highlights
Issue Index Shares
Traded
Notes
SLF.PR.A Deemed-Retractible 151,474 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.20
Bid-YTW : 5.70 %
TD.PR.O Deemed-Retractible 94,848 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 4.90 %
PWF.PR.I Perpetual-Premium 62,250 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 5.75 %
BMO.PR.M FixedReset 57,470 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-25
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 3.22 %
BMO.PR.P FixedReset 46,400 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.87
Bid-YTW : 3.38 %
TD.PR.Y FixedReset 44,375 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.18
Bid-YTW : 3.38 %
There were 36 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BMO.PR.K Deemed-Retractible Quote: 25.76 – 26.47
Spot Rate : 0.7100
Average : 0.4344

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-11-25
Maturity Price : 25.00
Evaluated at bid price : 25.76
Bid-YTW : 4.74 %

BAM.PR.K Floater Quote: 18.91 – 19.50
Spot Rate : 0.5900
Average : 0.3746

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-29
Maturity Price : 18.91
Evaluated at bid price : 18.91
Bid-YTW : 2.77 %

GWO.PR.N FixedReset Quote: 24.31 – 24.73
Spot Rate : 0.4200
Average : 0.2850

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.31
Bid-YTW : 3.76 %

NA.PR.L Deemed-Retractible Quote: 25.15 – 25.48
Spot Rate : 0.3300
Average : 0.2264

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 4.88 %

BNS.PR.Q FixedReset Quote: 26.20 – 26.49
Spot Rate : 0.2900
Average : 0.1870

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-25
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 3.24 %

MFC.PR.E FixedReset Quote: 26.31 – 26.59
Spot Rate : 0.2800
Average : 0.1798

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-19
Maturity Price : 25.00
Evaluated at bid price : 26.31
Bid-YTW : 3.93 %