April 3, 2012

April 4th, 2012

The David Berry saga continues to drag on:

A hearing was originally scheduled before a Hearing Panel of the Investment Industry Regulatory Organization of Canada (IIROC), in the matter of David Berry for April 10 to April 23, 2012. The hearing was adjourned to June 13, 2012.

The hearing concerns allegations that Mr. Berry solicited client orders during the distribution of new issues by Scotia Capital contrary to UMIR 7.7(5) (as it existed prior to May 2005), and conducted off-marketplace trades that were not printed on a marketplace or recognized exchange as required by UMIR 6.4.

Assiduous Readers will remember that David Berry was a superb trader of preferred shares, who was assigned significant capital by Scotia at a time when the market was starved for liquidity. He made ridiculous potfulls of money for the bank and in so doing, a pretty good pile for himself. The bank’s executives got upset that a mere peon was making so much and, when he wouldn’t accept a voluntary pay cut, unleashed an army of accountants and lawyers on his trading to uncover instances where a rule had been broken – I have also heard that clients were swept up in this witchhunt and required to cooperate voluntarily with the investigation as a condition of doing business with Scotia.

Naturally, they found a few picayune transgressions, pretended to be shocked and fired him. He’s suing for $100-million. IIROC is an eager participant in this charade.

Royal Bank is scooping up full control of RBC-Dexia:

Royal Bank of Canada (RY-T57.04-1.70-2.89%) is buying the 50-per-cent stake in RBC Dexia Investor Services that it doesn’t already own from its struggling European partner.

Canada’s largest bank said Tuesday morning it will purchase the 50 per cent stake of RBC Dexia partnership from Banque Internationale à Luxembourg SA for $1.1-billion in cash.

The deal will give RBC full control of the European business, which advises institutional investors and administers large pensions and investment funds. The assets went on the block last year when Banque Internationale à Luxembourg, formerly known as Dexia Banque Internationale, was hit hard by the European banking crisis and forced to jettison assets to stabilize its operations.

DBRS comments:

RBC will take an after-tax charge of approximately $200 million, with $170 million (after tax) of that owing primarily to a write-down of intangibles as a result of revaluing the 50% of RBC Dexia that is already owns. The other $30 million (after tax) represents RBC’s share of a loss related to an exchange of securities at RBC Dexia.

Courtesy of the US housing market, here’s another illustration of the law of unintended consequences:

As many as 1.25 million of America’s least cared for homes are headed for auction after a year-long probe into foreclosure practices kept them off the market.

Sales of repossessed properties probably will rise 25 percent this year from 1 million in 2011, according to Moody’s Analytics Inc. Prices for the homes could drop as much as 10 percent because they deteriorated as they were held in reserve during investigations by state officials resolved in February, according to RealtyTrac Inc. That month, 43 percent of foreclosures were delinquent for two or more years, from a 21 percent share in 2010, according to Lender Processing Services Inc. in Jacksonville, Florida.

Homes stockpiled less than a year sell for about 35 percent below the value set by lenders, according to a March 15 report by the Federal Reserve Bank of Cleveland. At two years, the loss is close to 60 percent.

The Fed’s confidence in the US economy is increasing:

The Federal Reserve is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target.

“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to minutes of their March 13 meeting released today in Washington. That contrasts with the assessment at the FOMC’s January meeting in which some Fed officials saw current conditions warranting additional action “before long.”

There are many pairs of words that, when seen in the same sentence, alert the reader that some insane logic based on infantile assumptions is about to result in nonsensical verbiage. One such pair is “Privacy” and “Commissioner”. Another is “Internet” and “Regulators”:

Google Inc. (GOOG), owner of the world’s most-popular search engine, misled Australian consumers in 2007 by including paid advertisements from competitors in search results for businesses, an appeal court ruled.

The Federal Court of Appeal in Sydney today overturned a lower court decision and ordered the Mountain View, California- based company to set up a protocol to avoid repeating the practice.

The ACCC appealed, citing four advertisements, including those that showed up in a search for the Australian company Harvey World Travel, that it said Google should have known would contravene the law.

A search for a business name would include results from competitors who paid to have their ads placed in a column beside the search results.

A user who sought information about Harvey World Travel was instead given the web address of one of its competitors, the panel said.

“Google tells the user that the URL provided below is the contact information about Harvey World Travel,” the panel wrote. “The enquiry is made of Google and it is Google’s response which is misleading.”

So my question is: why does it matter whether Google’s respons is misleading, assuming that a rational person would consider it misleading, which is by no means obvious? The user isn’t paying Google anything for the service, zip, zero, zilch! How does Google owe some kind of duty to the user? As far as I’m concerned, Google can answer queries of any type with pictures of naked women without breaching any duty; if they aren’t pretty enough, I’ll use a different search engine.

If any user of the Internet can run crying boo-hoo-hoo to the courts to get something fixed – and, doubtless, to get some kind of pecuniary benefit out of the whimpering – I’ve got a long list of websites that I know contain demonstrably false statements about preferred shares …

It was another positive day for the Canadian preferred share market, with PerpetualPremiums up 10bp, and both FixedResets and DeemedRetractibles gaining 12bp. Volatility was good, but surprisingly skewed to the downside. Volume was low.

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 -0.3950 % 2,427.7
FixedFloater 4.42 % 3.83 % 38,772 17.59 1 -0.0465 % 3,529.0
Floater 2.97 % 3.00 % 46,933 19.76 3 -0.3950 % 2,621.3
OpRet 4.94 % 3.89 % 67,518 1.20 6 -0.1611 % 2,494.5
SplitShare 5.24 % -5.32 % 87,088 0.70 4 0.3525 % 2,695.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1611 % 2,281.0
Perpetual-Premium 5.46 % 1.10 % 92,358 0.16 23 0.0994 % 2,214.6
Perpetual-Discount 5.19 % 5.21 % 136,524 15.12 10 0.2246 % 2,396.6
FixedReset 5.01 % 3.01 % 190,426 2.22 67 0.1175 % 2,390.1
Deemed-Retractible 4.96 % 3.93 % 206,753 2.02 46 0.1164 % 2,303.6
Performance Highlights
Issue Index Change Notes
IGM.PR.B Perpetual-Premium -1.42 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.35
Bid-YTW : 4.90 %
ELF.PR.F Perpetual-Discount -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-03
Maturity Price : 23.97
Evaluated at bid price : 24.26
Bid-YTW : 5.47 %
BAM.PR.X FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-03
Maturity Price : 23.04
Evaluated at bid price : 24.70
Bid-YTW : 3.58 %
BAM.PR.C Floater -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-03
Maturity Price : 17.55
Evaluated at bid price : 17.55
Bid-YTW : 3.00 %
MFC.PR.B Deemed-Retractible -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.31
Bid-YTW : 5.61 %
SLF.PR.G FixedReset 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.87
Bid-YTW : 3.51 %
BAM.PR.M Perpetual-Discount 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-03
Maturity Price : 22.48
Evaluated at bid price : 22.85
Bid-YTW : 5.21 %
BAM.PR.N Perpetual-Discount 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-03
Maturity Price : 22.45
Evaluated at bid price : 22.80
Bid-YTW : 5.22 %
Volume Highlights
Issue Index Shares
Traded
Notes
ENB.PR.H FixedReset 167,400 Recent new issue
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-03
Maturity Price : 23.13
Evaluated at bid price : 25.10
Bid-YTW : 3.61 %
ELF.PR.H Perpetual-Discount 124,756 Recent new issue
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-03
Maturity Price : 24.59
Evaluated at bid price : 24.98
Bid-YTW : 5.52 %
BAM.PF.A FixedReset 55,895 Recent new issue
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-03
Maturity Price : 23.14
Evaluated at bid price : 25.15
Bid-YTW : 4.33 %
ENB.PR.D FixedReset 37,485 TD crosssed 27,000 at 25.54.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-01
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 3.69 %
BAM.PR.H OpRet 29,090 Called for redemption.
YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2012-05-03
Maturity Price : 25.00
Evaluated at bid price : 24.99
Bid-YTW : 6.72 %
PWF.PR.I Perpetual-Premium 28,806 RBC crossed 23,900 at 25.90.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-30
Maturity Price : 25.00
Evaluated at bid price : 25.66
Bid-YTW : -4.04 %
There were 20 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
ENB.PR.B FixedReset Quote: 25.29 – 25.74
Spot Rate : 0.4500
Average : 0.3145

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-03
Maturity Price : 23.24
Evaluated at bid price : 25.29
Bid-YTW : 3.79 %

PWF.PR.H Perpetual-Premium Quote: 25.41 – 25.76
Spot Rate : 0.3500
Average : 0.2527

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-03
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : -1.86 %

TD.PR.C FixedReset Quote: 26.56 – 26.81
Spot Rate : 0.2500
Average : 0.1544

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.56
Bid-YTW : 2.65 %

TD.PR.S FixedReset Quote: 26.05 – 26.29
Spot Rate : 0.2400
Average : 0.1522

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 2.46 %

RY.PR.H Deemed-Retractible Quote: 26.92 – 27.20
Spot Rate : 0.2800
Average : 0.2105

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-24
Maturity Price : 26.00
Evaluated at bid price : 26.92
Bid-YTW : 2.78 %

GWO.PR.M Deemed-Retractible Quote: 26.00 – 26.39
Spot Rate : 0.3900
Average : 0.3217

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 5.31 %

EMA.PR.A: DBRS Assigns Negative Trend

April 4th, 2012

DBRS has announced that it:

has today confirmed Emera Inc.’s (Emera or Holdco) Medium-Term Notes rating and Cumulative Preferred Shares rating at BBB (high) and Pfd-3 (high), respectively, and changed the trends on both to Negative from Stable. Emera’s ratings continue to be supported by strong and stable operating cash flows generated by its relatively low-risk regulated subsidiaries. Dividends and interest income flowing up from its operating subsidiaries continue to cover Emera’s interest and operating costs.

However, the Negative trend reflects DBRS’s concern regarding the ongoing high degree of non-consolidated leverage at the Holdco level for the current rating. On a non-consolidated basis, the debt-to-capital ratio has continued to deteriorate since 2008 and remains at approximately 40% as at December 31, 2011. DBRS acknowledges that a significant portion of the debt at the Holdco level was used to fund acquisitions of contracted/regulated assets that add diversification to Emera’s business profile. Going forward, the balance sheet could be further pressured by funding requirements for other regulated capital expenditures, the proposed Maritime Link Transmission Project, a subsea transmission link from Newfoundland to Nova Scotia that is 100% owned by Emera, and Emera’s 29% interest in the transmission link between the island of Newfoundland and Labrador.

Resolution of the Negative trend in the coming months will follow a full assessment of Emera’s plans to reduce its non-consolidated debt to levels commensurate with its current rating and its overall financing strategy on proposed projects in the next five years.

This follows a similar announcement from S&P.

April 2, 2012

April 3rd, 2012

OSFI has announced:

The Superintendent of Financial Institutions, Julie Dickson, will deliver remarks on the topic of boards and risk governance at the Toronto Board of Trade on Thursday, April 5th.

The Superintendent will address the role of corporate governance in managing risk and elements that make for strong, transparent and accountable boards of directors.

The Superintendent will be available to respond to questions from the news media following her remarks.

I can’t remember anything like this before – it’s a great departure from OSFI’s tradition of secrecy. It could be a major announcement, for all the preciousness of the topic. Who knows? Maybe they will announce that regulated companies can no longer hire senior civil servants within five years of their leaving government service – but knowing OSFI, it’s more likely to be the other way around.

This is the future of retail:

A new front in virtual retailing has emerged on a wall at a busy subway station in downtown Toronto.

An online health and beauty retailer on Monday launched a pop-up store at a key commuter hub that features images of Pampers diapers and Tide detergent, rather than the products themselves. Using a smartphone app, shoppers place their orders by scanning quick response codes – QR codes, for short – on pictures of products, which are then shipped, often as quickly as the next day, to customers free of charge.

My quibble is that displaying images only makes it no different from shopping on-line. I think this kind of thing needs samples to look at and touch – and as soon as those store move in, the big box is dead:

After 50 years of putting mom and pops out of business, big-box retail is having a mid-life crisis. A slow economy has hurt same-store sales, narrowing margins at big stores. Meanwhile, consumers, armed with price-comparison technology, are visiting more stores seeking deals or exclusive merchandise rather than making one-stop, fill-the-cart excursions.

It was a good day for the Canadian preferred share market, with PerpetualPremiums gaining 22bp, FixedResets up 22bp and DeemedRetractibles winning 26bp. The Performance Highlights table is well populated and uniformly positive. Volume was very light.

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 1.5858 % 2,437.3
FixedFloater 4.42 % 3.83 % 39,100 17.60 1 2.4286 % 3,530.7
Floater 2.96 % 2.97 % 45,490 19.83 3 1.5858 % 2,631.7
OpRet 4.93 % 3.60 % 67,265 1.18 6 0.0645 % 2,498.5
SplitShare 5.26 % -4.12 % 87,798 0.70 4 0.0298 % 2,685.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0645 % 2,284.6
Perpetual-Premium 5.47 % 1.79 % 91,013 0.17 23 0.2197 % 2,212.4
Perpetual-Discount 5.20 % 5.26 % 138,596 15.04 10 0.3961 % 2,391.3
FixedReset 5.02 % 3.01 % 192,856 2.22 67 0.2177 % 2,387.3
Deemed-Retractible 4.97 % 3.93 % 205,956 3.08 46 0.2575 % 2,300.9
Performance Highlights
Issue Index Change Notes
FTS.PR.H FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 23.59
Evaluated at bid price : 25.75
Bid-YTW : 2.92 %
BAM.PR.X FixedReset 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 23.14
Evaluated at bid price : 24.97
Bid-YTW : 3.52 %
PWF.PR.P FixedReset 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 23.55
Evaluated at bid price : 25.95
Bid-YTW : 3.11 %
BAM.PR.B Floater 1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 17.84
Evaluated at bid price : 17.84
Bid-YTW : 2.95 %
CIU.PR.A Perpetual-Discount 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 24.11
Evaluated at bid price : 24.40
Bid-YTW : 4.75 %
BAM.PR.K Floater 1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 17.59
Evaluated at bid price : 17.59
Bid-YTW : 3.00 %
BAM.PR.C Floater 1.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 17.74
Evaluated at bid price : 17.74
Bid-YTW : 2.97 %
BAM.PR.G FixedFloater 2.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 22.33
Evaluated at bid price : 21.51
Bid-YTW : 3.83 %
IGM.PR.B Perpetual-Premium 2.81 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 26.00
Evaluated at bid price : 26.73
Bid-YTW : 4.43 %
Volume Highlights
Issue Index Shares
Traded
Notes
ELF.PR.H Perpetual-Discount 426,481 New issue settled today.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 24.59
Evaluated at bid price : 24.98
Bid-YTW : 5.52 %
HSE.PR.A FixedReset 226,100 Desjardins crossed 24,700 at 25.92, then blocks of 100,000 and 65,000 at 25.95. Nesbitt crossed 20,000 at 25.95.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 23.53
Evaluated at bid price : 25.93
Bid-YTW : 3.18 %
ENB.PR.H FixedReset 104,049 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 23.11
Evaluated at bid price : 25.06
Bid-YTW : 3.62 %
BAM.PF.A FixedReset 68,160 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 23.11
Evaluated at bid price : 25.05
Bid-YTW : 4.36 %
ENB.PR.F FixedReset 59,429 Scotia crossed 30,000 at 25.40.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 23.23
Evaluated at bid price : 25.40
Bid-YTW : 3.88 %
TRP.PR.B FixedReset 56,462 Desjardins crossed 25,000 at 25.35; Nesbitt crossed 20,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 23.48
Evaluated at bid price : 25.42
Bid-YTW : 2.77 %
There were 14 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.F Perpetual-Premium Quote: 25.07 – 25.40
Spot Rate : 0.3300
Average : 0.1997

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 24.84
Evaluated at bid price : 25.07
Bid-YTW : 5.32 %

CIU.PR.A Perpetual-Discount Quote: 24.40 – 24.74
Spot Rate : 0.3400
Average : 0.2138

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 24.11
Evaluated at bid price : 24.40
Bid-YTW : 4.75 %

GWO.PR.G Deemed-Retractible Quote: 25.03 – 25.34
Spot Rate : 0.3100
Average : 0.2058

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.03
Bid-YTW : 5.17 %

GWO.PR.J FixedReset Quote: 26.21 – 26.50
Spot Rate : 0.2900
Average : 0.1988

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.21
Bid-YTW : 3.16 %

POW.PR.G Perpetual-Premium Quote: 25.65 – 25.85
Spot Rate : 0.2000
Average : 0.1284

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-15
Maturity Price : 25.00
Evaluated at bid price : 25.65
Bid-YTW : 5.24 %

BAM.PR.G FixedFloater Quote: 21.51 – 22.00
Spot Rate : 0.4900
Average : 0.4189

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 22.33
Evaluated at bid price : 21.51
Bid-YTW : 3.83 %

ELF.PR.H Steady on Good Volume

April 3rd, 2012

E-L Financial Corporation Limited has announced:

the completion of its previously-announced sale to a syndicate of underwriters, co-led by Scotia Capital Inc. and TD Securities Inc., of 4,000,000 Non-Cumulative Redeemable First Preference Shares, Series 3 for sale to the public at a price of $25.00 per share and paying fixed non-cumulative quarterly dividends that will yield 5.50% per annum. The gross proceeds of $100,000,000, less the expenses of the offering, will be added to the Corporation’s capital base to supplement the Corporation’s financial resources and used for general corporate purposes. The First Preference Shares, Series 3 will be posted for trading on the Toronto Stock Exchange (“TSX”) under the symbol ELF.PR.H.

The First Preference Shares, Series 3 will rank in priority to the common shares and the Series A Preference Shares of the Corporation, with respect to the payment of dividends and with respect to the distribution of assets on the dissolution, liquidation or winding up of the Corporation. On and after April 17, 2017, the Corporation may, subject to TSX approval, convert all or any part of the outstanding First Preference Shares, Series 3 into freely tradeable common shares of the Corporation. The First Preference Shares, Series 3 are also redeemable at the option of the Corporation on and after April 17, 2017.

ELF.PR.H is a Straight Perpetual, 5.50%, announced March 9. It will be assigned to the PerpetualDiscounts index – although issued by an Insurance Holding Company, it is exchangeable for common at the option of the company, a feature which CIBC has used to achieve NVCC status for three of its issues.

ELF.PR.H traded 426,481 shares today in a range of 24.94-09 before closing at 24.98-00, 10×30. Vital statistics are:

ELF.PR.H Perpetual-Discount YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-02
Maturity Price : 24.59
Evaluated at bid price : 24.98
Bid-YTW : 5.52 %

YLO Bonds Downgraded to B, Trend Negative, by DBRS

April 2nd, 2012

DBRS has announced that it:

has today downgraded Yellow Media Inc.’s (Yellow Media or the Company) Issuer Rating to B (low) from B (high); its Medium-Term Notes rating to B (low) from B (high), with an RR4 recovery rating; and its Exchangeable Subordinated Debentures to CCC from B (low), with an RR6 recovery rating. The trend on all ratings remains Negative.

DBRS notes that Yellow Media’s unsecured debt continues to have average recovery prospects (RR4; 30% to 50% expected recovery), while its subordinated debt has poor recovery prospects (RR6; 0% to 10% expected recovery) under a base case default/recovery scenario.

Today’s downgrade reflects the fact that the Company has made no progress in improving its liquidity position throughout the remainder of Q1 2012. The window for refinancing activities continues to diminish as the Company’s first debt maturity (of its roughly $2 billion of total gross debt) approaches in February 2013, which marks the beginning of a period of sizable and relatively steady debt maturities over the 2013 to 2016 time frame. As such, we believe that the likelihood that the Company’s financing activities in 2012 will involve some form of compromise for existing creditors has increased to a level that is no longer consistent with the previous B (high) ratings.

The Negative trend reflects the possibility that Yellow Media’s ratings could be further downgraded with the passage of time or in the event that the Company pursues some form of recapitalization.

YLO has four issues of preferred shares outstanding: YLO.PR.A & YLO.PR.B (Operating Retractible) and YLO.PR.C & YLO.PR.D (FixedReset). All are tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

MAPF Performance: March, 2012

April 1st, 2012

The fund underperformed in March, as DeemedRetractibles issued by insurers underperformed the rest of market.

The fund’s Net Asset Value per Unit as of the close March 30, 2012, was 10.3944, after giving effect to a dividend distribution of $0.112796.

Returns to March, 2012
Period MAPF BMO-CM “50” Index TXPR
Total Return
CPD
according to
Blackrock
One Month -1.03% -0.17% -0.39% -0.39%
Three Months +4.25% +1.30% +1.21% +1.16%
One Year +2.11% +5.95% +4.55% +4.08%
Two Years (annualized) +12.05% +9.47% +7.90% N/A
Three Years (annualized) +22.31% +14.85% +12.48% +11.73%
Four Years (annualized) +18.47% +6.87% +5.23%  
Five Years (annualized) +14.16% +3.92%    
Six Years (annualized) +12.66% +3.98%    
Seven Years (annualized) +11.95% +4.16%    
Eight Years (annualized) +11.19% +3.89%    
Nine Years (annualized) +14.09% +4.65%    
Ten Years (annualized) +12.19% +4.61%    
Eleven Years (annualized) +12.54% +4.30%    
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 -0.40%, +1.59% and +4.69%, respectively, according to Morningstar after all fees & expenses. Three year performance is +13.06%.
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 -0.40%, +0.17% and +2.71% respectively, according to Morningstar. Three Year performnce is +9.96%
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 -0.42%, +1.22% & +4.85%, respectively
Figures for Horizons AlphaPro Preferred Share ETF (which are after all fees and expenses) for 1-, 3- and 12-months are -0.29%, +1.97% & +5.64%, respectively.

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.

SLF DeemedRetractibles may be compared with PWF and GWO:


Click for Big

Click for Big

It is quite apparent that that the market continues to treat regulated issues (SLF, GWO) no differently from unregulated issues (PWF). What is not quite so apparent from these charts is that the slope of the relationship between dividend rates and current yields has flattened considerably over the month – the slope of the regression line has changed from 0.0277 in February to 0.0243 in March.

Those of you who have been paying attention will remember that in a “normal” market (which we have not seen in over a year) the slope of this line is related to the implied volatility of yields in Black-Scholes theory, as discussed in the January, 2010, edition of PrefLetter. Despite the current month’s flattening, however, the relationship is still far too large to be explained by Implied Volatility – the numbers still indicate an overwhelming degree of directionality in the market’s price expectations.

However, the trading that began in February (swapping low-coupon GWO issues for the higher-coupon ones) which was continued in March, has yielded very favourable results since trade-time:

Sample GWO Trade
Approximate Figures
Date GWO.PR.I
Coupon 1.125
GWO.PR.P
Coupon 1.35
3/1 Sold
24.20
Bought
25.86
3/30 Closing Bid
23.39
Closing Bid
25.52

As may be seen, the trade mitigated the loss. It’s a shame that SLF hasn’t got any high-coupon issues; if they had, I suspect similar trades would have been executable for this issuer!

Sometimes everything works … sometimes it’s 50-50 … 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% 1.3240 0.3524
September 9.1489 5.35% 0.98 5.46% 1.3240 0.3773
December, 2007 9.0070 5.53% 0.942 5.87% 1.3240 0.3993
March, 2008 8.8512 6.17% 1.047 5.89% 1.3240 0.3938
June 8.3419 6.034% 0.952 6.338% 1.3240 $0.3993
September 8.1886 7.108% 0.969 7.335% 1.3240 $0.4537
December, 2008 8.0464 9.24% 1.008 9.166% 1.3240 $0.5571
March 2009 $8.8317 8.60% 0.995 8.802% 1.3240 $0.5872
June 10.9846 7.05% 0.999 7.057% 1.3240 $0.5855
September 12.3462 6.03% 0.998 6.042% 1.3240 $0.5634
December 2009 10.5662 5.74% 0.981 5.851% 1.1141 $0.5549
March 2010 10.2497 6.03% 0.992 6.079% 1.1141 $0.5593
June 10.5770 5.96% 0.996 5.984% 1.1141 $0.5681
September 11.3901 5.43% 0.980 5.540% 1.1141 $0.5664
December 2010 10.7659 5.37% 0.993 5.408% 1.0298 $0.5654
March, 2011 11.0560 6.00% 0.994 5.964% 1.0298 $0.6403
June 11.1194 5.87% 1.018 5.976% 1.0298 $0.6453
September 10.2709 6.10%
Note
1.001 6.106% 1.0298 $0.6090
December, 2011 10.0793 5.63%
Note
1.031 5.805% 1.0000 $0.5851
March, 2012 10.3944 5.13%
Note
0.996 5.109% 1.0000 $0.5310
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.
Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. Commencing February, 2012, yields on these issues have been set to zero.

Significant positions were held in DeemedRetractible and FixedReset issues on March 30; all of these 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 SplitShare issues (BNA.PR.C) which also have their yields calculated with the expectation of a maturity at par.

The decline in the calculated sustainable yield is due to a significant shortening of term in the year to date, together with the elimination of expected dividends from the YLO issues – January’s run-up in the prices of longer-term issues has made it prudent to increase the investment in shorter-term, better-credit, lower-yielding FixedResets, although the weighting in this asset class remains well below index levels.

I will no longer show calculations that assume the conversion of the entire portfolio into PerpetualDiscounts, as there are currently only seven such issues of investment grade, from only three issuer groups. Additionally, the fund has only small holdings of these issues.

Different assumptions lead to different results from the calculation, but the overall positive trend is apparent. I’m very pleased with the long-term 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: March, 2012

April 1st, 2012

Turnover remained steady in March, at about 21%.

Most of the trading involved shuffling in between DeemedRetractibles, with an overall movement from the lower-coupon GWO issues to their higher-coupon counterparts, GWO.PR.L and GWO.PR.P. Additionally, trading was done among the MFC issues, MFC.PR.B and MFC.PR.C, as well as the usual smaller trades that defy generalization.

Sectoral distribution of the MAPF portfolio on March 30 was as follows:

MAPF Sectoral Analysis 2012-3-30
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 9.8% (-0.4) 6.02% 5.75
Interest Rearing 0% N/A N/A
PerpetualPremium 0.0% (0) N/A N/A
PerpetualDiscount 0.8% (+0.8) 5.26% 15.04
Fixed-Reset 20.4% (+0.1) 3.05% 2.04
Deemed-Retractible 59.5% (-0.2) 5.46% 7.36
Scraps (Various) 10.0% (+0.1) 6.34% (see note) 11.95 (see note)
Cash -0.4% (-0.3) 0.00% 0.00
Total 100% 5.13% 6.66
Yields for the YLO preferreds have been set at 0% for calculation purposes, and their durations at 0.00, to the the company’s decision to suspend preferred dividends.
Totals and changes will not add precisely due to rounding. Bracketted figures represent change from February 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: NVCC Status Confirmed 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 2012-3-30
DBRS Rating Weighting
Pfd-1 0 (0)
Pfd-1(low) 53.2% (-0.7)
Pfd-2(high) 26.7% (+0.6)
Pfd-2 0 (0)
Pfd-2(low) 10.6% (+0.4)
Pfd-3(high) 1.1% (+1.1)
Pfd-3 5.9% (-0.9)
Pfd-4 2.5% (-0.1)
Pfd-5(low) 0.4% (0)
Cash -0.4% (-0.3)
Totals will not add precisely due to rounding. Bracketted figures represent change from February month-end.
A position held in CSE preferreds has been assigned to Pfd-3

Liquidity Distribution is:

MAPF Liquidity Analysis 2012-3-30
Average Daily Trading Weighting
<$50,000 0.1% (+0.1)
$50,000 – $100,000 28.4% (+15.5)
$100,000 – $200,000 26.0% (-8.0)
$200,000 – $300,000 19.3% (-2.0)
>$300,000 26.5% (-5.5)
Cash -0.4% (-0.3)
Totals will not add precisely due to rounding. Bracketted figures represent change from February month-end.

The increase in holdings of issue with Average Daily Trading Values(ADTVs) of 50,000-100,000 is due mostly to migration, rather than trading: BNA.PR.C, for instance, had an ADTV of about 116,000 last month and only 94,000 this month.

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, 2011, and published in the October, 2011, 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 lower
  • MAPF Yield is higher
  • Weightings in
    • MAPF is much more exposed to DeemedRetractibles
    • MAPF is much less exposed to Operating Retractibles
    • MAPF is much more exposed to SplitShares
    • MAPF is less exposed to FixFloat / Floater / Ratchet
    • MAPF weighting in FixedResets is much lower

MAPF 2011 Financials Released

April 1st, 2012

I am please to announce that the fund’s 2011 Audited Financial Statements and the 2011 Portfolio Transaction Record have been released and are available for download via the Malachite Aggressive Preferred Fund web page.

March 30, 2012

March 30th, 2012

Sino-Forest is for sale! Who wants to buy … er … something?

Sino-Forest Corp., the embattled timber firm facing fraud allegations is filing for court protection from creditors as it tries to find a buyer for what was once the largest publicly traded forestry firm on the Toronto Stock Exchange.

While under court protection from its creditors, Sino-Forest hopes to sell its assets to a third party. It has launched a process to consider offers. If the company is unable to find a buyer its assets will be transferred to its debtholders, Sino-Forest said in a statement.

The Canadian preferred share market had a strong day to close the quarter, with PerpetualPremiums up 14bp, FixedResets winning 20bp and DeemedRetractibles gaining 12bp. Volatility was low. Volume was very light.

PerpetualDiscounts now yield 5.26%, equivalent to 6.84% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.5% (maybe just a little bit over) so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 230bp, a significant narrowing over two days from the 240bp reported March 28.

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 0.1914 % 2,399.3
FixedFloater 4.52 % 3.92 % 38,636 17.39 1 -1.4085 % 3,447.0
Floater 3.01 % 3.01 % 44,259 19.68 3 0.1914 % 2,590.6
OpRet 4.93 % 3.17 % 46,398 1.21 6 0.0129 % 2,496.9
SplitShare 5.26 % -4.59 % 88,092 0.71 4 0.2589 % 2,684.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0129 % 2,283.2
Perpetual-Premium 5.45 % 2.65 % 93,138 0.78 25 0.1378 % 2,207.6
Perpetual-Discount 5.22 % 5.26 % 189,316 15.04 7 0.1148 % 2,381.8
FixedReset 5.05 % 3.16 % 193,024 2.23 68 0.2044 % 2,382.1
Deemed-Retractible 4.98 % 4.01 % 207,671 3.09 46 0.1157 % 2,295.0
Performance Highlights
Issue Index Change Notes
BAM.PR.G FixedFloater -1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-03-30
Maturity Price : 21.80
Evaluated at bid price : 21.00
Bid-YTW : 3.92 %
SLF.PR.G FixedReset 1.48 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.61
Bid-YTW : 3.70 %
BAM.PR.X FixedReset 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-03-30
Maturity Price : 23.04
Evaluated at bid price : 24.70
Bid-YTW : 3.66 %
Volume Highlights
Issue Index Shares
Traded
Notes
ENB.PR.H FixedReset 80,667 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-03-30
Maturity Price : 23.09
Evaluated at bid price : 25.00
Bid-YTW : 3.70 %
GWO.PR.P Deemed-Retractible 36,922 TD bought 10,000 from Scotia at 25.55.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 5.23 %
RY.PR.E Deemed-Retractible 31,397 TD crossed 30,000 at 25.54.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.55
Bid-YTW : 4.03 %
BNS.PR.Z FixedReset 28,718 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.08
Bid-YTW : 3.22 %
HSE.PR.A FixedReset 27,388 Desjardins crossed 25,000 at 25.83.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-03-30
Maturity Price : 23.50
Evaluated at bid price : 25.83
Bid-YTW : 3.28 %
FTS.PR.E OpRet 26,603 Desjardins crossed 25,000 at 26.35.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.32
Bid-YTW : 3.17 %
There were 16 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.M Deemed-Retractible Quote: 26.00 – 26.50
Spot Rate : 0.5000
Average : 0.3200

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 5.31 %

BAM.PR.G FixedFloater Quote: 21.00 – 21.50
Spot Rate : 0.5000
Average : 0.3409

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-03-30
Maturity Price : 21.80
Evaluated at bid price : 21.00
Bid-YTW : 3.92 %

BMO.PR.Q FixedReset Quote: 25.42 – 25.76
Spot Rate : 0.3400
Average : 0.1840

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.42
Bid-YTW : 3.16 %

BAM.PR.X FixedReset Quote: 24.70 – 25.15
Spot Rate : 0.4500
Average : 0.3083

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-03-30
Maturity Price : 23.04
Evaluated at bid price : 24.70
Bid-YTW : 3.66 %

PWF.PR.O Perpetual-Premium Quote: 26.20 – 26.55
Spot Rate : 0.3500
Average : 0.2339

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 5.14 %

NA.PR.M Deemed-Retractible Quote: 26.76 – 27.12
Spot Rate : 0.3600
Average : 0.2533

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-15
Maturity Price : 26.00
Evaluated at bid price : 26.76
Bid-YTW : 3.74 %

EMA.PR.A: S&P Assigns Outlook Negative

March 30th, 2012

Standard & Poor’s has announced:

  • We are revising our outlook on Emera Inc. to negative from stable
  • At the same time, we are affirming our ratings, including our ‘BBB+’ long-term corporate credit rating, on the company.
  • We base the outlook revision on our view of Emera’s weak cash flow strength that is not likely to improve, but could worsen.
  • This expectation reflects a meaningful capital expenditure program due to energy policies at both the federal and provincial level.
  • This will likely drive the need for numerous rate increases that we believe heightens regulatory risk in the Nova Scotia market.
  • The ratings reflect our opinion of the company’s strong business risk profile and significant financial risk profile.


The negative outlooks on both Emera and NSPI reflect our expectation of the heightened regulatory risk due to the potential upward pressure on rates due to expected development projects that the company is pursuing and the impact on cash flow. We believe it is possible that the company could suffer near-to-medium-term deterioration in its credit metrics. This will depend in part on the regulatory response to the capital projects, the timing of the projects’ capital deployment, and the capital structure management uses. We expect Emera to maintain an [funds-from-operations]-to-total debt of more than 12% and debt-to-EBITDA equal to or less than 6x. We could take a negative rating action if we expect the company to breach this target on a sustained basis or invest in assets with greater earnings variability or business risk; or if it does not continue to exhibit stable operating performance. Conversely, although we do not expect it during our two-year outlook horizon, we could take a positive rating action if the company adopts a more conservative financial policy.

EMA.PR.A was deleted from TXPR in July, 2011.

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