PrefBlog

This issue was announced May 7. It seemed reasonable – if aggressive – at the time … but the credit ratings aren’t all that great AND it’s a perp.

The HIMI PerpetualDiscount index is down 0.66% since the announcement date AND credit spreads have widened.

The curvePrice of this issue, measured against the taxable curve, is now $24.34.

Price due to base-rate :  23.52
Price due to short-term :  -0.50
Price due to long-term :   1.63
Price due to Interest Income :   0.00
Price to to Cumulative Dividends :   0.00
Price due to SplitShareCorp :   0.00
Price due to Retractibility :   0.00
Price due to Credit Spread (2) :   0.00
Price due to Liquidity :   1.21
Price due to Floating Rate :   0.00
Price due to Credit Spread (3) :  -1.69
Price due to error :   0.17
Price due to Credit Spread (High) :   0.00
Price due to Credit Spread (Low) :   0.00

Now, Pfd-3 issues are very hard to analyze … they behave less like fixed-income instruments than higher rated issues. And this issue has a “split rating” – S&P rates them P-2(low), higher than does DBRS (Pfd-3(high)) – which makes things even more difficult.

When the issue was announced, the curve price was $24.66:

Price due to base-rate :  23.43
Price due to short-term :  -0.24
Price due to long-term :   1.42
Price due to Interest Income :   0.00
Price to to Cumulative Dividends :   0.00
Price due to SplitShareCorp :   0.00
Price due to Retractibility :   0.00
Price due to Credit Spread (2) :   0.00
Price due to Liquidity :   1.48
Price due to Floating Rate :   0.00
Price due to Credit Spread (3) :  -1.57
Price due to error :   0.14
Price due to Credit Spread (High) :   0.00
Price due to Credit Spread (Low) :   0.00

I will be glued to my screen on the projected closing date of May 25, eager to see how this one plays out!

Update, 2007-5-22: Curve Price now 24.22.

Update, 2007-5-23: Curve Price now 24.08.

Update, 2007-5-24: Will commence trading tomorrow, with the symbol EPP.PR.A. Curve Price now 23.81. We shall see!

S&P today:

placed the ratings on Bank of Montreal (BMO) and its related subsidiaries, including the ‘AA-‘ long-term counterparty credit rating on BMO, on CreditWatch with negative implications.

…

The absolute size of the estimated commodity trading losses far exceeds the bank’s average market value exposure to commodities risk, is disproportionate to its total trading revenues, and does not reflect BMO’s stated strategy of being a low-risk bank.

Standard & Poor’s will be conducting a full review of BMO’s trading risk management and trading operations within the next 30 days, with a particular focus on its commodities trading operations, and its back and middle offices.

Following our review, should the bank’s trading risk and enterprise risk management not meet our expectations, both the short- and long-term ratings could be lowered by one notch.

This follows revelations of trading losses of $680-million. The $680-million figure cannot be taken too seriously – three weeks ago it was somewhere between $350-million and $450-million.

BMO has the following preferred share issues outstanding: BMO.PR.G BMO.PR.H BMO.PR.I BMO.PR.J & BMO.PR.V.

The rogue (or simply incompetent) managers at BMO are going to have to have a lot of lunches with each other to fix this one up! Expect to see a few clerks thrown to the wolves.

R Split II Corp. is not part of the HIMIPref™ universe, but I’ll pass along this announcement:

R Split II Corp. (the “Company”) announced today that it has called 104,517 Preferred Shares for cash redemption on May 31, 2007 (in accordance with the Company’s Articles) representing approximately 17.927% of the outstanding Preferred Shares as a result of the special annual retraction of 281,824 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 May 30, 2007 will have approximately 17.927% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $30.50 per share.

…

R Split II Corp. is a mutual fund corporation created to hold a portfolio of common shares of Royal Bank of Canada. Capital Shares and Preferred Shares of R Split II Corp. are listed for trading on The Toronto Stock Exchange under the symbols RBT and RBT.PR.A respectively.

B Split II Corporation is no longer part of the HIMIPref™ universe (BXN.PR.A was tracked until its redemption 2005-6-2) but I’ll post the following announcement anyway:

B Split II Corp. (the “Company”) announced today that it has called 804,057 Preferred Shares for cash redemption on June 1, 2007 (in accordance with the Company’s Articles) representing approximately 3.514% of the outstanding Preferred Shares as a result of the special annual retraction of 845,121 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 May 31, 2007 will have approximately 43.514% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $9.75 per share.

…

B Split II Corp. is a mutual fund corporation created to hold a portfolio of common shares of BCE Inc. Capital Shares and Preferred Shares of B Split II Corp. are listed for trading on The Toronto Stock Exchange under the symbols BXN and BXN.PR.B respectively.

Now that the Capital units have finally shown some gains, I suppose a lot of holders wanted to lock them in!