Archive for October, 2011

October 21, 2011

Friday, October 21st, 2011

The FRB-Boston has released Public Policy Discussion Paper that will be of interest to the “Occupy” mob – Quantifying the Role of Federal and State Taxes in Mitigating Income Inequality:

Income inequality has risen dramatically in the United States since at least 1980. This paper quantifies the role that the tax policies of the federal and state governments have played in mitigating this income inequality. The analysis, which isolates the contribution of federal taxes and state taxes separately, employs two approaches. First, cross-sectional estimates compare before-tax and after-tax inequality across the 50 states and the District of Columbia. Second, inequality estimates across time are calculated to assess the evolution of the effects of tax policies. The results from the first approach indicate that the tax code reduces income inequality substantially in all states, with most of the compression of the income distribution attributable to federal taxes. Nevertheless, there is substantial cross-state variation in the extent to which state tax policies compress the income distribution attributable to federal taxes. Cross-state differences in gasoline taxes have a surprisingly large impact on income compression, as do sales tax exemptions for food and clothing. The results of the second approach indicate that there has been little change since the early 1980s in the impact of tax policy on income inequality across almost all states.

Here’s a big surprise! Even bigger writedowns on Greek debt are being discussed:

European finance ministers grappled with an assessment that Greece’s economy is deteriorating as they began a six-day battle to stave off a default and shield banks from the fallout.

A review by European and International Monetary Fund experts showed Greek bond writedowns of 60 percent and more official aid would still leave the country with a debt load bigger than its annual economic output by 2020.

Europe’s international image is “disastrous,” Luxembourg Prime Minister Jean-Claude Juncker told reporters before the Brussels meeting. “We’re not really giving a great example of a high standing of state governance.”

It will be remembered that Jean-Claude Juncker is a liar with lying staff.

Yellen is talking about QE3:

Federal Reserve Vice Chairman Janet Yellen said a third round of large-scale securities purchases might become warranted if necessary to boost a U.S. economy challenged by unemployment and financial turmoil.

The central bank should also give “careful consideration” to Chicago Fed President Charles Evans’s proposal to tie the near-zero interest-rate pledge to specific levels of unemployment and inflation, Yellen said today in a speech in Denver.

The remarks signal Fed officials may be prepared to delve further into unprecedented monetary territory and take criticism inside and outside the central bank for expanding the balance sheet. Fed policy makers are struggling to lower unemployment that’s been stuck near 9 percent or higher for 30 months without boosting inflation that’s already close to the central bank’s long-run goal.

See? The Republicans may be on to something

Interesting competition for retail deposits in Europe:

The rate paid on new bank deposits for up to a year has climbed in Portugal to 4 percent from 2.56 percent in December and in Italy to 2.41 percent from 1.40 percent, according to data from the European Central Bank. Banco Espirito Santo SA (BES), Portugal’s biggest publicly traded bank, is offering a 4.83 percent average annual return on three-year deposits of more than 1,000 euros.

In September, Intesa Sanpaolo SpA (ISP), Italy’s second-largest bank, sold two-year bonds yielding 4.5 percent to customers transferring cash from competitors.

In Spain, the government acted in May to penalize banks that offered what it deemed to be overly aggressive deposit rates by requiring them to make extra contributions to deposit guarantee funds. Average rates for new bank deposits have held steady this year in Spain at about 2.6 percent.

That hasn’t stopped banks from competing to lure savings with products such as the commercial paper that Bankia is selling to retail clients to raise 1 billion euros. Governments, both national and regional, are in on the act after states including Catalonia and Andalusia offered bonds for sale.

Banco Espirito said in August that it trimmed lending by 3.1 percent from a year earlier and boosted customer funds by 23 percent to bring its loan-to-deposit ratio down to 155 percent from 198 percent a year earlier. A lower loan-to-deposit ratio is a sign the bank is less reliant on sources of funding such as bond sales to fund its business.

Santander expects lending at its Spanish branch network to shrink 3 percent a year through 2013 after it brought down the loan-to-deposit ratio at the unit to 134 percent from 159 percent in 2009.

Capital Power Corporation, proud issuer of CPX.PR.A has been confirmed at Pfd-3 by DBRS:

DBRS has historically assessed CPLP’s financial profile on a stand-alone basis and, as such, deconsolidated the results of its 29.2% ownership interest in Capital Power Income LP (CPILP; rated BBB (high), Under Review with Negative Implications). The strategic review process initiated by CPILP in the fall of 2010 resulted in an agreement (the Agreement) in which Atlantic Power Corporation (ATP) will acquire all the outstanding units of CPILP. Upon closing of the transaction in early November 2011, CPLP is expected to receive total consideration of approximately $320 million for its ownership interest in CPILP, in a mix of cash, ATP shares and assets. As part of the Agreement, CPILP will sell its Roxboro and Southport facilities, located in North Carolina, to CPLP for a purchase price of $121 million (forming a portion of combined consideration received).

The PPAs for CPILP’s North Carolina plants were finalized with Progress Energy Resources Corp. in June 2011 and DBRS expects their contribution to CPLP’s earnings to be modest, although they should also reduce uncertainty. Closing of the transaction is not expected to have any impact on the ratings of CPLP or CPC, given the modest cash contribution of CPILP to CPLP, and the consideration to be received.

It was a fairly uneventful day on the Canadian preferred share market, with PerpetualDiscounts down 3bp, FixedResets up 1bp and DeemedRetractibles gaining 4bp. There was a surprising amount of volatility for such a quiet day overall, with the majority of major changes in bid price being downwards. Volume was good.

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 -1.1652 % 1,976.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.1652 % 2,972.2
Floater 3.64 % 3.66 % 158,310 18.16 2 -1.1652 % 2,133.8
OpRet 4.85 % 2.63 % 62,814 1.54 8 0.0730 % 2,448.3
SplitShare 5.41 % 1.89 % 54,051 0.35 4 -0.0661 % 2,477.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0730 % 2,238.8
Perpetual-Premium 5.69 % 3.84 % 106,472 1.88 13 -0.1667 % 2,124.3
Perpetual-Discount 5.35 % 5.40 % 109,341 14.80 17 -0.0270 % 2,255.5
FixedReset 5.15 % 3.17 % 195,355 2.47 61 0.0144 % 2,328.4
Deemed-Retractible 5.08 % 4.60 % 219,805 5.82 46 0.0378 % 2,191.7
Performance Highlights
Issue Index Change Notes
ELF.PR.F Perpetual-Discount -2.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-21
Maturity Price : 21.95
Evaluated at bid price : 21.95
Bid-YTW : 6.09 %
BAM.PR.B Floater -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-21
Maturity Price : 14.43
Evaluated at bid price : 14.43
Bid-YTW : 3.66 %
POW.PR.C Perpetual-Premium -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-21
Maturity Price : 24.58
Evaluated at bid price : 24.82
Bid-YTW : 5.88 %
PWF.PR.M FixedReset -1.13 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 3.64 %
SLF.PR.G FixedReset -1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 3.81 %
BAM.PR.K Floater -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-21
Maturity Price : 14.41
Evaluated at bid price : 14.41
Bid-YTW : 3.67 %
IFC.PR.A FixedReset 1.40 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.36
Bid-YTW : 3.77 %
IFC.PR.C FixedReset 1.44 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 3.91 %
Volume Highlights
Issue Index Shares
Traded
Notes
ENB.PR.B FixedReset 113,925 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 3.59 %
CM.PR.D Perpetual-Premium 113,588 Desjardins crossed 50,000 at 25.11.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-21
Maturity Price : 24.70
Evaluated at bid price : 24.93
Bid-YTW : 5.78 %
CU.PR.C FixedReset 100,500 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.61
Bid-YTW : 3.60 %
IFC.PR.C FixedReset 98,345 TD crossed 11,000 at 25.21. RBC crossed 30,000 at 25.21 and 10,500 at 25.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 3.91 %
BNS.PR.N Deemed-Retractible 89,842 RBC crossed 39,900 at 25.77.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-01-27
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 4.60 %
BNS.PR.Z FixedReset 71,335 Recent secondary offering.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 3.43 %
There were 34 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
SLF.PR.H FixedReset Quote: 24.05 – 24.57
Spot Rate : 0.5200
Average : 0.3135

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.05
Bid-YTW : 4.41 %

SLF.PR.F FixedReset Quote: 25.95 – 26.50
Spot Rate : 0.5500
Average : 0.3747

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 4.66 %

PWF.PR.O Perpetual-Premium Quote: 25.40 – 25.80
Spot Rate : 0.4000
Average : 0.2881

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : 5.53 %

PWF.PR.M FixedReset Quote: 26.25 – 26.60
Spot Rate : 0.3500
Average : 0.2454

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 3.64 %

SLF.PR.G FixedReset Quote: 24.50 – 24.75
Spot Rate : 0.2500
Average : 0.1454

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 3.81 %

BMO.PR.K Deemed-Retractible Quote: 26.18 – 26.55
Spot Rate : 0.3700
Average : 0.2682

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-11-25
Maturity Price : 25.50
Evaluated at bid price : 26.18
Bid-YTW : 4.52 %

CZP.PR.A, CZP.PR.B: DBRS Warns of Possible 3-Notch Downgrade

Friday, October 21st, 2011

DBRS has announced:

On June 21, 2011, DBRS maintained Capital Power Income L.P.’s (CPILP or the Partnership) ratings Under Review with Negative Implications, pending a full review of the acquisition of CPILP by Atlantic Power Corporation (ATP, not rated by DBRS) (the Transaction). Upon further assessment, DBRS is now of the opinion that, if it closes as currently anticipated, the Transaction is expected to result in a downgrade of CPILP’s ratings to non-investment-grade category. DBRS expects to assign an Issuer Rating of BB to CPILP, a security rating of BB to CPILP’s Senior Unsecured & Medium Term Notes, and a recovery rating of RR4 (indicating an expected recovery of 30% to 50%) on the Senior Unsecured Debt & Medium-Term Notes, currently rated BBB (high). DBRS would also potentially downgrade the Cumulative Preferred Shares of CPILP’s affiliate, CPI Preferred Equity Ltd., to Pfd-4 from Pfd-3. The rating actions would result in the assignment of Stable trends.

In June 2011, DBRS had assumed, based on publicly available information on ATP and on the proposed financing of the Transaction, that the ratings of CPILP would be downgraded yet remain investment-grade. However, further review of the details of the Transaction, forecast financial profile, complex financial structure and subordination implications of the combined entity warrant a non-investment-grade rating. Post-acquisition benefits such as an increase in the average power purchase agreement (PPA) term, asset base and market capitalization, as well as greater diversification of fuel source, geography and counterparty risk, are offset by combined credit metrics that are weaker than initially anticipated. Also, an October 2011 equity offering by ATP that was moderately less than expected should result in modestly higher total debt.

Pursuant to the proposed ATP bond offering, CPILP and various subsidiaries are expected to provide guarantees that were not previously contemplated:

(1) CPILP will be guaranteeing ATP’s new $300 million secured credit facility.

(2) CPILP will be guaranteeing ATP’s intended $460 million senior unsecured bond issuance. The guarantees of the intended ATP bonds will be senior unsecured obligations of the respective guarantors and will rank equally in right of payment with all of the guarantors existing and future senior debt of the guarantor and will be effectively subordinated in right of payment to all secured debt of each guarantor.

(3) Only CPILP’s C$210 million bonds will receive a senior unsecured guarantee from ATP (with the guarantee being an obligation of ATP and subordinate to its secured $300 million credit facility). The US$415 million of CPILP subsidiary bonds (in three separate issues of US$150 million, US$75 million and US$190 million) will receive no guarantee from ATP.

DBRS expects that a final review of CPILP’s ratings will follow shortly after the November 1, 2011, shareholder vote and a full review of the final guarantee documentation to be provided by ATP.

S&P placed these issues on Watch-Negative in June, as discussed on PrefBlog. They have not made any announcements since.

Update, 2011-10-24:S&P gives Atlantic Power BB- rating:

  • Atlantic Power Corp. has executed a definitive Plan of Arrangement to
    acquire Capital Power Income L.P. (CPILP; BBB/Watch Negative), a Canada-based publicly traded limited partnership with a C$1.1 billion market cap.
  • Pro forma for the acquisition, we have assigned our ‘BB-‘ preliminary long-term corporate credit rating to Atlantic Power.
  • At the same time, we assigned our preliminary issue rating of ‘BB-‘ to Atlantic Power’s $460 million senior unsecured notes due in 2018. We also
    assigned our ‘4’ preliminary recovery rating to the notes, indicating our expectation for average (30%-50%) recovery if a payment default occurs.
  • The outlook on the ratings is stable.

Update, 2011-10-26: According to the proxy material, Atlantic Power will guarantee the preferred dividends:

9.3 Restriction on Dividends
The Guarantor hereby covenants and agrees that if and for so long as either the board of directors of the Corporation has failed to declare, or the Corporation has failed to pay, dividends on the Series 1 Shares, in each case, in accordance with the share conditions attaching thereto, then the Guarantor shall not declare or pay any dividends on its shares or make any distributions or pay any dividends on securities of any successor entity of the Guarantor.

They will continue to be guaranteed by Capital Power Income LP:

On the CPILP record date, CPI Preferred Equity Ltd. has issued 5,000,000 Series 1 Shares, 4,000,000 Series 2 Shares and no Series 3 Shares. The Series 1 Shares trade on the TSX under the symbol CZP.PR.A and the Series 2 Shares trade on the TSX under the symbol CZP.PR.B. CPILP has agreed to fully and unconditionally guarantee the Series 1 Shares, Series 2 Shares and Series 3 Shares on a subordinated basis as to: (i) payment of dividends, as and when declared; (ii) payment of amounts due on redemption; and (iii) payment of amounts due on liquidation, dissolution or winding up of CPI Preferred Equity Ltd. If, and for so long as, the declaration or payment of dividends on the Series 1 Shares, Series 2 Shares or Series 3 Shares is in arrears, CPILP will not make any distributions on the CPILP units. See ‘‘Capital Structure—Preferred Shares of CPEL’’ included in CPILP’s Annual Information Form dated March 11, 2011, which is delivered with, and/or incorporated by reference into, this joint proxy statement.

The Series 1 Shares and Series 2 Shares will remain outstanding following completion of the Plan of Arrangement in accordance with their terms. CPILP will continue to guarantee the Series 1 Shares, Series 2 Shares and Series 3 Shares on the same terms and conditions as described above and Atlantic Power will provide substantially similar guarantees in the forms attached as Schedule J to the Arrangement Agreement.

However, Atlantic Power’s guarantee isn’t worth a lot since it’s not investment-grade, and the value of CPILP’s guarantee has been diminished since it will now also guarantee Atlantic Power’s senior debt (see the DBRS notes (1) and (2) above).

Update, 2011-10-27: Atlantic Power issued 7-year paper to yield 9.50%:

Atlantic Power Corp on
Wednesday sold $460 million of senior notes in the 144a private placement market, said IFR, a Thomson Reuters service. Morgan Stanley and TD Securities were the joint bookrunning managers for the sale.
BORROWER: ATLANTIC POWER CORPORATION
AMT $460 MLN COUPON 9.00 PCT MATURITY 11/15/2018
TYPE SR NTS ISS PRICE 97.471 FIRST PAY 5/15/2012
MOODY’S B1 YIELD 9.50 PCT SETTLEMENT 11/4/2011
S&P BB-MINUS SPREAD 784 BPS PAY FREQ SEMI-ANNUAL
FITCH N/A MORE THAN TREAS MAKE-WHOLE CALL 50 BPS

BAM.PR.E / BAM.PR.G Conversion Results Announced

Friday, October 21st, 2011

Brookfield Asset Management has announced:

the results of the exercise of the conversion privilege for its Class A Preference Shares, Series 8 (the “Series 8 Preferred Shares”) (TSX: BAM.PR.E) and its Class A Preference Shares, Series 9 (the “Series 9 Preferred Shares”) (TX: BAM.PR.GS).

Holders of the company’s Series 8 Preferred Shares and Series 9 Preferred Shares had the right to exchange their shares for the other series effective November 1, 2011, if they submitted an election to convert their shares on or prior to October 18, 2011. Holders of 927,590 Series 8 Preferred Shares have elected to convert these shares into an equivalent number of Series 9 Preferred Shares, and holders of 774,036 Series 9 Preferred Shares have elected to convert these shares into an equivalent number of Series 8 Preferred Shares.

These conversions will be effective on November 1, 2011. Following these conversions, there will be 1,652,394 Series 8 Preferred Shares and 6,347,606 Series 9 Preferred Shares issued and outstanding.

The Series 8 Preferred Shares pay a monthly floating rate dividend based on the Prime Rate, adjusted to reflect the trading price of these shares. The most recent monthly dividend paid on these shares on October 12, 2011 reflected an annualized dividend rate of 3.00%. The Series 9 Preferred Shares pay a quarterly dividend which is reset every five years based on a percentage of the five-year rate offered on Government of Canada bonds at the time. As previously announced, the annual rate on the Series 9 Preferred Shares has been reset at 3.80% commencing with the dividend payable on February 1, 2012.

Holders of the company’s Series 8 and Series 9 Preferred Shares will again have the opportunity to convert their shares into the other series effective November 1, 2016 and every five years thereafter.

The conversion details were previously discussed on PrefBlog.

October 20, 2011

Thursday, October 20th, 2011

The heroes of the SEC were able to extort $280-million from Citigroup:

The SEC alleges that Citigroup Global Markets structured and marketed a CDO called Class V Funding III and exercised significant influence over the selection of $500 million of the assets included in the CDO portfolio. Citigroup then took a proprietary short position against those mortgage-related assets from which it would profit if the assets declined in value. Citigroup did not disclose to investors its role in the asset selection process or that it took a short position against the assets it helped select.

The Basel Committee on Banking Supervision has released a Progress report on Basel III implementation. With respect to Basel III implementation, Canada reports:

Draft regulation expected in May 2012 and final guidance before the end of 2012 for implementation in Q1 2013. OSFI has issued a number of public communications concerning the implementation of Basel III.

Europe remains mired in wrangling:

German Chancellor Angela Merkel has canceled a planned speech to parliament in Berlin tomorrow because of a deadlock over proposals to leverage the European Financial Stability Facility to give it more firepower, three German lawmakers said.

“It’s a disappointing development but without any concrete proposal for increasing the efficiency of the fund the chancellor can’t present a complete set of proposals tomorrow,” Norbert Barthle the ranking member of Merkel’s Christian Democratic Union party on parliament’s budget committee, told reporters. Other lawmakers confirming cancelation of Merkel’s speech were opposition members Carsten Schneider and Priska Hinz.

“The French want more money from Germany than we are prepared to shoulder,” Otto Fricke, the budget spokesman for Merkel’s Free Democratic Party ally in parliament, told reporters today.

What’s on the table? Enormous credit lines:

Europe’s bailout fund may be authorized to provide credit lines of as much as 10 percent of a country’s economy, a draft document shows.

The enhanced fund, called the European Financial Stability Facility, may be able to offer loans to countries “before they face difficulties raising funds,” the draft guidelines obtained by Bloomberg News show. Credit lines for Spain and Italy, which required European Central Bank support, could reach 270 billion euros ($371 billion).

The guidelines prompted criticism from some German lawmakers who have opposed bailout aid as France and Germany wrangled over the role of the ECB in tackling Europe’s debt crisis. Finance ministers gather in Brussels tomorrow to set a common strategy, with leaders scheduled to meet Oct. 23.

France favors creating a bank out of the EFSF, boosting its financial clout with backing from the ECB, a proposal that Germany rejects, Finance Minister Wolfgang Schaeuble told lawmakers in Berlin this week. French Prime Minister Francois Fillon said today that the euro region should agree to use leverage to make the region’s financial support fund “massive.”

Monetizing the debt through the ECB would certainly be the easiest solution. Too bad it would also be the worst.

There’s a little bit more detail regarding Kweku Adoboli / UBS, but not much:

Prosecutors amended two of the four charges against Adoboli to indicate that records he allegedly falsified were on ETF trades. A London magistrates court today transferred the case against the 31-year-old to a criminal court where he will be expected to enter a plea on the accusations at a Nov. 22 hearing.

UBS questioned one of Adoboli’s trades in August this year, and he “provided a good and plausible explanation,” Williams said. The bank then asked him on Sept. 13 about further trades he’d made that could expose the bank to large losses, and whether he’d told the credit-risk department. He said he hadn’t.

The following day, UBS asked him to confirm “the exact identities of the counterparties” on the trades and he didn’t respond, Williams said at the hearing today. Adoboli left the office at lunchtime and went to his apartment in east London, where he e-mailed the bank about the positions.

“The bank was anxious to have him explain,” and he returned at 3:45 p.m. and cooperated with UBS managers, the prosecutor said. The bank called the police late that night and Adoboli was taken to Bishopsgate precinct, the closest one to UBS’s London headquarters. He was cautioned about his rights and interviewed and “made no admissions,” Williams said.

In addition to the departure of Gruebel and the co-heads of global equities, Francois Gouws and Yassine Bouhara, the bank has suspended “a number of front office staff” pending further disciplinary action, Carsten Kengeter, head of the investment bank, said in a memo to staff.

Sounds like just another case of shitty management at an investment bank keeping sloppy records. Yawn.

I hadn’t realized this before but OMERS is in the mutual fund business. Many municipal employees – particularly the 75% (?) of the populace whose objective is to think about financial planning as little as possible – would be well advised to participate.

DBRS confirmed PFR.UN at STA-2:

The main constraints to the rating are the interest rate risk of the Portfolio and the potential for capital losses and reductions in income resulting from underlying securities being called for redemption by their respective issuers.

Seems to me to be a virtual certainty that one or the other of those risks will be realized.

DBRS confirmed NA at Pfd-2:

While strong market shares in the home province remain a key strength of the Bank, the rating reflects the Bank’s regional concentration in Québec, which accounted for 68% of its revenues in 2010, up from an average of 64% over the previous four years. National’s revenue is diversified by business line: the Bank generated 48% of earnings for the first three quarters of 2011 (excluding the Other segment) from the personal and commercial banking unit, 39% of earnings from the financial markets business and 13% from its wealth management operations.

Dan Hallett writes an entertaining piece in the Globe titled BMO income fund sets yield bar unreachably high:

In his recent article, Mr. Heinzl points out that the fund’s hefty monthly cash payout – now equal to more than 9.5 per cent annualized net of fees – has been well above the fund’s longer-term returns.

Earlier this year, I tested the BMO Monthly Income’s distribution for sustainability. I found that since the managers would have to generate more than 17 per cent annually from its stock picks that the distribution would either need to be cut or risk further eating into the fund’s principal.

BMO insists the payout is sustainable, an assertion they base on the fund’s net inflows.

I love that last paragraph quoted – Madoff was saying the same thing.

When I think of all the agonizing that has gone into my estimates of sustainable income for MAPF, this kind of stuff drives me wild … but BMO can afford to hire more ex-regulators than I can, so I suppose it’s OK.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts winning 14bp, FixedResets up 1bp and DeemedRetractibles losing 7bp. Volatility was average, as was volume.

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 -0.9168 % 1,999.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.9168 % 3,007.2
Floater 3.60 % 3.61 % 155,589 18.27 2 -0.9168 % 2,158.9
OpRet 4.86 % 2.59 % 65,093 1.55 8 0.2881 % 2,446.5
SplitShare 5.41 % 0.73 % 54,755 0.36 4 0.3250 % 2,479.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2881 % 2,237.1
Perpetual-Premium 5.68 % 3.74 % 105,131 0.52 13 0.0455 % 2,127.8
Perpetual-Discount 5.35 % 5.40 % 110,744 14.80 17 0.1351 % 2,256.1
FixedReset 5.15 % 3.23 % 196,233 2.47 61 0.0107 % 2,328.1
Deemed-Retractible 5.08 % 4.56 % 210,053 7.64 46 -0.0738 % 2,190.9
Performance Highlights
Issue Index Change Notes
SLF.PR.H FixedReset -2.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.10
Bid-YTW : 4.39 %
SLF.PR.B Deemed-Retractible -1.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.24
Bid-YTW : 6.35 %
BAM.PR.M Perpetual-Discount 1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-20
Maturity Price : 21.91
Evaluated at bid price : 22.17
Bid-YTW : 5.40 %
FTS.PR.E OpRet 1.06 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.80
Bid-YTW : 2.59 %
ELF.PR.F Perpetual-Discount 1.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-20
Maturity Price : 22.11
Evaluated at bid price : 22.40
Bid-YTW : 5.95 %
BAM.PR.J OpRet 2.15 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 4.65 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.G FixedReset 158,232 Nesbitt crossed two blocks of 40,000 each, both at 26.95. TD crossed blocks of 25,000 and 50,000, both at the same price again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.94
Bid-YTW : 2.97 %
RY.PR.E Deemed-Retractible 142,064 RBC crossed 130,600 at 25.00.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 4.61 %
BNS.PR.Z FixedReset 99,030 Recent secondary offering.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.66
Bid-YTW : 3.44 %
IFC.PR.A FixedReset 74,450 Nesbitt crossed 50,000 at 25.05; RBC crossed 18,700 at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.01
Bid-YTW : 3.94 %
CM.PR.G Perpetual-Discount 72,112 Desjardins crossed 44,000 at 24.85.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-20
Maturity Price : 24.53
Evaluated at bid price : 24.85
Bid-YTW : 5.44 %
BMO.PR.M FixedReset 64,840 RBC crossed two blocks of 30,000 each, both at 26.08.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-25
Maturity Price : 25.00
Evaluated at bid price : 26.06
Bid-YTW : 3.07 %
There were 32 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CIU.PR.A Perpetual-Discount Quote: 24.15 – 24.70
Spot Rate : 0.5500
Average : 0.3334

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-20
Maturity Price : 23.67
Evaluated at bid price : 24.15
Bid-YTW : 4.80 %

BMO.PR.K Deemed-Retractible Quote: 26.16 – 26.43
Spot Rate : 0.2700
Average : 0.1566

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-11-25
Maturity Price : 25.50
Evaluated at bid price : 26.16
Bid-YTW : 4.55 %

BAM.PR.X FixedReset Quote: 23.86 – 24.15
Spot Rate : 0.2900
Average : 0.2022

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-20
Maturity Price : 22.68
Evaluated at bid price : 23.86
Bid-YTW : 3.85 %

IAG.PR.F Deemed-Retractible Quote: 25.73 – 26.00
Spot Rate : 0.2700
Average : 0.1923

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.73
Bid-YTW : 5.61 %

TRP.PR.A FixedReset Quote: 25.80 – 26.05
Spot Rate : 0.2500
Average : 0.1727

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-20
Maturity Price : 23.60
Evaluated at bid price : 25.80
Bid-YTW : 3.44 %

ENB.PR.A Perpetual-Premium Quote: 25.37 – 25.63
Spot Rate : 0.2600
Average : 0.1920

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-11-19
Maturity Price : 25.00
Evaluated at bid price : 25.37
Bid-YTW : -3.46 %

CIU Issues Long Term Paper at 4.543% & 4.593%

Thursday, October 20th, 2011

Canadian Utilities has announced:

that it will issue $500,000,000 of 4.543% Debentures maturing on October 24, 2041, at a price of $100.00 to yield 4.543% and $200,000,000 of 4.593% Debentures maturing on October 24, 2061, at a price of $100.00 to yield 4.593%. These issues were sold by BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., TD Securities Inc. and ScotiaCapital Inc. Proceeds from the issue will be used to finance capital expenditures, to repay existing indebtedness, and for other general corporate purposes of ATCO Electric Ltd. and ATCO Gas and Pipelines Ltd.

By way of comparison with the preferred share market …

CIU.PR.A Perpetual-Discount Quote: 24.15 – 24.70

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-20
Maturity Price : 23.67
Evaluated at bid price : 24.15
Bid-YTW : 4.80 %

The YTW of 4.80% is equivalent to 6.24% interest at the standard 1.3x equivalency factor, implying that the Seniority Spread for this issuer is about 165bp.

CIU is also the proud issuer of CIU.PR.B and CIU.PR.C, both FixedResets.

Update, 2011-10-24: Debentures rated A(high) by DBRS.

October 19, 2011

Thursday, October 20th, 2011

BAM levered up a little more:

Brookfield-family companies are hot commodities in new-issue markets.

After launching a bought deal late on Tuesday, Brookfield Infrastructure (BIP.UN-T25.63-0.22-0.85%) announced on Wednesday that its offering has been upsized to a total of $588-million. About 70 per cent of that comes from public investors, and the remainder comes from parent company Brookfield Asset Management Inc., which bought more shares to keep its 30 per interest in the subsidiary.

I’m not sure I’m too happy about this. More assets means more fees, but more investment means more leverage.

DBRS confirmed L.PR.A at Pfd-3:

DBRS has today confirmed Loblaw Companies Limited’s (Loblaw or the Company) Medium-Term Notes and Debentures ratings at BBB, its Cumulative Redeemable Second Preferred Shares, Series A rating at Pfd-3, and its Commercial Paper rating at R-2 (middle). All trends remain Stable. The ratings reflect Loblaw’s strong market position, large scale and national diversification, balanced by the mature nature of the core business.

The WN.PR.A, WN.PR.C, WN.PR.D & WN.PR.E issues of Weston were confirmed at Pfd-3 by DBRS:

DBRS has today confirmed the ratings of the Notes & Debentures of George Weston Limited (Weston or the Company) at BBB, the Preferred Shares at Pfd-3 and the Commercial Paper at R-2 (high), all with Stable trends. Weston’s business risk profile remains well placed in the BBB rating category based on the Company’s strong brands and above-average operating efficiency. The Stable trend reflects DBRS’s expectation that Weston will continue to achieve growth in EBITDA from further brand development, operational efficiency gains and new investments. Weston has been successful at maintaining its market position while passing on price increases, at least partially offsetting the effects of a rising input cost environment. The significant increase in the Company’s pro forma adjusted EBITDA in 2010 (approximately $280 million versus approximately $225 million in 2009) was primarily the result of improved operational efficiencies as well as acquisitions (e.g., Ace Bakery Ltd. and Keystone Bakery Holdings, LLC). Weston used approximately $300 million of its cash on hand to finance the acquisition of the aforementioned EBITDA generating businesses. In addition, the Company used $1 billion of cash to fund a special dividend to shareholders in January 2011.

The Assistant Croupier went to BMO:

The mystery of what happened to Mark White, who had been one of the top three individuals in command at Canada’s banking and insurance regulator, has been solved.

Bank of Montreal chief financial officer Tom Flynn sent a note to the bank’s employees Wednesday announcing that Mr. White is joining BMO effective Nov. 1 as senior vice-president of capital management and optimization. The rumour since this summer had been that Mr. White was going to BMO (BMO-T58.49-0.32-0.54%) , but all parties involved had remained mum.

After screwing up the preferred share market, now he can work on more general projects, as revolving door regulation continues to be the norm.

At Ivey School of Business, professors lie to students. For their own good, of course.

It was a quiet day for the Canadian preferred share market, with PerpetualDiscounts up 4bp, FixedResets gaining 6bp and DeemedRetractibles winning 7bp. Volatility was dominated by BAM and related issuers.

PerpetualDiscounts now yield 5.42%, equivalent to 7.05% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 5.0%, so the pre-tax interest-equivalent spread is now 205bp, unchanged from the number reported October 12.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.3072 % 2,018.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.3072 % 3,035.0
Floater 3.57 % 3.58 % 155,620 18.34 2 1.3072 % 2,178.9
OpRet 4.87 % 3.23 % 62,891 1.55 8 -0.3600 % 2,439.5
SplitShare 5.43 % 0.72 % 54,322 0.36 4 0.4245 % 2,471.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.3600 % 2,230.7
Perpetual-Premium 5.69 % 4.10 % 106,142 0.36 13 -0.0152 % 2,126.8
Perpetual-Discount 5.35 % 5.42 % 111,840 14.78 17 0.0393 % 2,253.1
FixedReset 5.15 % 3.23 % 198,430 2.47 61 0.0559 % 2,327.8
Deemed-Retractible 5.08 % 4.57 % 213,178 5.82 46 0.0730 % 2,192.5
Performance Highlights
Issue Index Change Notes
BAM.PR.J OpRet -2.48 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 5.04 %
BAM.PR.B Floater 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-19
Maturity Price : 14.75
Evaluated at bid price : 14.75
Bid-YTW : 3.58 %
BAM.PR.R FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-19
Maturity Price : 23.50
Evaluated at bid price : 26.10
Bid-YTW : 3.93 %
BNA.PR.E SplitShare 1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 22.40
Bid-YTW : 7.13 %
IAG.PR.A Deemed-Retractible 1.46 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.29
Bid-YTW : 6.10 %
BAM.PR.K Floater 1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-19
Maturity Price : 14.70
Evaluated at bid price : 14.70
Bid-YTW : 3.59 %
Volume Highlights
Issue Index Shares
Traded
Notes
CU.PR.C FixedReset 151,125 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.33
Bid-YTW : 3.82 %
BNS.PR.Z FixedReset 81,145 Recent secondary offering.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.67
Bid-YTW : 3.44 %
TRP.PR.A FixedReset 69,750 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-19
Maturity Price : 23.61
Evaluated at bid price : 25.83
Bid-YTW : 3.44 %
RY.PR.E Deemed-Retractible 64,093 RBC crossed 50,000 at 25.00.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 4.62 %
BNS.PR.Q FixedReset 53,181 TD crossed blocks of 32,400 and 15,000, both at 25.85.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-25
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 3.08 %
SLF.PR.H FixedReset 49,800 TD sold 12,500 to anonymous at 24.77.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.65
Bid-YTW : 4.11 %
There were 28 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TCA.PR.Y Perpetual-Premium Quote: 51.61 – 52.09
Spot Rate : 0.4800
Average : 0.3824

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-05
Maturity Price : 50.00
Evaluated at bid price : 51.61
Bid-YTW : 4.10 %

BAM.PR.N Perpetual-Discount Quote: 22.11 – 22.38
Spot Rate : 0.2700
Average : 0.1914

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-19
Maturity Price : 21.83
Evaluated at bid price : 22.11
Bid-YTW : 5.41 %

GWO.PR.L Deemed-Retractible Quote: 25.17 – 25.43
Spot Rate : 0.2600
Average : 0.1857

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.17
Bid-YTW : 5.64 %

FTS.PR.F Perpetual-Discount Quote: 24.80 – 25.00
Spot Rate : 0.2000
Average : 0.1406

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-19
Maturity Price : 24.50
Evaluated at bid price : 24.80
Bid-YTW : 4.99 %

HSB.PR.D Deemed-Retractible Quote: 24.64 – 24.90
Spot Rate : 0.2600
Average : 0.2050

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.64
Bid-YTW : 5.25 %

PWF.PR.F Perpetual-Discount Quote: 24.28 – 24.51
Spot Rate : 0.2300
Average : 0.1751

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-19
Maturity Price : 24.03
Evaluated at bid price : 24.28
Bid-YTW : 5.42 %

BCE.PR.S / BCE.PR.T Conversion Results Announced

Wednesday, October 19th, 2011

BCE Inc. has announced:

that 468,442 of its 2,279,791 floating-rate Cumulative Redeemable First Preferred Shares, Series S (series S preferred shares) have been tendered for conversion on November 1, 2011, on a one-for-one basis, into fixed-rate Cumulative Redeemable First Preferred Shares, Series T (series T preferred shares). In addition, 1,794,876 of its 5,720,209 series T preferred shares have been tendered for conversion on 1, 2011, on a one-for-one basis, into series S preferred shares. Consequently, on November 1, 2011 will have 3,606,225 series S preferred shares and 4,393,775 series T preferred shares issued and outstanding. The series S preferred shares and the series T preferred shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.S and BCE.PR.T, respectively.

The series S preferred shares will continue to pay a monthly floating adjustable cash dividend for the five-year period beginning on November 1, 2011, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated based on the prime rate for such month and using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the series S preferred shares in the preceding month) and the Designated Percentage for the preceding month.

The series T preferred shares will pay on a quarterly basis, for the five-year period beginning on November 1, 2011, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual fixed dividend rate of 3.393%.

I had previously recommended that shareholders continue to hold, or convert to, BCE.PR.T. Nobody ever listens to me.

October 18, 2011

Tuesday, October 18th, 2011

Interesting article about the R&D Tax Credits:

Open Text Corp. chairman Tom Jenkins, who spent the past year investigating Canada’s R&D spending, said he was stunned at how little effort is spent figuring out what works, and what doesn’t.

That’s true of all government programmes – particularly securities regulation, I might say. If it sounds good, do it! is the slogan, and if you go back to something after five years and find out it’s done nothing – or made matters worse – in order to change the programme … well, that would look like you made a mistake, so don’t check.

Europe is having some success in gaining the ability to manipulate sovereign debt markets:

The European Union reached a deal as part of a short-selling law that will pave the way for an optional ban on naked credit-default swaps on sovereign debt.

Poland, which holds the rotating presidency of the EU, and lawmakers from the European Parliament, reached the accord at a meeting in Brussels, EU spokeswoman Chantal Hughes said.

Under today’s deal, traders may be prevented from buying CDS on government bonds unless they either own the sovereign debt or other assets whose price moves in tandem with it. Nations will have the right to opt out of the measure if they detect signs that it may affect their borrowing costs.

German Finance Minister Wolfgang Schaeuble and lawmakers in the European Parliament have called for a ban on naked CDS trades on government debt over concerns the practice fueled the euro zone’s debt crisis. Germany already has restrictions on using swaps to bet on sovereign defaults.

Some European governments have also criticized the use of short selling to bet against bank stocks, arguing that the practice has roiled markets. Volatility that sent European bank stocks to two-year lows led France, Spain, Belgium and Italy in August to impose temporary bans on short selling that remain in force.

I’m not sure that this will have any effect – buying protection naked is simply a convenient way to short bonds. Sovereigns are, as a rule, fairly easy to borrow and therefore also fairly easy to short. Forward and Futures contracts are also generally available.

Moody’s cut Spain two notches:

Spain’s credit rating was cut for the third time since June 2010 by Moody’s Investors Service as Europe’s sovereign-debt crisis threatens to engulf the nation.

Moody’s reduced its ranking to its fifth-highest investment grade, cutting it by two levels to A1 from Aa2, with the outlook remaining negative, the rating company said in a statement today. Standard & Poor’s downgraded Spain on Oct. 14 to its fourth-highest investment grade after Fitch Ratings cut it to the same level on Oct. 7, the day it also downgraded Italy.

Spain continues to be vulnerable to market stress and event risk while already moderate growth prospects for the nation have been scaled back further, Moody’s said in the statement.

Tomorrow’s report will be greatly delayed because I’m going to go see Chess again. Yes, I know that when I reviewed it on October 7 I said I didn’t like the production … but six months ago when I heard it was coming to town, I decided that if I was going to wait twenty-five years to see a show, I was damn well going to see it twice.

It was a negative day for the Canadian preferred share market, with PerpetualDiscounts losing 18bp, FixedResets down 11bp and DeemedRetractibles off 6bp. Volatility was mild. Volume was heavy.

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 0.5534 % 1,992.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.5534 % 2,995.9
Floater 3.61 % 3.62 % 154,567 18.26 2 0.5534 % 2,150.8
OpRet 4.85 % 2.95 % 62,777 1.55 8 -0.0292 % 2,448.3
SplitShare 5.45 % 1.85 % 53,350 0.36 4 -0.0526 % 2,460.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0292 % 2,238.8
Perpetual-Premium 5.69 % 3.94 % 107,648 0.36 13 -0.1060 % 2,127.2
Perpetual-Discount 5.36 % 5.41 % 112,222 14.77 17 -0.1790 % 2,252.2
FixedReset 5.15 % 3.25 % 201,139 2.47 61 -0.1098 % 2,326.5
Deemed-Retractible 5.08 % 4.58 % 214,281 7.64 46 -0.0624 % 2,190.9
Performance Highlights
Issue Index Change Notes
GWO.PR.H Deemed-Retractible -1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.36
Bid-YTW : 5.77 %
SLF.PR.F FixedReset -1.22 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.93
Bid-YTW : 4.68 %
SLF.PR.C Deemed-Retractible -1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.11
Bid-YTW : 6.63 %
POW.PR.B Perpetual-Discount -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-18
Maturity Price : 24.31
Evaluated at bid price : 24.62
Bid-YTW : 5.45 %
SLF.PR.E Deemed-Retractible -1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.31
Bid-YTW : 6.56 %
GWO.PR.I Deemed-Retractible 1.46 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.20
Bid-YTW : 6.04 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.Z FixedReset 143,040 Secondary offering.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.65
Bid-YTW : 3.45 %
RY.PR.F Deemed-Retractible 113,155 RBC crossed blocks of 48,000 and 37,400, both at 24.90.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 4.58 %
ENB.PR.B FixedReset 64,720 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 3.66 %
CU.PR.C FixedReset 62,799 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.33
Bid-YTW : 3.82 %
CM.PR.I Deemed-Retractible 46,487 TD crossed 35,000 at 25.16.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.11
Bid-YTW : 4.57 %
TRP.PR.C FixedReset 45,307 Scotia crossed 25,000 at 25.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-18
Maturity Price : 23.34
Evaluated at bid price : 25.36
Bid-YTW : 3.19 %
There were 45 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
NA.PR.N FixedReset Quote: 25.95 – 26.45
Spot Rate : 0.5000
Average : 0.3502

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-15
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 3.02 %

SLF.PR.F FixedReset Quote: 25.93 – 26.45
Spot Rate : 0.5200
Average : 0.3718

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.93
Bid-YTW : 4.68 %

BNA.PR.E SplitShare Quote: 22.12 – 22.55
Spot Rate : 0.4300
Average : 0.3040

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 22.12
Bid-YTW : 7.37 %

TD.PR.C FixedReset Quote: 26.26 – 26.51
Spot Rate : 0.2500
Average : 0.1594

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.26
Bid-YTW : 3.22 %

ENB.PR.B FixedReset Quote: 25.50 – 25.75
Spot Rate : 0.2500
Average : 0.1629

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 3.66 %

TRP.PR.C FixedReset Quote: 25.36 – 25.59
Spot Rate : 0.2300
Average : 0.1447

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-10-18
Maturity Price : 23.34
Evaluated at bid price : 25.36
Bid-YTW : 3.19 %

Moody's puts SLF on Review-Negative

Tuesday, October 18th, 2011

Moody’s has announced:

oody’s Investors Service has placed on review for possible downgrade the Aa3 insurance financial strength (IFS) rating of Sun life Assurance Company of Canada (U.S.) (Sun Life US), the wholly-owned U.S. life insurance subsidiary of Sun Life Financial Inc. (SLF: TSX;SLF; preferred stock at Baa2 (hyb)). Other affiliated U.S. ratings were also placed on review for possible downgrade (see list, below). Moody’s has also affirmed the Aa3 insurance financial strength rating of SLF’s Canadian subsidiary, Sun Life Assurance Company of Canada (SLA), and the ratings of other Canadian affiliates, but changed the outlook to negative from stable. The rating actions follow SLF’s pre-announcement of a $621 million IFRS loss for 3Q11, and a further estimated $500 million reduction in fourth quarter consolidated net income, due to a method and assumption change related to the valuation of its variable annuity and segregated fund liabilities.

RATINGS RATIONALE

Commenting on the review for possible downgrade of Sun Life US, Moody’s said that the pre-release of SLF’s 3Q11 IFRS earnings, announcing sizable consolidated operating and net losses, was largely related to the interest rate and equity market sensitivity of its US business, much of which is at Sun Life US (with the remainder at the US branch of SLA). The announced $500 million charge to 4Q11 is also largely related to the US operations. Moody’s Vice President David Beattie said, “Sun Life US had been experiencing persistent earnings weakness and volatility over multiple quarters due to its equity market exposure and emphasis on variable annuity sales. Despite hedging programs, earnings volatility and potential economic losses related to interest rate and equity market sensitivity continues to be a credit concern. “

Moody’s stated that the change in SLA’s outlook to negative reflects the group’s diminished full-year consolidated profitability as a result of these charges and anticipated continued drag on earnings from Sun Life US, as well as weaker financial flexibility due to capital charges and the potential need to maintain higher than historical levels of capital to support the U.S. operations. SLA currently remains well capitalized with a MCCSR of approximately 210% as at September 30, 2011, down from 231% at the end of 2Q11.

The following ratings were affirmed and the outlook changed to negative from stable:

Sun Life Financial, Inc. — preferred stock at Baa2 (hyb)

Moody’s does not rate the other four investment grade Canadian insurers.

This announcement follows SLF’s announcement of big charges in a press release that I discussed on October 17.

SLF has many preferred shares outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D and SLF.PR.E (all DeemedRetractible) as well as SLF.PR.F, SLF.PR.G and SLF.PR.H (all FixedReset).

DBRS commented:

The majority of the loss consists of the adverse impact of the unprecedented decline in long-term interest rates and in equity markets between the second and third quarters in the U.S. and Canadian markets, which DBRS estimates having cost the Company close to $700 million, as well as a $200 million adverse reserve adjustment as a result of a change in the Company’s actuarial methods and assumptions. This annual adjustment to actuarial assumptions occurs normally in the third quarter of each fiscal year. Offsetting these items are core earnings of $400 million.

DBRS is concerned that market exposures, which are largely hedged, continue to have an outsized impact on reported earnings, albeit within the sensitivities published by the Company. If interest rates and equity markets continue to experience downward pressure from the uncertain economic environment, with an accompanying increase in earnings volatility, DBRS will have to review its rating on the life insurance industry generally, which could give rise to negative rating actions for insurance companies with relatively large capital markets exposures.

As a result of the weak Q3 2011 results, the Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio for the Company’s major operating subsidiary, Sun Life Assurance Company of Canada, is expected to fall to 210% from 231% at the end of Q2 2011. This result remains above the Company’s target ratio of 180% to 200%. Nevertheless, the Company’s financial flexibility will have deteriorated.

S&P remarked:

Standard & Poor’s Ratings Services said today that its ratings on Sun Life Financial Inc. (SLF; A/Stable/A-1) and Sun Life Assurance Co. of Canada (SLA; AA-/Stable/A-1+) and other rated affiliates (collectively Sun Life) are unchanged following the company’s pre-release of expected third-quarter results before the scheduled Nov. 3, 2011, earnings call, including comments on planned accounting changes in the fourth quarter. Sun Life’s reported results are within our ratings expectations not withstanding the lower equity markets’ and interest rates’ impact on earnings and capital.

Given the very low interest rates, the potential for further declines, particularly in the rates on U.S. treasuries, is limited.

We view Sun Life’s planned accounting revision for its hedging costs as inherently neutral to the ratings because it does not represent a change in the economics of the business.

BNS.PR.Z: Secondary Offering

Tuesday, October 18th, 2011

I have been advised that Dundee Corporation is selling a big chunk of the BNS.PR.Z shares it received as part of its proceeds for the sale of Dundee Wealth to Scotia.

The original deal size was 3-million shares at 24.75, but I also understand that the deal has been upsized to 7-million shares.

I have not, as yet, been able to find an authoritative and public source for documents related to this sale – no press release, no nuthin’.

BNS.PR.Z was last discussed on PrefBlog with respect to its mysteriously vanishing regulatory event clause.

Update, 2011-10-27: Dundee press release:

TORONTO, ONTARIO, October 18, 2011 — Dundee Corporation (TSX: DC.A, DC.PR.A, DC.PR.B) announced today that it has sold 7,000,000 Scotiabank Preferred Shares Series 32 at a price of $24.75 per share, for total gross proceeds of $173,250,000, which will be added to working capital. The shares were initially acquired by Dundee Corporation as part of the consideration paid for the sale of its interest in DundeeWealth Inc. to Scotiabank. A syndicate of agents, led by TD Securities, co-led by Scotia Capital Inc. and including Dundee Securities Ltd., BMO Capital Markets, CIBC, RBC Capital Markets, National Bank Financial Inc., GMP Securities L.P. and Desjardins Securities Inc. acted in the sale of these shares. Dundee Corporation will receive the dividend of $0.23 per Preferred Share, Series 32 that was declared on August 30, 2011 and payable on October 27, 2011.