Archive for October, 2012

October 24, 2012

Thursday, October 25th, 2012

Today’s FOMC statement was accomodative:

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of Treasury securities, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
….
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and disagreed with the description of the time period over which a highly accommodative stance of monetary policy will remain appropriate and exceptionally low levels for the federal funds rate are likely to be warranted.

The Globe published a nice essay on What-Debt’s muscleheaded nationalism:

State-owned enterprises have been active participants in the global economy for decades. In fact, they drive 70 per cent of activity in the global energy sector.

Canada knows a thing or two about so-called SOEs. Not so very long ago we had Petro-Canada, Canadian National and Air Canada. We still have Canada Post, which acquired Purolator Courier to compete with UPS and FedEx. We own “Crown corporations,” such as Ridley Terminals (for which I used to be chairman), which fulfills no discernible public policy purpose other than to generate profits for their owners, the taxpayer.

The apparent indigestion being caused by the CNOOC-Nexen and Petronas-Progress deals has nothing to do with their size or even the “strategic” nature of their industries. There is nothing strategic to Canada in either Nexen or Progress. The real issue is who the investors are and where they come from.

And in other Ottawa news:

The Conservative government no longer has targets for erasing Canada’s federal debt, which grew by $125-billion since the recession.

Finance Minister Jim Flaherty confirmed Wednesday that the recession has derailed Ottawa’s long-term debt plans and new targets won’t be set until the government starts posting yearly surpluses again – which is not forecasted to happen for three more years.

Too bad we don’t have a structural surplus of $10-billion p.a. any more. Oh, well…

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums down 2bp, FixedResets up 6bp and DeemedRetractibles gaining 3bp. Volatility was almost non-existent. Volume was quite heavy.

PerpetualDiscounts now yield 4.92%, equivalent to 6.40% interest at the standard equivalency factor of 1.3x. Long corporates are at about 4.35% so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now at about 205bp, slightly (and perhaps spuriously) wider than the 200bp reported October 17.

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 -0.0933 % 2,464.5
FixedFloater 4.13 % 3.46 % 37,161 18.42 1 0.6565 % 3,895.7
Floater 2.80 % 2.99 % 51,734 19.76 4 -0.0933 % 2,661.0
OpRet 4.63 % 2.26 % 39,179 0.64 4 -0.1429 % 2,567.5
SplitShare 5.40 % 4.85 % 68,847 4.49 3 -0.1311 % 2,842.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1429 % 2,347.8
Perpetual-Premium 5.29 % 1.27 % 85,049 0.34 27 -0.0223 % 2,306.5
Perpetual-Discount 5.02 % 4.92 % 46,084 15.46 4 -0.1128 % 2,578.2
FixedReset 4.97 % 3.01 % 200,030 3.82 73 0.0604 % 2,444.5
Deemed-Retractible 4.95 % 3.52 % 133,724 1.14 47 0.0283 % 2,381.2
Performance Highlights
Issue Index Change Notes
SLF.PR.I FixedReset 1.13 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.31 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.P FixedReset 337,540 Nesbitt crossed one block of 100,000 and two blocks of 50,000 each, both at 25.10. Desjardins crossed 22,300 at 25.09 and 57,700 at 25.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 3.43 %
BNS.PR.Q FixedReset 193,615 RBC crossed blocks of 49,000 and 100,000, both at 25.25.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.24
Bid-YTW : 3.15 %
GWO.PR.G Deemed-Retractible 182,311 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 4.66 %
TD.PR.I FixedReset 143,100 Nesbitt crossed 40,000 at 26.82. TD crossed two blocks of 50,000 each, both at 26.82.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.78
Bid-YTW : 2.08 %
BNS.PR.O Deemed-Retractible 126,300 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-04-26
Maturity Price : 26.00
Evaluated at bid price : 26.75
Bid-YTW : -0.58 %
TD.PR.S FixedReset 103,330 Desjardins crossed 50,000 at 25.13. RBC crossed 31,600 at 25.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.08
Bid-YTW : 3.08 %
There were 48 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.E FixedReset Quote: 26.24 – 26.90
Spot Rate : 0.6600
Average : 0.3841

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-19
Maturity Price : 25.00
Evaluated at bid price : 26.24
Bid-YTW : 3.22 %

GWO.PR.J FixedReset Quote: 25.92 – 26.40
Spot Rate : 0.4800
Average : 0.3502

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.92
Bid-YTW : 3.18 %

TD.PR.C FixedReset Quote: 25.95 – 26.25
Spot Rate : 0.3000
Average : 0.1707

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 2.47 %

GWO.PR.M Deemed-Retractible Quote: 26.53 – 26.85
Spot Rate : 0.3200
Average : 0.1997

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-31
Maturity Price : 26.00
Evaluated at bid price : 26.53
Bid-YTW : 4.89 %

PWF.PR.K Perpetual-Premium Quote: 25.07 – 25.30
Spot Rate : 0.2300
Average : 0.1512

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.07
Bid-YTW : 4.78 %

RY.PR.L FixedReset Quote: 25.92 – 26.16
Spot Rate : 0.2400
Average : 0.1708

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.92
Bid-YTW : 2.44 %

October 23, 2012

Wednesday, October 24th, 2012

The BoC rate statement was dovish:

Core inflation has been lower than expected in recent months, reflecting somewhat softer prices across a wide range of goods and services. Core inflation is expected to increase gradually over coming quarters, reaching 2 per cent by the middle of 2013 as the economy gradually absorbs the current small degree of slack, the growth of labour compensation remains moderate and inflation expectations stay well-anchored. Total CPI inflation has fallen noticeably below the 2 per cent target, as expected, and is projected to return to target by the end of 2013, somewhat later than previously anticipated.

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target. The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector.

RBC & TD announced major acquisitions:

Royal Bank of Canada and Toronto- Dominion Bank (TD) announced purchases today of almost $20 billion in combined assets from U.S. companies to bolster profit ahead of a slowdown in domestic consumer lending.

Royal Bank, the nation’s largest lender, plans to buy Ally Financial Inc. (ALLY)’s Canadian auto-finance and deposit business in a deal that Ally said will generate $4.1 billion for the Detroit- based lender. Toronto-Dominion agreed to acquire Target Corp. (TGT)’s $5.9 billion U.S. credit-card portfolio for an amount equal to the gross value of the outstanding loans at the time the deal is completed, the firms said.

DBRS commented on the TD / Target deal:

The acquired credit card portfolio is stated to have credit quality in line with industry benchmarks. The quality of credit card clients is believed to be above average in regards to credit risk characteristics. The acquisition will have a moderate impact on capital, with the Bank expecting to see a 20 basis point decrease in its Tier 1 capital ratio and a 14 basis point drop in its Basel III common equity Tier 1 (CET1) ratio upon closing of the transaction. The drop in capital metrics still positions TD comfortably in regards to regulatory limits, with the Bank reporting a CET1 ratio of 7.7% at July 30, 2012, well above the regulatory requirement of 7% targeted for the first quarter of 2013.

… and on the RBC / Ally deal:

The net investment for RBC is $1.4 billion after deducting excess capital.Including the excess capital, and subject to certain closing adjustments, will result in total consideration of approximately $3.1 to $3.8 billion, depending on the dividend taken out by the seller prior to closing. The transaction is expected to generate earnings in the first 12 months after closing of $120 million after tax (excluding integration costs, amortization of intangibles and transaction costs, which are expected to be approximately $50 million). The Basel III common equity Tier 1 ratio is estimated to decrease by approximately 30 to 40 bps immediately following the close of the acquisition, but to remain in excess of 8%. The deal is subject to closing conditions, including regulatory approvals, and is expected to close in the first calendar quarter of 2013.

There was a downdraft in the Canadian preferred share market today, with PerpetualPremiums and FixedReset both off 9bp and DeemedRetractibles losing 14bp. Volatility was negligible. Volume was well above average and only of the highlighted issues (ENB.PR.N) was affected by the recent TXPR rebalancing.

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 -0.2072 % 2,466.8
FixedFloater 4.16 % 3.49 % 35,540 18.38 1 -0.0875 % 3,870.3
Floater 2.97 % 3.00 % 68,668 19.73 3 -0.2072 % 2,663.4
OpRet 4.62 % 1.96 % 38,991 0.67 4 -0.2376 % 2,571.2
SplitShare 5.39 % 4.78 % 67,843 4.49 3 0.0656 % 2,846.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2376 % 2,351.1
Perpetual-Premium 5.29 % 0.64 % 85,279 0.23 27 -0.0852 % 2,307.0
Perpetual-Discount 5.01 % 4.90 % 46,489 15.47 4 0.0205 % 2,581.1
FixedReset 4.98 % 3.03 % 198,331 3.82 73 -0.0874 % 2,443.0
Deemed-Retractible 4.95 % 3.49 % 133,034 0.99 47 -0.1375 % 2,380.5
Performance Highlights
Issue Index Change Notes
IAG.PR.A Deemed-Retractible -1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 5.22 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.P FixedReset 288,703 Nesbitt crossed blocks of 200,000 and 60,000, both at 25.08.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.08
Bid-YTW : 3.44 %
IFC.PR.A FixedReset 167,082 RBC crossed 163,900 at 25.35.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 3.63 %
TD.PR.K FixedReset 91,795 TD crossed 79,500 at 26.76.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.75
Bid-YTW : 2.14 %
MFC.PR.H FixedReset 59,389 RBC crossed 55,300 at 26.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.94
Bid-YTW : 3.79 %
ENB.PR.N FixedReset 54,620 TD crossed blocks of 19,900 and 16,000, both at 25.55.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-23
Maturity Price : 23.26
Evaluated at bid price : 25.50
Bid-YTW : 3.83 %
RY.PR.F Deemed-Retractible 52,685 Nesbitt crossed 40,000 at 25.80.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.76
Bid-YTW : 3.44 %
There were 39 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TCA.PR.X Perpetual-Premium Quote: 51.62 – 52.00
Spot Rate : 0.3800
Average : 0.2674

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-15
Maturity Price : 50.00
Evaluated at bid price : 51.62
Bid-YTW : 2.12 %

BMO.PR.P FixedReset Quote: 26.70 – 26.98
Spot Rate : 0.2800
Average : 0.1765

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.70
Bid-YTW : 2.78 %

GWO.PR.J FixedReset Quote: 25.90 – 26.20
Spot Rate : 0.3000
Average : 0.2079

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 3.24 %

SLF.PR.I FixedReset Quote: 25.71 – 25.95
Spot Rate : 0.2400
Average : 0.1599

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.71
Bid-YTW : 3.60 %

FTS.PR.F Perpetual-Premium Quote: 25.76 – 26.01
Spot Rate : 0.2500
Average : 0.1874

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-01
Maturity Price : 25.25
Evaluated at bid price : 25.76
Bid-YTW : 4.21 %

HSB.PR.C Deemed-Retractible Quote: 25.51 – 25.75
Spot Rate : 0.2400
Average : 0.1807

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-30
Maturity Price : 25.25
Evaluated at bid price : 25.51
Bid-YTW : 4.04 %

October 22, 2012

Tuesday, October 23rd, 2012

There is some long overdue musing that CMHC might be privatized:

Ottawa has made a series of quiet changes to bolster the oversight of CMHC in recent years: adding to its board of directors the deputy minister of finance and the deputy minister of human resources and skills development, as well as putting the Crown corporation under the official eye of the country’s banking regulator.

“This is all about financial stability, because [CMHC is] a very important part of the market and of the financial stability picture in Canada, and it’s kind of been off on its own track,” Mr. Flaherty said.

Ultimately, he would like to see the government get out of the mortgage insurance business. “The history of CMHC has to do with providing adequate housing for veterans after the Second World War, and it’s become something rather grander,” he said.

‪“I think in the next five or ten years the government needs to look at getting out of some businesses that we’re in that we don’t need to be in.”

There’s a good opportunity for hedge funds and brokers:

The Volcker rule could cut profit at the biggest U.S. banks twice as much as earlier estimates if regulators take a strict stance on limiting proprietary trading, Standard & Poor’s said.

“We currently estimate that the Volcker rule could reduce combined pretax earnings for the eight largest U.S. banks by up to $10 billion annually, up from our initial $4 billion estimate two years ago,” S&P said today in a statement announcing a new report on the issue.

“The implementation of the Volcker rule could have favorable implications for the credit profiles of some of the largest U.S. banks, such as reducing trading portfolio risk,” S&P said. “This risk mitigation could lessen revenue and earnings volatility, which we would view favorably.”

What-Debt?’s seeming intention to fight the next election on muscleheaded nationalism is causing some concern:

The federal government’s surprise move to block the $6-billion takeover of Progress Energy Resources Corp. is adding to growing concerns about a “Canadian discount” that weighs on share prices and frustrates companies’ ability to raise capital and do deals.

Investors reacted swiftly on Monday to the rejection of the bid for Progress by Malaysia’s Petronas . Progress shares dropped more than 9 per cent, while other energy shares sank sharply.

The government’s decision immediately reminded investors of previous high-profile deals in Canada that fell apart amid government or regulatory scrutiny, and has created uncertainty about the bid for Calgary’s Nexen Inc. by China’s CNOOC Ltd. The Conservative government created waves two years ago when it blocked BHP Billiton’s $38.6-billion (U.S.) attempt to acquire Potash Corp. of Saskatchewan. And just last week, the federal telecommunications regulator rejected BCE Inc.’s bid to acquire Astral Media Inc. in a shocking decision.

There are rumours that the oligarchy will extend its control over the Canadian economy:

Royal Bank of Canada is on the verge of buying Ally Financial’s Canadian arm.

The sale is part of a global restructuring that Ally first announced in May. Early in the auction process General Motors Co. described itself as the “natural buyer”, as Ally was previously owned by GM and was once known as General Motors Acceptance Corp.

However, GM said it would only go so far to bring the assets back under its belt, and despite its attempts, RBC is now the lead bidder, according to someone familiar with the auction. Talks are now in advanced stages.

There are also opportunities for private equity:

KKR & Co. (KKR), TPG Capital and Goldman Sachs Capital Partners (GS), which took the former TXU Corp. private five years ago in the largest leveraged buyout in history, have paid themselves $528.3 million in fees, even as the electricity provider teeters toward a near-term bankruptcy or restructuring.

The payments consist of a $300 million charge for advising on the buyout, annual management fees totaling $171 million and as much as $57.3 million for consulting on debt deals, the Dallas-based company now called Energy Future Holdings Corp. said in regulatory filings. The private-equity firms’ fees are as much as 25 times greater than average, based on data from law firm Dechert LLP and researcher Preqin Ltd.

The fees from Energy Future may allow KKR, TPG and Goldman Sachs to extract cash without infringing on the Delaware Limited Liability Company Act, which limits distributions from a firm if all its liabilities exceed the fair value of its assets, according to Chapter 18 of the law.

The Globe and Mail’s education series has climbed on the most asinine bandwagon
yet – molly-coddling university students:

For Grade 12 students preparing university or college applications, getting into the right school is the only goal. Few 17-year-olds have thought much about how they will manage the demands of postsecondary courses, or about dropout rates that show one in seven students won’t finish their studies.

But what if schools could pinpoint which students were most likely to run into trouble and offer them extra support before their experiences turned sour?

At the University of Ottawa, researcher Ross Finnie has been experimenting with a custom-tailored, low-cost statistical model that can identify the students most likely to abandon their studies and offer them help as soon as possible.

As a once and future employer, I don’t want to hire little babies who need help and support. This is the real world. I want graduates who have prospered in an environment where nobody is getting paid to be nice to them.

It was a good day for the Canadian preferred share market, with PerpetualPremiums gaining 10bp, FixedResets winning 16bp and DeemedRetractibles up 13bp. Volatility was minor. Volume was very 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 0.1320 % 2,471.9
FixedFloater 4.15 % 3.48 % 35,414 18.38 1 2.0527 % 3,873.7
Floater 2.97 % 2.99 % 67,089 19.76 3 0.1320 % 2,669.0
OpRet 4.61 % 2.44 % 56,832 0.65 4 0.3146 % 2,577.3
SplitShare 5.39 % 4.72 % 68,511 4.49 3 -0.0655 % 2,844.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3146 % 2,356.7
Perpetual-Premium 5.28 % 0.40 % 83,906 0.24 27 0.1041 % 2,309.0
Perpetual-Discount 5.01 % 4.89 % 43,615 15.47 4 0.1027 % 2,580.6
FixedReset 4.97 % 3.01 % 197,172 3.82 73 0.1583 % 2,445.2
Deemed-Retractible 4.93 % 3.43 % 132,094 1.15 47 0.1305 % 2,383.8
Performance Highlights
Issue Index Change Notes
BAM.PR.G FixedFloater 2.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-22
Maturity Price : 23.19
Evaluated at bid price : 22.87
Bid-YTW : 3.48 %
Volume Highlights
Issue Index Shares
Traded
Notes
GWO.PR.G Deemed-Retractible 214,848 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : 4.60 %
FTS.PR.H FixedReset 156,108 Added to TXPR.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-22
Maturity Price : 23.65
Evaluated at bid price : 25.62
Bid-YTW : 2.76 %
CM.PR.P Deemed-Retractible 152,245 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-11-28
Maturity Price : 25.00
Evaluated at bid price : 24.99
Bid-YTW : 4.75 %
MFC.PR.D FixedReset 117,878 RBC crossed 113,100 at 26.95.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.89
Bid-YTW : 2.33 %
CU.PR.C FixedReset 116,089 National crossed 100,000 at 26.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.21 %
RY.PR.D Deemed-Retractible 111,343 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.92
Bid-YTW : 3.57 %
There were 54 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.H FixedReset Quote: 26.00 – 26.49
Spot Rate : 0.4900
Average : 0.3114

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.73 %

BAM.PR.J OpRet Quote: 26.77 – 27.18
Spot Rate : 0.4100
Average : 0.2984

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-31
Maturity Price : 26.00
Evaluated at bid price : 26.77
Bid-YTW : 3.33 %

HSB.PR.D Deemed-Retractible Quote: 25.42 – 25.69
Spot Rate : 0.2700
Average : 0.1628

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.42
Bid-YTW : 4.36 %

HSE.PR.A FixedReset Quote: 25.89 – 26.16
Spot Rate : 0.2700
Average : 0.1713

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-22
Maturity Price : 23.59
Evaluated at bid price : 25.89
Bid-YTW : 3.03 %

PWF.PR.F Perpetual-Premium Quote: 25.19 – 25.46
Spot Rate : 0.2700
Average : 0.1824

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-11-21
Maturity Price : 25.00
Evaluated at bid price : 25.19
Bid-YTW : -5.47 %

GWO.PR.L Deemed-Retractible Quote: 26.35 – 26.69
Spot Rate : 0.3400
Average : 0.2645

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 26.00
Evaluated at bid price : 26.35
Bid-YTW : 4.97 %

October 19, 2012

Saturday, October 20th, 2012

Canadian inflation is quiescent:

Canada’s annual inflation rate stayed at 1.2 per cent, matching the previous month and May for the lowest level in more than two years.

For the annual inflation rate, the agency said an increase in prices for gasoline and electricity were the main contributors, but they were offset by declines in the cost of purchasing motor vehicles and women’s clothing.

The Bank of Canada’s core rate, which measures underlying price pressures by excluding volatile items such as gasoline, declined three-tenths of a point to 1.3 per cent.

This has led to calls for a rate cut:

There could be several causes of these low bond yields – and none of them are pleasant. It may be that bond markets expect the Bank of Canada to undershoot its 2 per cent inflation target for the foreseeable future. It may be that alternative investments in Canada are such losing propositions that people are willing to accept low or even negative real returns. Finally, there may be a flight to quality here, with Canada being seen as a safe haven in a world full of economic turmoil. It is likely a combination of all three.

Bond markets are screaming loud and clear that worldwide demand remains low, and, in the medium-term, inflation is likely to stay under the Bank of Canada’s target. On Tuesday, the Bank of Canada will be giving its interest rate announcement. Given the current economic data and low inflation, the prudent move for Mark Carney is to lower the overnight rate by 25 basis points.

Top-producing brokers in the US are dancing as fast as they can:

Many senior advisers at brokerage arms of major banks say they are considering jumping ship for the first time, frustrated by problems plaguing their parent companies, from credit rating downgrades to staff cutbacks to bothersome technology changes.

So far in 2012, advisers who managed nearly $50-billion (U.S.) in client assets have left top U.S. brokerages Morgan Stanley Wealth Management and Bank of America Merrill Lynch, an already high figure that is expected to grow, industry experts say.

Twelve teams that each managed more than $1-billion in client assets have moved in 2012. In a typical year, fewer than a handful of teams that size switch firms, experts said.

Late last year, when Bank of America’s stock price plunged, UBS Wealth Management Americas offered Merrill advisers signing bonuses that were about 30 per cent higher than normal, said financial services recruiter Alan Reed. UBS added at least 24 veteran Merrill Lynch advisers who managed roughly $4.4-billion in client assets..

Meanwhile, these super-brokers may have a wonderful fourth quarter:

Sell.

That’s the message from some financial advisers, who are telling wealthy clients that the remainder of 2012 amounts to a last-chance sale on federal tax rates. Taxes are set to rise in January in the U.S., pushing the top rate on dividends to 43.4 percent from 15 percent and the top rate on capital gains to 23.8 percent from 15 percent.

Federal taxes on ordinary income will rise to as much as 39.6 percent from 35 percent. Long-term capital gains rates will increase to a maximum 20 percent from 15 percent, plus an additional 3.8 percent for high-income earners as a result of the 2010 health-care law.

The opportunity for individuals to transfer up to $5.12 million — or $10.24 million for couples — free of estate taxes and gift taxes also is set to expire at the end of the year and drop to $1 million. Legislation enacted in 2010 raised the lifetime estate-and-gift-tax exclusion for 2011 and 2012.

IIROC has found another opportunity for expansion:

Canada’s securities industry regulator is calling for tougher oversight of the Canadian version of Libor.

In an emailed statement, a spokesperson for the Investment Industry Regulatory Organization of Canada (IIROC) said that while it isn’t aware of any problems with the Canadian Dealer Offered Rate, or Cdor, “[r]ecent experiences with LIBOR have pointed to a need for increased scrutiny of such survey-based reference rates.”

[IIROC vice president of public affairs] Ms. [Lucy] Becker said that when IIROC’s review is complete — she did not say when that might happen — the results will be submitted to “relevant stakeholders” including Canadian regulators and government agencies.

It’s a big market:

Essentially a Canadian version of Libor, the Canadian Dealer Offered Rate is the rate at which Canadian banks lend to one another based on bid prices for bankers’ acceptances.

The bankers’ acceptance market itself is relatively small, but Cdor is used as a benchmark for a whole raft of loans, floating rate notes, interest rate swaps and derivatives that are the life-blood of this country’s financial market. In total we’re talking about $6-trillion dollars worth on any given day, according to Louis Gagnon, a finance professor at Queen’s University’s School of Business and a former risk manager at Royal Bank of Canada.

DBRS confirmed Weston at Pfd-3:

DBRS has today confirmed the ratings of the Notes & Debentures of George Weston Limited (Weston or the Company) and the Issuer Rating at BBB, the Preferred Shares at Pfd-3 and the Commercial Paper at R-2 (high), all with Stable trends. The confirmation of the ratings is based on the stable operating performance of Weston Bakery, the stable ratings of Loblaw Companies Limited (Loblaw; see separate press release), in which Weston holds a 63% stake, and the Company’s significant cash resources, which are expected to be used toward growth opportunities. The ratings continue to be supported by the Company’s strong brands and above-average operating efficiency, while reflecting the volatile input cost environment and the mature nature of the bakery industry.

DBRS believes that Weston has the ability to maintain its current BBB rating and a financial profile commensurate with the current rating category (i.e., ultimate gross debt-to-EBITDA of up to 2.5 times (x) or net debt-to-EBITDA of up to 2.0x).

DBRS will continue to monitor Weston’s decisions on the deployment of its remaining cash, cash equivalents and short-term investments, and will assess the potential impact on the Company’s credit risk profile at such time.

As for the short-term rating, Weston’s liquidity profile remains commensurate with the R-2 (high) rating category, based on its long-term rating, positive free cash flow generating capacity, high level of cash and marketable investments, and manageable debt and maturity schedule.

The credit risk profile of Loblaw remains relatively stable, with a long-term rating of BBB and short-term rating of R-2 (middle). The ratings for Weston at BBB and R-2 (high) reflect its operating businesses and financial risk profile, both on a stand-alone basis, as well as consolidated with its ownership interest in Loblaw. As such, if there is any change in Loblaw’s ratings, it will not necessarily affect the ratings of Weston.

DBRS confirmed Loblaw at Pfd-3, proud issuer of L.PR.A:

DBRS has today confirmed Loblaw Companies Limited’s (Loblaw or the Company) Issuer Rating, 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 confirmation of the ratings is based on Loblaw’s stable financial profile, while recognizing that the Company’s earnings profile will remain under pressure in the near to medium term due to intensifying competition combined with a difficult consumer environment. The ratings continue to be supported by Loblaw’s strong market position, large scale, national diversification, and industry-leading private labels. The ratings also reflect the high level of and intensifying competition in food retailing, particularly with the emergence of new non-traditional players (i.e., Wal-Mart Stores, Inc. (Wal-Mart) and Target Corporation (Target)), and high levels of union penetration.

DBRS believes that Loblaw will maintain a financial profile commensurate with the current rating based on the Company’s free cash flow generating capacity and moderate debt levels. Cash flow from operations should continue to track operating income and decline modestly to the $1.3 billion to $1.4 billion range in 2012 and 2013, while capex requirements should remain at elevated levels through 2013 and begin to moderate somewhat thereafter. Dividend policy is expected to remain consistent with recent practice, which DBRS expects should result in free cash flow before changes in working capital in the range of breakeven to $150 million. Therefore, while the Company has the potential to improve its credit metrics by applying free cash flow and cash-on-hand to debt reduction, DBRS believes that Loblaw may use these sources of cash to invest in growth and/or return value to shareholders over the longer term. As such, DBRS expects that balance sheet-debt levels and key credit metrics should remain in a range acceptable for the current rating category.

It was a mildly positive day for the Canadian preferred share market, with PerpetualPremiums up 11bp, FixedResets gaining 2bp and DeemedRetractibles flat. Volatility was non-existent. Volume was heavy, with the TXPR Revision effective at Monday’s opening.

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 0.3406 % 2,468.6
FixedFloater 4.24 % 3.57 % 32,727 18.23 1 -0.0892 % 3,795.7
Floater 2.97 % 2.99 % 64,065 19.76 3 0.3406 % 2,665.5
OpRet 4.62 % 2.98 % 59,062 1.39 4 0.0191 % 2,569.3
SplitShare 5.39 % 4.77 % 71,334 4.50 3 -0.0262 % 2,846.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0191 % 2,349.4
Perpetual-Premium 5.28 % 1.73 % 85,823 0.35 27 0.1129 % 2,306.6
Perpetual-Discount 5.02 % 4.92 % 45,188 15.49 4 -0.1538 % 2,577.9
FixedReset 4.97 % 3.02 % 184,882 3.83 73 0.0206 % 2,441.3
Deemed-Retractible 4.94 % 3.56 % 132,870 1.15 47 0.0033 % 2,380.7
Performance Highlights
Issue Index Change Notes
No individual gains or losses exceeding 1%!
Volume Highlights
Issue Index Shares
Traded
Notes
GWO.PR.Q Deemed-Retractible 327,372 Added to TXPR.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 4.73 %
ENB.PR.N FixedReset 209,883 Added to TXPR.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-19
Maturity Price : 23.26
Evaluated at bid price : 25.50
Bid-YTW : 3.82 %
HSB.PR.C Deemed-Retractible 186,442 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-11-18
Maturity Price : 25.50
Evaluated at bid price : 25.60
Bid-YTW : 3.40 %
ENB.PR.P FixedReset 171,702 Added to TXPR.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-19
Maturity Price : 23.21
Evaluated at bid price : 25.36
Bid-YTW : 3.71 %
GWO.PR.G Deemed-Retractible 160,492 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 4.60 %
CU.PR.E Perpetual-Premium 159,753 Added to TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-09-01
Maturity Price : 25.00
Evaluated at bid price : 26.49
Bid-YTW : 4.20 %
TD.PR.P Deemed-Retractible 139,100 Deleted from TXPR
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-12-01
Maturity Price : 26.00
Evaluated at bid price : 26.18
Bid-YTW : -2.22 %
CM.PR.M FixedReset 133,006 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.74
Bid-YTW : 2.40 %
IFC.PR.A FixedReset 132,965 TD crossed blocks of 50,000 and 27,200 at 25.35. RBC crossed 50,000 at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.36
Bid-YTW : 3.61 %
FTS.PR.H FixedReset 131,587 Added to TXPR.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-19
Maturity Price : 23.61
Evaluated at bid price : 25.50
Bid-YTW : 2.77 %
IAG.PR.C FixedReset 122,340 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.08 %
GWO.PR.M Deemed-Retractible 114,068 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-31
Maturity Price : 26.00
Evaluated at bid price : 26.45
Bid-YTW : 4.99 %
RY.PR.D Deemed-Retractible 110,243 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.86
Bid-YTW : 3.64 %
NA.PR.M Deemed-Retractible 108,575 Added to TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-15
Maturity Price : 26.00
Evaluated at bid price : 27.00
Bid-YTW : -1.70 %
RY.PR.N FixedReset 100,010 TD crossed 25,500 and 48,100 at 26.75. Scotia crossed 16,600 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 26.69
Bid-YTW : 1.88 %
There were 44 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BNA.PR.D SplitShare Quote: 26.60 – 26.99
Spot Rate : 0.3900
Average : 0.2993

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-11-18
Maturity Price : 26.00
Evaluated at bid price : 26.60
Bid-YTW : -10.86 %

CU.PR.C FixedReset Quote: 25.98 – 26.28
Spot Rate : 0.3000
Average : 0.2203

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.98
Bid-YTW : 3.22 %

GWO.PR.L Deemed-Retractible Quote: 26.41 – 26.67
Spot Rate : 0.2600
Average : 0.1818

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 26.00
Evaluated at bid price : 26.41
Bid-YTW : 4.84 %

BAM.PR.O OpRet Quote: 25.36 – 25.59
Spot Rate : 0.2300
Average : 0.1561

YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.36
Bid-YTW : 3.32 %

PWF.PR.M FixedReset Quote: 25.83 – 26.09
Spot Rate : 0.2600
Average : 0.1913

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.83
Bid-YTW : 3.20 %

BAM.PR.Z FixedReset Quote: 26.19 – 26.37
Spot Rate : 0.1800
Average : 0.1202

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.19
Bid-YTW : 3.86 %

PIC.PR.A To Get Bigger

Saturday, October 20th, 2012

Strathbridge Asset Management has announced (but not yet on the fund’s website):

Premium Income Corporation (the “Fund”) is pleased to announce that it has filed a preliminary short form prospectus relating to an offering of rights (“Rights”) to holders (“Shareholders”) of its class A shares (“Class A Shares”) and preferred shares (“Preferred Shares”). Each Shareholder of record on a date to be established prior to filing the final short form prospectus will receive one Right for each Class A or Preferred Share held.

Two Rights will entitle the holder to acquire one Class A Share and one Preferred Share upon payment of the subscription price. The record date and the subscription price will be determined at the time the Fund files its final prospectus for the offering.

The exercise of Rights by holders will provide the Fund with additional capital that can be used to take advantage of attractive investment opportunities and is also expected to increase the trading liquidity of the Class A Shares and the Preferred Shares as well as reduce the management expense ratio of the Fund.

The Fund invests in a portfolio consisting principally of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank (the “Banks”). To generate additional returns above the dividend income earned on the Fund’s portfolio, the Fund may from time to time write covered call options in respect of some or all of the common shares in the Fund’s portfolio. The Fund may also, from time to time, write cash-covered put options in respect of securities in which the Fund is permitted to invest. The manager and investment manager of the Fund is Strathbridge Asset Management Inc.

It’s very interesting that they will be giving rights to the preferred shareholders as well.

DBRS Increasingly Nervous About BAM

Saturday, October 20th, 2012

DBRS has announced that it:

notes the trend change of Brookfield Office Properties Inc. (BOP) to Negative from Stable on October 18, 2012. DBRS has indicated in the past that rating changes at Brookfield Asset Management Inc.’s (BAM) major subsidiaries could have rating implications for BAM at the corporate level. DBRS is also of the view that BAM’s overall credit profile has weakened within its current rating category in recent years as a result of fluctuating cash flows from its opportunistic investments and increased leverage at the corporate level.

With this, there remains minimal room for further deterioration, as indicated in our most recent report on BAM, published on April 24, 2012. As such, DBRS believes that BAM’s current ratings could come under pressure due to: (1) a material deterioration or rating downgrade in one or more of the core businesses (including BOP); (2) corporate-level financial metrics for 2012 fall short of our targets (funds from operation (FFO)-to-debt of 30% or higher and FFO interest coverage of 5.0 times); or (3) a material increase in the proportion of BAM’s invested capital in less-stable opportunistic investments.

DBRS will continue to monitor BAM’s performance to determine whether one or more of any of these issues brings sufficient pressure to warrant a trend change or other rating action.

The Negative Trend on Brookfield Office Properties was announced on October 18 and reported on PrefBlog.

Brookfield Asset Management is the proud issuer of:

  • FixedResets BAM.PF.A, BAM.PF.B, BAM.PR.P, BAM.PR.R, BAM.PR.T, BAM.PR.X, BAM.PR.Z
  • Floaters BAM.PR.B, BAM.PR.C, BAM.PR.K
  • RatchetRate BAM.PR.E
  • FixedFloater BAM.PR.G
  • OperatingRetractible BAM.PR.J, BAM.PR.O
  • Straight Perpetual BAM.PR.M, BAM.PR.N

A downgrade of BAM would also have an immediate effect on the SplitShares issued by BAM Split Corp.: BNA.PR.B, BNA.PR.C, BNA.PR.D and BNA.PR.E

DBRS’ increasing discomfort with the rating on BAM has been reported on PrefBlog in several posts: BAM To Slow Balance Sheet Deterioration and DBRS: BAM is Not-Quite-Trend-Negative. S&P assigned Outlook Negative to BAM last spring, and Outlook Negative to BPO in the summer.

DBRS: BPO Trend Negative

Saturday, October 20th, 2012

DBRS has announced that it:

has today confirmed the ratings of Brookfield Office Properties Inc. (Brookfield or the Company) at BBB (high) and Pfd-3 (high), changing the trend to Negative from Stable. The trend change reflects DBRS’s concern that Brookfield’s coverage ratios will remain at levels that are inconsistent with the current rating category, particularly in light of the slower-than-expected progress in re-leasing space at the World Financial Center (WFC) in New York City.

DBRS had previously expected Brookfield’s coverage ratios to show meaningful improvement by the end of 2012 or early 2013. DBRS now believes it will take longer to re-lease the upcoming vacancy at the WFC to new tenants. As a result, DBRS expects that operating income from this space may not stabilize until the latter part of 2014 or in early 2015. In addition, DBRS believes the Company’s U.S. markets will likely remain challenged by high unemployment rates and slow, uneven economic growth. As a result, material improvement in coverage ratios over the near to medium term will, in DBRS’s opinion, be difficult for the Company to achieve. Lack of improvement in coverage ratios due to weakening operating performance and/or more aggressive financial management would likely result in a downgrade in the near term. The pressure on Brookfield’s ratings could be relieved if the Company took meaningful steps to strengthen its financial profile by lowering debt levels and improving its EBITDA interest coverage ratio back to levels above 2.00 times.

Despite challenging economic conditions, particularly in the United States, DBRS expects Brookfield’s high-quality office properties in high barrier-to-entry markets and in-place average rental rates that are currently below average market rental rates to provide underlying support to cash flow stability going forward. In terms of financial flexibility, Brookfield has sufficient liquidity and sources of capital (including proceeds from a further sell-down of the Company’s interest in Brookfield Canada Office Properties and potential non-core asset sales in the range of $200 million to $250 million) to fund upcoming commitments.

Brookfield Office Properties is the proud issuer of:

  • OperatingRetractibles BPO.PR.F, BPO.PR.H, BPO.PR.J, BPO.PR.K
  • FixedResets BPO.PR.L, BPO.PR.N, BPO.PR.P, BPO.PR.R and BPO.PR.T

TDS.PR.C Upgraded to Pfd-2

Friday, October 19th, 2012

DBRS has announced that it:

has today upgraded the rating of the Class C Preferred Shares, Series 1 (the Class C Preferred Shares) issued by TD Split Inc. (the Company) to Pfd-2 from Pfd-2 (low).

On November 21, 2011, DBRS confirmed the ratings on the Class C Preferred Shares at Pfd-2 (low) mainly based on the stable downside protection levels available to holders of the Class C Preferred Shares over the prior year. Since the rating confirmation, the net asset value (NAV) of the Company has been increasing fairly steadily, rising from $25.93 on December 1, 2011, to $29.41 as of October 11, 2012. Downside protection available to the holders of the Class C Preferred Shares increased to approximately 66.0% as of October 11, 2012, from 61.4% on December 1, 2011. In addition, TD raised its dividends on August 30, 2012, increasing quarterly distributions by five cents to 77 cents per share. This dividend boost increases the Class C Preferred Share distribution coverage ratio to 2.0 times. The Class C Preferred Shares are being upgraded mainly due to the increased downside protection available and the improved distribution coverage ratio.

The main constraints to the rating are the following:

(1) The downside protection provided to holders of the Class C Preferred Shares is dependent on the value of the shares in the Portfolio.

(2) Volatility of price and changes in the dividend policies of TD may result in significant reductions in downside protection or dividend coverage from time to time.

(3) The concentration of the entire Portfolio is in the common shares of TD.

TDS.PR.C is tracked by HIMIPref™ but is relegated to the Scraps index on volume concerns. It was last mentioned on PrefBlog when there was a partial call for redemption last November.

October 18, 2012

Friday, October 19th, 2012

The latest news in Big Brother Regulation is LIBOR reform:

The Treasury said in London today that it will enshrine in law the way Libor is set, create a criminal offense for those who misreport it and give regulators the power to oversee the setting of the rate and other financial-industry benchmarks.

The FSA will encourage more banks to submit quotes as part of the revamp, Wheatley, an FSA managing director, said last month, and could force uncooperative banks to submit quotes with its new powers.

Sounds great, eh? Criminalize mistakes – and, presumably, make the survival of the bank dependent upon every single employee being completely pure at all times – and then, because only a lunatic would get involved in business on such terms, make it mandatory. Oh, it will take a lot of well paid regulators to enforce this one!

The government is egged on by eggheads:

First, by forcing banks to commit to their quotes—actually trade at them when given the opportunity—banks need only make an honest market determination. They only need their army of lawyers when, for some reason on a given day, they decide they want to make a trade outside of the range they’ve quoted. This is a parsimonious method for ensuring accurate and reliable quotes.

Clearly, the authors have never actually traded anything. Quotes for bonds, to take just one example, can change dramatically in the course of a single telephone call. If such a rule is put in place, spreads will be as wide as allowed by law.

DBRS confirmed BPO Properties (proud issuer of BPP.PR.G, BPP.PR.J and BPP.PR.M):

DBRS has today confirmed the Issuer Rating of Brookfield Canada Office Properties (BCOP) at BBB with a Stable trend and has also confirmed the Issuer Rating and Cumulative Redeemable Preferred Shares rating of BPO Properties Ltd. (BPO Properties) at BBB and Pfd-3, respectively, with Stable trends.

The confirmations follow the change in Brookfield Office Properties Inc.’s (BOP) trends to Negative from Stable. Although BCOP and BPO Properties benefit from their close association with BOP, particularly from property and asset management agreements, the ratings are not directly linked at this level. DBRS believes that the current ratings of BCOP and BPO Properties continue to reflect the solid operating performance of the Canadian office portfolio and steady financial credit metrics. That said, DBRS would become concerned if BOP’s credit risk profile continued to deteriorate beyond the ratings of BCOP and BPO Properties.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums up 5bp, FixedResets down 5bp and DeemedRetractibles flat. Volatility was very low. Volume was average.

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 -0.0378 % 2,460.2
FixedFloater 4.24 % 3.56 % 33,174 18.24 1 0.0892 % 3,799.1
Floater 2.98 % 3.01 % 66,592 19.71 3 -0.0378 % 2,656.4
OpRet 4.62 % 3.11 % 61,484 0.66 4 -0.0095 % 2,568.8
SplitShare 5.39 % 4.78 % 71,820 4.50 3 0.2364 % 2,847.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0095 % 2,348.9
Perpetual-Premium 5.29 % 1.95 % 85,620 0.35 27 0.0468 % 2,304.0
Perpetual-Discount 5.01 % 4.90 % 45,793 15.47 4 0.0410 % 2,581.9
FixedReset 4.97 % 3.00 % 184,863 3.83 73 -0.0519 % 2,440.8
Deemed-Retractible 4.94 % 3.58 % 129,196 1.16 47 -0.0033 % 2,380.6
Performance Highlights
Issue Index Change Notes
FTS.PR.E OpRet 1.05 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.96
Bid-YTW : -1.76 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.H FixedReset 425,994 Added to TXPR.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-18
Maturity Price : 23.61
Evaluated at bid price : 25.50
Bid-YTW : 2.77 %
RY.PR.D Deemed-Retractible 126,215 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.81
Bid-YTW : 3.70 %
RY.PR.G Deemed-Retractible 106,641 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.84
Bid-YTW : 3.71 %
GWO.PR.G Deemed-Retractible 103,750 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 4.42 %
FTS.PR.E OpRet 85,600 National crossed 75,000 at 27.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.96
Bid-YTW : -1.76 %
BNS.PR.O Deemed-Retractible 76,500 Deleted from TXPR.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-04-26
Maturity Price : 26.00
Evaluated at bid price : 26.70
Bid-YTW : -0.20 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.A OpRet Quote: 25.72 – 26.00
Spot Rate : 0.2800
Average : 0.1707

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-19
Maturity Price : 25.50
Evaluated at bid price : 25.72
Bid-YTW : 3.23 %

RY.PR.A Deemed-Retractible Quote: 25.90 – 26.13
Spot Rate : 0.2300
Average : 0.1494

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-24
Maturity Price : 25.50
Evaluated at bid price : 25.90
Bid-YTW : 2.80 %

GWO.PR.J FixedReset Quote: 25.91 – 26.15
Spot Rate : 0.2400
Average : 0.1613

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.91
Bid-YTW : 3.17 %

IAG.PR.E Deemed-Retractible Quote: 26.77 – 26.94
Spot Rate : 0.1700
Average : 0.1034

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 26.00
Evaluated at bid price : 26.77
Bid-YTW : 4.52 %

MFC.PR.I FixedReset Quote: 25.51 – 25.73
Spot Rate : 0.2200
Average : 0.1640

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 4.04 %

SLF.PR.C Deemed-Retractible Quote: 23.45 – 23.61
Spot Rate : 0.1600
Average : 0.1043

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.45
Bid-YTW : 5.37 %

LB.PR.F Reaches Premium On Excellent Volume

Friday, October 19th, 2012

LB.PR.F is a FixedReset, 4.00%+260, announced October 11. This issue will be tracked by HIMIPref™ but relegated to Scraps on credit concerns.

The prospectus supplement (SEDAR, October 11, 2012) contains some interesting wrinkles on the Non-Viability Contingent Capital (NVCC) theme:

Under the new Basel III rules, effective January 1, 2013, all non-common Tier 1 and Tier 2 capital instruments issued by a bank must have, either in their contractual terms and conditions or by way of statute in the issuer’s home country, a clause requiring a full and permanent conversion into common shares of such bank upon certain trigger events at the point where such bank is determined to be no longer viable. The Preferred Shares Series 11 as a result will not qualify as non-common Tier 1 capital under the new capital rules as no such conversion mechanism exists. As a result, the Bank may, with the prior approval of the Superintendent, redeem the Preferred Shares Series 11 in accordance with their terms. See “Risk Factors”.

The Basel Committee on Banking Supervision has announced new international bank capital adequacy rules (commonly called Basel III) which will amend the existing Basel II capital management framework. The Office of the Superintendent of Financial Institutions of Canada (“OSFI”) has announced that it plans to adopt the new Basel III rules for purposes of Canadian bank capital guidelines. Under the new Basel III rules, effective January 1, 2013, all non-common Tier 1 and Tier 2 capital instruments issued by a bank must have, either in their contractual terms and conditions or by way of statute in the issuer’s home country, a clause requiring a full and permanent conversion into common shares of such bank upon certain trigger events at the point where such bank is determined to be no longer viable. The Preferred Shares Series 11 and, if and when issued, the Preferred Shares Series 12 as a result will not qualify as non-common Tier 1 capital under the new capital rules as no such conversion mechanism exists. For purposes of being included in the Bank’s regulatory capital under the new capital rules, the Preferred Shares Series 11 and the Preferred Shares Series 12 would be phased out beginning January 31, 2013 (their recognition will be capped at 90% of total Tier 1 capital from January 1, 2013, with the cap reducing by 10% in each subsequent year). As a result, the Bank may, with the prior approval of the Superintendent, redeem the Preferred Shares Series 11 and the Preferred Shares Series 12, if any, in accordance with their respective terms. If prevailing rates are lower at the time of redemption, a purchaser would not be able to reinvest the redemption proceeds in a comparable security at an effective yield as high as the yields on the Preferred Shares Series 11 or the Preferred Shares Series 12 being redeemed. The Bank’s redemption right may also adversely impact a purchaser’s ability to sell Preferred Shares Series 11 and Preferred Shares Series 12 as the optional redemption date or period approaches.

The 2011 Annual Report (complete with slogan “Our team – It’s (sic) Capital” on the front cover) states:

The BCBS published further details in January 2011 with regard to qualifying criteria for capital under the guidelines. OSFI subsequently provided additional guidance regarding the treatment of non-qualifying capital instruments in February 2011. As a result, certain capital instruments will no longer qualify fully as capital beginning January 1, 2013. The Bank’s
non-common capital instruments will be considered non-qualifying capital instruments under Basel III and will therefore be subject to a 10% phase-out per year beginning in 2013. These non-common capital instruments include both Series 9 and 10 preferred shares and Series 2010-1 subordinated Medium Term Notes. The Bank has not issued any hybrids or innovative Tier 1 instruments and none of its capital instruments are subject to a regulatory event redemption clause. Therefore, no regulatory event redemption is expected.

What are the Series 2010-1 sub MTNs? I’m glad you asked that:

On November 2, 2010, the Bank issued $250.0 million Series 2010-1 Medium Term Notes (Subordinated Indebtedness), for net proceeds of $248.4 million. The contractual maturity of the Series 2010-1 Medium Term Notes is November 2, 2020. Holders of the Series 2010-1 Medium Term Notes are entitled to receive semi-annually fixed interest payments for the initial five-year period ending November 2, 2015 at a rate of 3.70% per annum. The interest rate on the Series 2010-1 Medium Term Notes will reset on November 2, 2015 at the three-month bankers’ acceptance rate plus 1.76% per annum. The Series 2010-1 Medium Term Notes will not be redeemable prior to November 2, 2015. Subject to the provisions of the Bank Act, to the prior consent of OSFI and to the provisions described in the pricing supplement dated October 25, 2010, at any time on or after November 2, 2015, the Bank may redeem all or any part of the then outstanding Series 2010-1 Medium Term Notes, at the Bank’s option, by the payment of an amount in cash equal to the par value together with unpaid accrued interest. The $250.0 million Series 2010-1 Medium Term Notes are presented net of unamortized issue costs of $1.6 million on the consolidated balance sheet and include a net fair value adjustment of $5.9 million to reflect the change in the carrying value previously covered by a fair value hedge.

The Series 9 preferreds, LB.PR.D, pay 6% while Series 10, LB.PR.E, pay 5.25%. Both are Straight Perpetuals.

All this leaves me feeling a bit confused as to why this issue has been left without an NVCC clause. My first thought was that they had some capital instruments outstanding with such an absurdly low coupon that the company wanted to keep them outstanding for as long as possible; issuing these shares to be outstanding when the base for the sliding scale of Tier 1 eligibility is set could have helped such an effort. But this is not the case! Their non-common Tier 1 is actually a little bit expensive; if anything, I would have thought they’d issue NVCC shares to fund the redemption of LB.PR.D.

I just don’t get it. Any suggestions will be welcome. I stand ready to be corrected once the day comes, but I don’t think that a bank NVCC preferred will cost much more than a non-NVCC preferred; we Canadian know that not one of our banks will fail, because the government won’t let it happen.

Anyway, given the absence of an NVCC clause, I have put a DeemedMaturity entry into the call schedule, at 25.00 for 2022-1-31.

The issue traded 438,529 shares today in an unusually wide range of 25.18-65 before closing at 25.30-32, 5×28. Vital statistics are:

LB.PR.F FixedReset YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-15
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 3.76 %