Archive for July, 2013

New Issue: PPL FixedReset, 4.25%+247

Wednesday, July 17th, 2013

Pembina Pipeline Corporation has announced:

that it has entered into an agreement with a syndicate of underwriters, led by RBC Capital Markets and Scotiabank, pursuant to which the underwriters have agreed to purchase from Pembina 8,000,000 cumulative redeemable rate reset class A preferred shares, series 1 (the “Series 1 Preferred Shares”) at a price of $25.00 per share for distribution to the public.

The holders of Series 1 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.0625 per share, payable quarterly on the 1st day of March, June, September and December, as and when declared by the Board of Directors of Pembina, yielding 4.25 per cent per annum, for the initial fixed rate period to but excluding December 1, 2018. The first quarterly dividend payment date is scheduled for December 1, 2013. The dividend rate will reset on December 1, 2018 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.47 per cent. The Series 1 Preferred Shares are redeemable by Pembina, at its option, on December 1, 2018 and on December 1 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series 1 Preferred Shares will have the right to convert their shares into cumulative redeemable floating rate class A preferred shares, series 2 (the “Series 2 Preferred Shares”), subject to certain conditions, on December 1, 2018 and on December 1 of every fifth year thereafter. The holders of Series 2 Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Pembina, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 2.47 per cent.

Pembina has granted to the underwriters an option, exercisable at any time up to 48 hours prior to the closing of the offering, to purchase up to an additional 2,000,000 Series 1 Preferred Shares at a price of $25.00 per share.

Proceeds from the offering will be used to partially fund capital projects, to reduce short-term indebtedness and for other general corporate purposes of the Company and its affiliates.

Closing of the offering is expected on July 26, 2013, subject to customary closing conditions.

Update, 2013-7-19: Provisionally rated Pfd-3 by DBRS

Rated Pfd-3 by DBRS.

July 16, 2013

Wednesday, July 17th, 2013

Nothing happened today.

It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts up 15bp, FixedResets down 9bp and DeemedRetractibles gaining 1bp. Volatility was average – by long-term standards! – but comprised entirely of losers. 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 0.0259 % 2,581.3
FixedFloater 4.20 % 3.49 % 39,724 18.43 1 0.0000 % 3,952.1
Floater 2.72 % 2.92 % 89,985 19.95 4 0.0259 % 2,787.1
OpRet 4.61 % 3.29 % 73,721 0.85 3 -0.1023 % 2,617.4
SplitShare 4.67 % 4.50 % 63,775 3.93 6 -0.0132 % 2,971.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1023 % 2,393.3
Perpetual-Premium 5.59 % 4.17 % 99,112 0.77 12 0.0692 % 2,293.6
Perpetual-Discount 5.33 % 5.25 % 138,113 14.81 26 0.1488 % 2,418.0
FixedReset 4.96 % 3.46 % 231,600 3.56 83 -0.0918 % 2,483.2
Deemed-Retractible 5.04 % 4.47 % 186,565 7.00 43 0.0141 % 2,393.7
Performance Highlights
Issue Index Change Notes
CIU.PR.A Perpetual-Discount -1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-16
Maturity Price : 22.14
Evaluated at bid price : 22.52
Bid-YTW : 5.16 %
SLF.PR.G FixedReset -1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.21
Bid-YTW : 3.73 %
MFC.PR.F FixedReset -1.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 3.60 %
FTS.PR.J Perpetual-Discount -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-16
Maturity Price : 23.15
Evaluated at bid price : 23.45
Bid-YTW : 5.12 %
Volume Highlights
Issue Index Shares
Traded
Notes
GWO.PR.H Deemed-Retractible 149,231 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.77
Bid-YTW : 5.49 %
SLF.PR.H FixedReset 61,540 National crossed 40,000 at 25.15.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 3.77 %
TRP.PR.D FixedReset 55,933 TD crossed 28,000 at 25.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-16
Maturity Price : 23.17
Evaluated at bid price : 25.15
Bid-YTW : 3.98 %
GWO.PR.Q Deemed-Retractible 55,660 Scotia crossed 52,800 at 24.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.78
Bid-YTW : 5.31 %
CM.PR.M FixedReset 51,675 Nesbitt crossed 50,000 at 26.05.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 2.37 %
MFC.PR.K FixedReset 47,363 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.19
Bid-YTW : 3.71 %
There were 35 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CU.PR.G Perpetual-Discount Quote: 23.00 – 23.24
Spot Rate : 0.2400
Average : 0.1582

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-16
Maturity Price : 22.66
Evaluated at bid price : 23.00
Bid-YTW : 4.95 %

MFC.PR.C Deemed-Retractible Quote: 22.50 – 22.79
Spot Rate : 0.2900
Average : 0.2113

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.50
Bid-YTW : 5.77 %

BNS.PR.K Deemed-Retractible Quote: 25.06 – 25.29
Spot Rate : 0.2300
Average : 0.1682

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-28
Maturity Price : 25.00
Evaluated at bid price : 25.06
Bid-YTW : 4.21 %

MFC.PR.F FixedReset Quote: 24.70 – 24.95
Spot Rate : 0.2500
Average : 0.1889

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 3.60 %

BNS.PR.O Deemed-Retractible Quote: 25.91 – 26.13
Spot Rate : 0.2200
Average : 0.1603

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-28
Maturity Price : 25.75
Evaluated at bid price : 25.91
Bid-YTW : 4.31 %

CIU.PR.A Perpetual-Discount Quote: 22.52 – 22.90
Spot Rate : 0.3800
Average : 0.3253

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-16
Maturity Price : 22.14
Evaluated at bid price : 22.52
Bid-YTW : 5.16 %

S&P Places WN and L on CreditWatch Negative

Wednesday, July 17th, 2013

Standard & Poor’s has announced:

  • We are placing our ratings on Loblaw Cos. Ltd., Shoppers Drug Mart Corp., George Weston Ltd., and Choice Properties REIT on CreditWatch with negative implications after Loblaw announced its intention to acquire Shoppers for C$12.4 billion.
  • We believe this could strengthen Loblaw’s business risk profile by combining Canada’s largest supermarket and pharmacy chains.
  • On the other hand, we expect that new debt to fund the acquisition would strain Loblaw’s “intermediate” financial risk profile.
  • Pro forma fully adjusted debt to EBITDA of 3.5x-4.0x would be high for the investment-grade rating, but we expect that free operating cash flow will be available for debt reduction in the next few years.


In resolving this CreditWatch, we will assess the following key factors:

  • Capital structure. We estimate that high fully adjusted pro forma 2013 debt to EBITDA of 3.5x-4.0x would necessitate almost C$2 billion of debt reduction within our two-year rating horizon to return adjusted leverage to the 3x that would be consistent with the intermediate financial risk
    profile;
  • Business risk profile. The addition of Shoppers’ “strong” business risk profile should improve Loblaw’s satisfactory score, adding faster-growing and higher-margin pharmacy and cosmetics sales to its mature and competitive food revenue. We expect that realizing the estimated C$300 million of annual synergies would support improved profitability and cash flow, which should further contribute to deleveraging; and
  • Group links. We will review the parent-subsidiary links between the four companies, particularly considering that this transaction would reduce George Weston’s Loblaw ownership to below 50%. That said, we believe the four companies’ credit profiles would remain strongly linked by virtue of their strategic integration, further supported by George Weston’s continuing “strong” liquidity and good financial flexibility.

This move follows the moves by DBRS to place both WN and L on Review-Developing.

Loblaws has a single preferred share issue outstanding, L.PR.A, an OperatingRetractible.

Weston has four preferred share issues outstanding, WN.PR.A, WN.PR.C, WN.PR.D and WN.PR.E, all Straight Perpetuals.

July 15, 2013

Monday, July 15th, 2013

Are the bond vigilantes hanging up their spurs?

U.S. fixed-income mutual funds attracted investor deposits last week, rebounding from redemptions spurred by speculation that the Federal Reserve would scale back its unprecedented stimulus, while bond exchange-traded funds had withdrawals.

Investors put $219 million into U.S. taxable-bond mutual funds while pulling $456 million from bond ETFs in the week ended July 10, Denver-based research firm Lipper said yesterday in an e-mailed statement. They deposited more than $3 billion in bond mutual funds and ETFs combined during the week ended July 3, the first week of net deposits in five weeks. U.S. bond funds had withdrawals of $23.7 billion in the four weeks ended June 26, the most since October 2008, Lipper said.

“Taxable-bond fund investors were of two minds,” Lipper said in the statement. “Neither amount reflected a strong opinion on bonds.”

It’s always nice to see big banks hurt by negative convexity:

JPMorgan Chase & Co (JPM). Chief Executive Officer Jamie Dimon warned investors that higher interest rates could lead to a “dramatic reduction” in the bank’s profits by eroding demand for mortgage refinancing.

The surge in 30-year home-loan rates to 4.46 percent at the end of June from 3.51 percent in mid-May caused second-quarter mortgage-fee revenue to decline 20 percent, the New York-based bank reported today. Refinancing volume could fall as much as 40 percent in the second half if rates remain elevated, Chief Financial Officer Marianne Lake told analysts on a call today.

Refinancings, which accounted for 76 percent of the industry’s $1.75 trillion in loan originations last year, slumped after 30-year rates surged in May and June, data compiled by Freddie Mac show. Applications to refinance loans fell 42 percent across the industry from May 17 to July 5, according to Joel Kan, an economist at the Mortgage Bankers Association, a Washington-based trade group.

Fortunately for Canadian banks, there is no real competition in Canada so we don’t have thirty-year open mortgages.

Electrical Engineering Professor Reza Iravani of the University of Toronto has come up with a a revolutionary idea for electricity delivery in Toronto:

“The delivery system has to be reinforced so even if you lose a station, the rest of the system can maintain operation without a major blackout,” he said.

Amazing. A system with some redundancy to make it more robust to single-point failure. Give the man a Nobel Prize – and, while you’re at it, a consulting contract to help the Bank of Canada with their Centralized Counterparty idea.

Investors in US Municipals have another thing to worry about:

Detroit bondholders may have a new worry after a judge ruled that Jefferson County, Alabama, could have paid legal bills for its bankruptcy from cash that was going to pay warrant holders owed $3 billion.

The ruling should concern bond investors whose revenue was previously protected from use by municipalities, said R. Dale Ginter, a bankruptcy lawyer at Downey Brand LLP in Sacramento, California. It may force those bondholders to reconsider waging an extensive legal fight to protect their interests, said Ginter, who represented retirees in the bankruptcy of Vallejo, California.

The ruling could apply to any municipal bankruptcy with debt being paid by pledged revenues such as parking fees, airport lease payments or water and sewer charges, Ginter said. Detroit is in talks to get bondholders and current and former city workers to accept $2 billion in exchange for wiping out the $11.5 billion they may be owed. Kevyn Orr, Detroit’s emergency financial manager, said he may put the city into bankruptcy if they can’t strike a deal.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 20bp, FixedResets off 2bp and DeemedRetractibles flat. Volatility was lower than normal – especially when compared with recent times – but what there was was all positive. Volume was a little below 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 0.2336 % 2,580.6
FixedFloater 4.20 % 3.49 % 41,381 18.43 1 0.4889 % 3,952.1
Floater 2.72 % 2.91 % 86,966 19.96 4 0.2336 % 2,786.4
OpRet 4.60 % 2.27 % 73,962 0.70 3 -0.0895 % 2,620.1
SplitShare 4.66 % 4.47 % 66,412 3.93 6 0.0217 % 2,971.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0895 % 2,395.8
Perpetual-Premium 5.60 % 4.11 % 99,741 0.78 12 0.0726 % 2,292.0
Perpetual-Discount 5.33 % 5.34 % 138,163 14.81 26 0.2034 % 2,414.4
FixedReset 4.95 % 3.41 % 232,126 3.56 83 -0.0233 % 2,485.4
Deemed-Retractible 5.04 % 4.49 % 187,830 7.00 43 -0.0009 % 2,393.3
Performance Highlights
Issue Index Change Notes
BAM.PR.N Perpetual-Discount 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-15
Maturity Price : 21.65
Evaluated at bid price : 21.65
Bid-YTW : 5.54 %
ELF.PR.G Perpetual-Discount 1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-15
Maturity Price : 22.23
Evaluated at bid price : 22.55
Bid-YTW : 5.28 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.O Deemed-Retractible 105,100 RBC crossed 103,000 at 26.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-14
Maturity Price : 26.00
Evaluated at bid price : 26.00
Bid-YTW : 2.53 %
CU.PR.F Perpetual-Discount 65,010 Scotia crossed 56,000 at 22.65.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-15
Maturity Price : 22.44
Evaluated at bid price : 22.75
Bid-YTW : 4.99 %
ENB.PR.Y FixedReset 61,028 National bought 34,500 from Scotia at 25.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-15
Maturity Price : 23.09
Evaluated at bid price : 24.96
Bid-YTW : 3.99 %
CM.PR.K FixedReset 45,804 Nesbitt crossed 25,000 at 25.73.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 2.42 %
MFC.PR.K FixedReset 44,285 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.22
Bid-YTW : 3.68 %
CM.PR.G Perpetual-Premium 35,542 Scotia crossed 24,800 at 25.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-01
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.11 %
There were 27 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IAG.PR.G FixedReset Quote: 25.70 – 26.23
Spot Rate : 0.5300
Average : 0.3718

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 3.60 %

CU.PR.F Perpetual-Discount Quote: 22.75 – 23.20
Spot Rate : 0.4500
Average : 0.2929

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-15
Maturity Price : 22.44
Evaluated at bid price : 22.75
Bid-YTW : 4.99 %

BAM.PR.G FixedFloater Quote: 22.61 – 23.23
Spot Rate : 0.6200
Average : 0.4981

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-15
Maturity Price : 22.89
Evaluated at bid price : 22.61
Bid-YTW : 3.49 %

GWO.PR.M Deemed-Retractible Quote: 26.15 – 26.45
Spot Rate : 0.3000
Average : 0.2191

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-31
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 4.95 %

PWF.PR.R Perpetual-Discount Quote: 25.25 – 25.48
Spot Rate : 0.2300
Average : 0.1695

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 5.34 %

TD.PR.K FixedReset Quote: 25.90 – 26.04
Spot Rate : 0.1400
Average : 0.0809

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 2.48 %

DBRS Puts WN on Review-Developing

Monday, July 15th, 2013

DBRS has announced that it:

has today placed the ratings of George Weston Limited (GWL or the Company) Under Review with Developing Implications.

The action on GWL’s ratings is directly related to DBRS’s review of the ratings of Loblaw Companies Limited (Loblaw; see separate press release), which follows Loblaw’s announcement of an offer to acquire the shares of Shoppers Drug Mart Corporation (Shoppers) for $12.4 billion and the assumption of approximately $1 billion of debt (the Transaction).

The proposed financing, including GWL’s $500 million investment in Loblaw, would effectively reduce GWL’s voting ownership of Loblaw to approximately 46% from 63% at the end of F2012. That said, GWL intends to subsequently increase its ownership in Loblaw going forward.

GWL’s ratings reflect its holding in Loblaw and the Company’s own strong bakery brands and efficient operations, balanced by a continuing volatile input cost environment and the mature nature of the bakery industry.

DBRS will resolve its review of GWL at the same time as its review on Loblaw’s ratings. Should Loblaw’s ratings be confirmed or downgraded, similar rating action would likely follow for GWL. Any positive rating action for Loblaw in the medium to longer term would not necessarily result in the same for GWL.

The bid for Shoppers was reported this morning.

Weston has four preferred share issues outstanding, WN.PR.A, WN.PR.C, WN.PR.D and WN.PR.E, all Straight Perpetuals.

DBRS Places L Under Review-Developing

Monday, July 15th, 2013

DBRS has announced that it:

has today placed all ratings of Loblaw Companies Limited (Loblaw or the Company) Under Review with Developing Implications following the Company’s announcement of an offer to acquire the shares of Shoppers Drug Mart Corporation (Shoppers; see separate press release) for $12.4 billion and the assumption of approximately $1 billion of debt (the Transaction). The closing of the Transaction is subject to the approval of the shareholders of Shoppers and Loblaw, which is expected in September 2013.

The consideration offered for the equity consists of up to $6.7 billion in cash and up to 119.9 million Loblaw shares. The Transaction is expected to be financed through the combination of: (1) approximately $1.6 billion of cash, (2) $5.1 billion of fully committed bank facilities (including a $1.6 billion bridge loan), and (3) a subscription of $500 million additional Loblaw common shares from George Weston Limited (Weston).

On a pro forma basis, the combined company generated over $42 billion in revenue, $3 billion in EBITDA, and $1 billion in free cash flow. DBRS expects Loblaw to realize significant synergies by leveraging the strengths of both organizations, including the private label and loyalty programs, supply chain, and marketing. The Company believes it can achieve annual cost synergies of $300 million by year three. DBRS notes that these synergies are not dependent on any store closings.

Loblaw intends to operate Shoppers as a separate operating division. The Acquisition will increase Loblaw’s scale and improve its position in the growing health and wellness space in Canada.

The Developing Implications of the Under Review status reflects DBRS’s view that Loblaw’s business profile should benefit from increased scale, more diverse product offering, and potential synergies, which combined with the Company’s intended deleveraging plan, should largely offset the risks associated with the initial increase in financial leverage.

In its review, DBRS will focus on: (1) assessing the business risk profile of the combined entity as well as the risks associated with integration and realization of synergy potential, (2) Loblaw’s financial risk profile on a pro forma basis, including free cash flow generating capacity of the combined entity, a key indicator in the Company’s ability to reduce financial leverage within a reasonable time frame, and (3) the Company’s longer-term business strategy and financial management intentions.

Should the transaction close according to the proposed terms and provided that DBRS gains comfort with the Company’s ability and willingness to de-lever such that lease-adjusted debt-to-EBITDAR is below 3.50 times within 18 to 24 months, the ratings would likely be confirmed. DBRS will proceed with its review as more information becomes available and aims to resolve the Under Review status by the closing of the transaction.

The bid for Shoppers was announced this morning.

Loblaws has a single preferred share issue outstanding, L.PR.A, an OperatingRetractible.

Update, 2013-7-17: DBRS has announced a correction:

In terms of placing the ratings of Loblaw Companies Limited Under Review with Developing Implications yesterday, DBRS would like to clarify that the calculation of the lease-adjusted debt-to-EBITDAR ratio excludes Loblaw’s Financial Services division; that is, it would be adjusted to exclude PC Bank securitization and GICs. The complete text of the revised press release follows.

July PrefLetter Released!

Monday, July 15th, 2013

The July, 2013, revised edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the July, 2013, issue, while the “Next Edition” will be the August, 2013, issue, scheduled to be prepared as of the close August 9 and eMailed to subscribers prior to market-opening on August 12.

PrefLetter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Fitch Maintains Negative Outlook on SLF

Sunday, July 14th, 2013

Fitch Ratings has announced (on July 2):

The Negative Outlook reflects the historical volatility in SLF’s earnings and the possibility it may continue at run-rate operating earnings and debt service that is not supportive of the current rating level.

Fitch believes SLF’s ability to improve its run-rate operating earnings will depend in part on how the company deploys the proceeds from the pending sale of Sun Life Assurance Company of Canada (U.S.) and Sun Life Insurance & Annuity Co. of New York to Delaware Life Holdings, a company owned by shareholders of Guggenheim Partners. The two Sun Life companies contain SLF’s U.S. variable annuity (VA) and certain life insurance businesses which have in recent history been a drag on overall earnings and a significant consumer of capital. The sale has been delayed due to regulatory review but Fitch expects it will be successfully completed.

The IFS ratings of SLF’s U.S. life subsidiaries remain on Rating Watch Negative. Resolution of the Rating Watch will occur following further discussions with management and completion of the sale, and will likely result in a downgrade of the IFS ratings by at least one notch. Absent discussions with Guggenheim Partners, the ratings will be withdrawn. Assuming no material changes to the credit of the entities involved Fitch may not comment further until completion of the sale.

The key rating triggers that could result in a downgrade include:
–Failure to complete the sale of the company’s run-off U.S. operations;
–A decline in adjusted fixed-charge coverage, excluding equity market and interest rate impacts below 6x;
–A sustained drop in the company’s risk-adjusted capital position with no plans or ability to rectify; this would include the MCCSR ratio falling below 200%;
–An increase in financial leverage to over 25%;
–A large acquisition that involves execution and integration risk or impacts the company’s leverage and capitalization.

The key rating triggers that could result in a return to a Stable Outlook include:
–Completion of the sale of run-off U.S. operations;
–Consistent maintenance of adjusted fixed-charge coverage, excluding equity market and interest rate impacts, of over 6x.

SLF has numerous preferred share issues outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D and SLF.PR.E (all DeemedRetractible) and SLF.PR.F, SLF.PR.G, SLF.PR.H and SLF.PR.I (all FixedReset).

DGS.PR.A Annual Report 2012

Sunday, July 14th, 2013

Dividend Growth Split Corp. has released its Annual Report to December 31, 2012.

DGS / DGS.PR.A Performance
Instrument One
Year
Three
Years
Whole Unit +13.2% +7.8%
DGS.PR.A +5.4% +5.4%
DGS +26.3% +11.4%
S&P/TSX Composite Index +7.2% +4.8%

I think a dividend-tilting index would have been a more appropriate benchmark for this fund than the Composite, but we’ll let that go.

Figures of interest are:

MER: 1.06% of the whole unit value

Average Net Assets: The Net Asset Value at year end was $106.7-million, compared to $104.7-million a year prior, so call it an average of $105.7-million.

Underlying Portfolio Yield: Dividends and interest received of $4.77-million divided by average net assets of $105.7-million is 4.5%.

Income Coverage: Dividends and Securities Lending Income of $4.77-million less expenses of $1.11-million is $3.66-million, to cover preferred dividends of $3.35-million is 109%.

July 12, 2013

Friday, July 12th, 2013

Nothing happened today.

It was another day of solid recovery for the Canadian preferred share market, with PerpetualDiscounts winning 26bp, FixedResets gaining 10bp and DeemedRetractibles up 15bp. The Performance Highlights table is suitably bulky, comprised entirely of winners. Volume was above 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 0.3909 % 2,574.6
FixedFloater 4.22 % 3.50 % 41,237 18.40 1 1.1236 % 3,932.8
Floater 2.73 % 2.93 % 86,335 19.93 4 0.3909 % 2,779.9
OpRet 4.60 % 1.79 % 75,091 0.71 3 0.2049 % 2,622.4
SplitShare 4.67 % 4.14 % 67,124 3.94 6 0.0383 % 2,970.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2049 % 2,397.9
Perpetual-Premium 5.60 % 4.06 % 100,281 0.78 12 0.2813 % 2,290.3
Perpetual-Discount 5.35 % 5.25 % 139,247 14.78 26 0.2609 % 2,409.5
FixedReset 4.95 % 3.40 % 235,243 3.58 83 0.1004 % 2,486.0
Deemed-Retractible 5.04 % 4.50 % 185,094 6.91 43 0.1558 % 2,393.3
Performance Highlights
Issue Index Change Notes
GWO.PR.M Deemed-Retractible 1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-31
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 4.98 %
TRI.PR.B Floater 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-12
Maturity Price : 23.20
Evaluated at bid price : 23.50
Bid-YTW : 2.21 %
BAM.PR.G FixedFloater 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-12
Maturity Price : 22.81
Evaluated at bid price : 22.50
Bid-YTW : 3.50 %
GWO.PR.G Deemed-Retractible 1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.90
Bid-YTW : 5.30 %
GWO.PR.P Deemed-Retractible 1.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 5.31 %
ELF.PR.H Perpetual-Premium 1.29 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-17
Maturity Price : 25.00
Evaluated at bid price : 25.22
Bid-YTW : 5.38 %
MFC.PR.F FixedReset 2.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 3.47 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.P FixedReset 79,800 TD crossed 49,500 at 24.75; National crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 24.61
Bid-YTW : 3.68 %
BNS.PR.N Deemed-Retractible 52,750 TD crossed 50,000 at 25.71.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-01-27
Maturity Price : 25.00
Evaluated at bid price : 25.68
Bid-YTW : 4.35 %
ENB.PR.F FixedReset 45,721 TD crossed 30,300 at 24.95.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-12
Maturity Price : 23.15
Evaluated at bid price : 24.95
Bid-YTW : 4.11 %
MFC.PR.I FixedReset 43,983 Desjardins crossed 30,000 at 25.95.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 3.51 %
ENB.PR.Y FixedReset 40,680 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-12
Maturity Price : 23.08
Evaluated at bid price : 24.93
Bid-YTW : 3.99 %
MFC.PR.K FixedReset 36,325 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 3.74 %
There were 37 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.G FixedFloater Quote: 22.50 – 22.95
Spot Rate : 0.4500
Average : 0.3645

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-12
Maturity Price : 22.81
Evaluated at bid price : 22.50
Bid-YTW : 3.50 %

CIU.PR.C FixedReset Quote: 24.51 – 24.96
Spot Rate : 0.4500
Average : 0.3676

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-12
Maturity Price : 23.21
Evaluated at bid price : 24.51
Bid-YTW : 3.17 %

RY.PR.W Perpetual-Premium Quote: 25.05 – 25.25
Spot Rate : 0.2000
Average : 0.1242

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-12
Maturity Price : 24.79
Evaluated at bid price : 25.05
Bid-YTW : 4.95 %

MFC.PR.H FixedReset Quote: 25.98 – 26.20
Spot Rate : 0.2200
Average : 0.1479

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.98
Bid-YTW : 3.56 %

FTS.PR.J Perpetual-Discount Quote: 23.60 – 23.99
Spot Rate : 0.3900
Average : 0.3184

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-12
Maturity Price : 23.29
Evaluated at bid price : 23.60
Bid-YTW : 5.08 %

BMO.PR.J Deemed-Retractible Quote: 25.25 – 25.50
Spot Rate : 0.2500
Average : 0.1853

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 4.46 %