Archive for August, 2013

August 30, 2013

Friday, August 30th, 2013

Bloomberg has some chatter on the Fed derby:

Investors are increasingly seeking advice on how the potential nomination of Lawrence Summers as chairman of the Federal Reserve instead of Vice Chairman Janet Yellen might influence monetary policy and financial markets.

Inquiries about Summers’s chances “are picking up a lot,” said Matthew Benjamin, an analyst at Medley Global Advisors LLC in Washington, a firm that provides political intelligence to hedge funds. “Wall Street is very interested in this, and there is a perception that there is a difference between Yellen and Summers” in their approach to monetary stimulus.

The possibility of a Summers chairmanship has contributed to the increase in borrowing costs because he is seen as likely to end the Fed’s quantitative easing sooner than Yellen would, said Krishna Memani, New York-based chief investment officer of fixed income at Oppenheimer Funds Inc., with about $208 billion under management.

While former Treasury Secretary Summers, 58, has no record making monetary policy, he expressed skepticism about the effectiveness of QE in an April conference hosted by Drobny Global Advisors.

By contrast, Yellen’s views are well known after more than a decade at the central bank. Yellen, 67, was a Fed governor from 1994 to 1997, president of the San Francisco Fed from 2004 to 2010 and vice chairman since 2010.

She has been an architect of the current stimulus campaign and Fed communication strategy and has never dissented from a monetary policy decision under Bernanke.

“We know with Yellen that she will continue with their current program,” Memani said. “With Summers it’s a lot less certain.”

Organized labour – such as it is – has indicated a preference for Yellen:

[AFL-CIO President Richard] TRUMKA: Well, what I said is, if you look at history and their records, she seems to have the edge, she seems to be a better candidate from our point of view, and here’s why. One, when things were going wrong in the economy, in each one of those instances, she predicted them accurately. Larry didn’t. Larry we thought at that time was too close to Wall Street, and it allowed him to jade his thought process.
The second thing is, Janet Yellen has been for a balanced approach to the Federal Reserve. That means that – they have two mandates, fight inflation and create full employment. Larry and everyone before, all the way back to Paul Volcker, have said we’re not going to worry about full employment, we’re only going to worry –
[Talking Head Al] HUNT: But Larry does say he worries about full employment.
TRUMKA: Recently. And I hope that that continues on. And if he becomes the – the chair of the Fed, I hope he continues on and – and aggressively enforces that part of his mandate, as he does the inflation mandate.
HUNT: So, therefore, if Obama were to nominate Summers rather than your preference, which would be Yellen, you wouldn’t oppose the Summers nomination?
TRUMKA: I don’t know. It would all depend on what happens, you know, what’s said and what he’s going to do.

The Canadian preferred share market closed the month with another good day, with PerpetualDiscounts winning 40bp, FixedResets gaining 12bp and DeemedRetractibles up 26bp. The Performance Highlights table reflects the move, although it is much shorter than it has been in the past couple of weeks. Volume was on the low side of 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 -0.0785 % 2,608.7
FixedFloater 4.25 % 3.55 % 35,832 18.22 1 -1.7590 % 3,904.9
Floater 2.58 % 2.92 % 70,958 19.86 5 -0.0785 % 2,816.7
OpRet 4.64 % 2.08 % 67,440 0.08 3 0.0773 % 2,620.6
SplitShare 4.73 % 4.87 % 55,261 3.85 6 -0.0067 % 2,958.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0773 % 2,396.3
Perpetual-Premium 5.76 % 5.82 % 120,718 14.03 12 0.2848 % 2,248.1
Perpetual-Discount 5.62 % 5.77 % 156,174 14.19 25 0.3977 % 2,295.4
FixedReset 4.95 % 3.81 % 243,431 3.87 85 0.1163 % 2,451.7
Deemed-Retractible 5.20 % 5.13 % 201,913 6.95 43 0.2616 % 2,339.9
Performance Highlights
Issue Index Change Notes
BAM.PR.G FixedFloater -1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-30
Maturity Price : 22.67
Evaluated at bid price : 22.34
Bid-YTW : 3.55 %
BNS.PR.Z FixedReset 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.40
Bid-YTW : 4.37 %
RY.PR.F Deemed-Retractible 1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.77
Bid-YTW : 4.62 %
SLF.PR.E Deemed-Retractible 1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.00
Bid-YTW : 6.49 %
BNS.PR.Y FixedReset 1.25 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.44
Bid-YTW : 4.06 %
CU.PR.E Perpetual-Discount 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-30
Maturity Price : 22.27
Evaluated at bid price : 22.59
Bid-YTW : 5.44 %
POW.PR.G Perpetual-Premium 1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-30
Maturity Price : 24.19
Evaluated at bid price : 24.59
Bid-YTW : 5.76 %
BNS.PR.L Deemed-Retractible 1.47 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.92
Bid-YTW : 4.62 %
FTS.PR.F Perpetual-Discount 1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-30
Maturity Price : 22.15
Evaluated at bid price : 22.15
Bid-YTW : 5.57 %
PWF.PR.R Perpetual-Discount 1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-30
Maturity Price : 24.11
Evaluated at bid price : 24.50
Bid-YTW : 5.66 %
SLF.PR.C Deemed-Retractible 1.69 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.00
Bid-YTW : 6.44 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.T FixedReset 149,252 Recent exchange issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 2.52 %
TD.PR.O Deemed-Retractible 105,100 TD crossed 49,500 at 25.00 and 45,000 at 25.02.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.02
Bid-YTW : 4.92 %
BMO.PR.J Deemed-Retractible 60,956 Nesbitt crossed blocks of 28,400 and 25,000, both at 25.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.03
Bid-YTW : 4.50 %
PWF.PR.H Perpetual-Premium 31,905 TD crossed 30,000 at 24.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-30
Maturity Price : 24.18
Evaluated at bid price : 24.44
Bid-YTW : 5.95 %
BNS.PR.N Deemed-Retractible 31,815 TD crossed 25,000 at 25.36.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-01-27
Maturity Price : 25.00
Evaluated at bid price : 25.22
Bid-YTW : 5.13 %
PWF.PR.G Perpetual-Premium 30,772 TD crossed 29,900 at 24.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-30
Maturity Price : 24.66
Evaluated at bid price : 24.92
Bid-YTW : 5.98 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
HSB.PR.D Deemed-Retractible Quote: 24.59 – 25.49
Spot Rate : 0.9000
Average : 0.5782

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.59
Bid-YTW : 5.40 %

GWO.PR.N FixedReset Quote: 21.62 – 22.50
Spot Rate : 0.8800
Average : 0.6549

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.62
Bid-YTW : 4.86 %

MFC.PR.G FixedReset Quote: 25.40 – 25.74
Spot Rate : 0.3400
Average : 0.2214

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-19
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : 3.82 %

PWF.PR.L Perpetual-Discount Quote: 22.28 – 22.67
Spot Rate : 0.3900
Average : 0.2794

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-30
Maturity Price : 22.04
Evaluated at bid price : 22.28
Bid-YTW : 5.78 %

RY.PR.E Deemed-Retractible Quote: 24.61 – 24.92
Spot Rate : 0.3100
Average : 0.2015

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.61
Bid-YTW : 4.76 %

CU.PR.F Perpetual-Discount Quote: 21.08 – 21.45
Spot Rate : 0.3700
Average : 0.2624

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-30
Maturity Price : 21.08
Evaluated at bid price : 21.08
Bid-YTW : 5.37 %

BNA: Name Change to Partners Value Split Corp.

Friday, August 30th, 2013

The front page of the website for this company includes the startling information:

Partners Value Split Corp. (formerly “BAM Split Corp.”) commenced operations in September 2001 and currently owns a portfolio …

There was nothing about this in their Semi-Annual Report and the “Corporate Info” page merely repeats the information above.

There is nothing in the “Press Releases” section, and there ain’t nuthin’ on SEDAR either.

I have sent the following query to the company:

Sirs,

I understand from http://www.bamsplit.com/ that BAM Split has changed its name, but can find nothing on SEDAR.

What are the details of this change? Will there be a press release? Are there any implications for the investment policy of the company or its capital structure?

Sincerely,

The above eMail was sent shortly before 3pm, August 29, and no answer has yet been received. I will post more when I know more.

The company has four issues of Senior Preferred Shares trading on the Toronto Exchange: BNA.PR.B, BNA.PR.C, BNA.PR.D and BNA.PR.E. All are tracked by HIMIPref™. There is also a series of Junior Preferred Shares outstanding, all of which are held by BAM Investments Corp. (or whatever they’re calling it this week), which also owns all of the Capital Units.

Update, 2013-9-7: I have received an answer to my query and published an extract on the post reporting the change of website.

Final Dividend Calculation Questions

Friday, August 30th, 2013

I have received not just one, but two separate inquiries about the calculation of a final dividend lately, so I’ll publish this note to assist those who are too shy to eMail me…

For those unwilling to plough through the following (cough, cough), final dividend calculation may be summarized as:

  • Dividends are paid for a specific period
  • This period usually, but not always, is up to and including the payment date.
  • Ex-date and record date have nothing to do with it – at least, not in any instances of which I am aware
  • For an explanation of the dates, read my essay Dividends and ex-Dates
  • To determine the periods over which dividend payments are earned, read the prospectus with respect to the first dividend … the prospectus will generally include some statement along the lines of: “The first dividend will be paid on XXXX, and will be for $YYY per share, assuming that the issue closes on ZZZZ”. The fraction of a year between XXXX and ZZZZ will generally, but not always be equal to the fraction of the annual dividend paid on ZZZZ.

So, the first inquiry was sent by Assiduous Reader KB:

I wonder if you could clear up a question I have about Fixed Reset shares.

I was reading this months PrefLetter and was a bit confused by a yield calculation, so I went to the prospectus of some Fixed-Reset shares I own.

Both bank fixed-resets (RY.PR.P and TD.PR.K) are worded a particular way that concerns me, yet two non-bank fixed-resets MFC.PR.D and BAM.PR.P) are worded differently.

The bank fixed-resets state that dividends are paid every quarter, but excludes the initial rate on the last dividend for the final reset/call date? (see the pertinent prospectus excerpt reprint below.)

The non-bank fixed-resets include the initial rate on the last dividend for the final reset/call date? (see the pertinent prospectus excerpt reprint below.)

Question: Are the banks indicating that the dividend on the reset/call date (if reset) will be at the new dividend rate, and (if called) will be at the old dividend rate, yet the non-banks pay the old dividend rate on the reset/call dates regardless if called or reset?

RY.PR.P
Our Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series AP (the “Series AP Preferred Shares”) will be entitled to fixed non-cumulative preferential cash dividends, payable quarterly on the 24th day of February, May, August and November in each year, as and when declared by our board of directors, for the initial period from and including the closing date of this offering to, but excluding, February 24, 2014 (the “Initial Fixed Rate Period”) at a per annum rate of 6.25%, or $1.5625 per share per annum. The initial dividend, if declared, will be payable on May 24, 2009 and will be $0.55651 per share, based on an anticipated issue date of January 14, 2009 …………………….. Subject to the provisions of the Bank Act (Canada) (the “Bank Act”) and the consent of the Superintendent of Financial Institutions Canada (the “Superintendent”), on February 24, 2014 and on February 24 every fifth year thereafter, we may redeem the Series AP Preferred Shares in whole or in part by the payment of $25.00 in cash per share together with declared and unpaid dividends to the date fixed for redemption.

MFC.PR.D
This offering (the “Offering”) of Non-cumulative Rate Reset Class A Shares, Series 4 (the “Series 4 Preferred Shares”) of Manulife Financial Corporation (“MFC”) under this prospectus supplement (the “Prospectus Supplement”) consists of 14,000,000 Series 4 Preferred Shares. The holders of Series 4 Preferred Shares will be entitled to receive fixed non-cumulative preferential cash dividends, as and when declared by the board of directors of MFC (the “Board of Directors”), for the initial period commencing on the Closing Date (as defined herein) and ending on and including June 19, 2014 (the “Initial Fixed Rate Period”), payable quarterly on the 19th day of March, June, September and December in each year (each three-month period ending on the 19th day of each such month, a “Quarter”), at an annual rate equal to $1.65 per share. The initial dividend, if declared, will be payable June 19, 2009 and will be $0.4837 per share, based on the anticipated closing date of March 4, 2009 (the “Closing Date”) …………………….. The Series 4 Preferred Shares will not be redeemable by MFC prior to June 19, 2014. On June 19, 2014 and on June 19 every five years thereafter, but subject to the provisions of the Insurance Companies Act (Canada) (the “ICA”), including the requirement of obtaining the prior consent of the Superintendent of Financial Institutions (the “Superintendent”), and subject to certain other restrictions set out in “Details of the Offering — Certain Provisions of the Series 4 Preferred Shares as a Series — Restrictions on Dividends and Retirement of Series 4 Preferred Shares”, MFC may, at its option, on at least 30 days and not more than 60 days prior written notice, redeem for cash all or from time to time any part of the outstanding Series 4 Preferred Shares for $25.00 per Series 4 Preferred Share, together in each case, with an amount equal to the sum (the “Accrued Amount”) of (i) all declared and unpaid dividends in respect of completed Quarters preceding the date fixed for redemption; and (ii) an amount equal to the cash dividend in respect of the Quarter in which the redemption occurs, whether declared or not, pro rated to such date.

Thanks,

I answered with the following:

There is no need to worry.

If you examine the prospectus for TD.PR.S (http://www.td.com/document/PDF/investor/td-investor-s[1].pdf) you will see that it is worded similarly to the other banks: “The holders of the Series S Shares will be entitled to receive fixed quarterly non-cumulative preferential cash dividends, as and when declared by the board of directors of the Bank (the “Board of Directors”), for the initial period from and including the closing date of this offering to but excluding July 31, 2013 (the “Initial Fixed Rate Period”), payable on the last day of January, April, July and October in each year (each three-month period ending on the last day of each such month, a “Quarter”), at a per annum rate of 5.00% per share, or $0.3125 per share per Quarter”

The dividends for the final period were at the old rate:http://td.mediaroom.com/2013-05-23-TD-Bank-Group-Declares-Dividends

I believe that this is simply due to questions about how to count the days and refer to this count, given that interest is actually earned overnight (between the close on day X and the opening on day X+1) rather than during the day.

Every lawyer will have his own idea about whether the interest earning period is day X or day X+1 and draft the prospectus accordingly. And once the first prospectus is drawn up for a given firm, it is used as a template for the next one.

The next question came from Assiduous Reader GK:

Specifically, on BNA.PR.D, I know the call is July 9, 2014, and the last dividend record date is May 22 (or thereabouts).

I am interested in this series for a short term investment.

My question is, is there any accrued interest in the period between May 22 and the call date, July 9?

And my response:

This one is a little tricky and requires us to have a look at the prospectus for the issue, available on SEDAR.

First: “All Series 4 Preferred Shares outstanding on July 9, 2014 (the ‘‘Series 4 Redemption Date’’) will be redeemed for a cash amount equal to the lesser of (i) $25.00 plus any accrued and unpaid dividends, and (ii) the Net Asset Value per Unit.”

So on July 9 we will indeed be paid accrued dividends, if any. Are there any? With respect to the first dividend, the prospectus states: “Based upon the anticipated closing date of July 9, 2009, the initial dividend (which covers the period from closing to August 31, 2009) is expected to be $0.26318 per Series 4 Preferred Share and is expected to be paid on or before September 7, 2009 to holders of record on August 21, 2009.”

So checking: July 9 to August 31 is 22 + 31 = 53 days, and the expected dividend is: quarterly divided * 4 * fraction of year = paid dividend, or

$0.453125 * 4 * (53/365) = 0.263185

Which agrees with their calculation (except they rounded down, the bastards!)

So dividends are paid for quarterly periods ending at month-end February, May, August and November.

Therefore, on redemption July 9, dividends will be owing for the period May 31 – July 9 = 39 days = (39/365) of a year, so:

$0.453125 * 4 * 39/365 = 0.193664.

So it would appear that accrued and unpaid dividends of 0.193664 per share will be paid on redemption July 9, 2014. I urge you to double check this calculation and see if you can get confirmation from the company itself – see contact information at http://www.bamsplit.com/

August 29, 2013

Thursday, August 29th, 2013

In the latest tapering chatter:

Tapering talk has already sent 10-year note yields up 120 basis points. Almost the entire increase has been in the real yield, not in inflation expectations. Long-term interest rates aren’t about to retreat if the Fed delays the inevitable until October or December. So if rising long-term rates have policy makers tied in knots, doing nothing buys them time, not yield relief.

The real 10-year yield (from the 10-year inflation-indexed Treasury note) is 0.6 percent. JPMorgan Chase economist Jim Glassman says that before the recession and introduction of the Fed’s unconventional policies, real long-term rates averaged 2 percent to 2.5 percent. The implied five-year forward real rate — the expected real rate five to 10 years from now, which captures the anticipated normalization of monetary policy — is about 1.75 percent, according to Glassman. “That indicates that much of the adjustment in interest-rate markets has been done already,” he says.

Of course, markets tend to overshoot, and there’s no reason to think they won’t this time. But that’s the reaction to any Fed action.

This doesn’t mean “getting it over with” is a good reason to taper; it’s just better than the economic justifications being offered. At the July 30-31 meeting, “almost all members” thought it was too soon to taper. What will have transpired in the six weeks between the July and September meetings? Two more employment reports, that’s what. There is really no quantitative difference between an increase in non-farm payrolls of 162,000 (July) and 199,000 (April). If you don’t believe me, listen to the statisticians at the Bureau of Labor Statistics.

Inflation is below the Fed’s target. The jobless rate, now 7.4 percent, is being driven as much by declining labor-force participation as new hiring. And Fed officials could look at the 13.4 percent decline in new home sales in July as a harbinger and get squeamish about selling some of the central bank’s stockpile of mortgage-backed securities.

Four months of tapering chatter has given wannabe sellers adequate notice. The deed itself seems fully priced into the market, and time isn’t on the Fed’s side.

But it looks like business has cranked up issuance of cheap debt in advance:

Company debt loads in the U.S. are approaching the highest level since the aftermath of the financial crisis as borrowing to finance mergers and shareholder payouts exceeds earnings growth.

Debt levels have increased faster than cash flow for six straight quarters, boosting the obligations of investment-grade companies in the second quarter to 2.09 times earnings before interest, taxes, depreciation and amortization, according to JPMorgan Chase & Co. That’s up from 2.07 times in the first three months of 2013 and compares with 2.13 in the third quarter of 2009, when it peaked after the deepest recession since the Great Depression.

While heavier debt burdens have been supported by a Fed policy that pushed average U.S. corporate-bond yields to a record-low 2.65 percent in May, JPMorgan strategists said they expect issuance to slow as interest rates increase. Speculation is mounting that Chairman Ben S. Bernanke will reduce the central bank’s $85 billion in monthly debt purchases as soon as next month.

With a greater sense of urgency to tap debt markets before rates climb higher, companies may continue to increase leverage through the end of the year, Bank of America Corp. debt strategist Yuriy Shchuchinov said in an Aug. 26 note.

There’s an interesting allegation about CMHC lending:

A friend who is an economist further went on to say that when lending rules were liberalized to take into account two incomes in a household it in effect imprisoned families to needing two incomes to afford a house. This did not help families, but rather increased the price of housing, with the outcome that young families are hard pressed not to farm out their children to daycare or grandparents. Single-income households need a really high single income or they face very limited housing options. As individuals, families and a society we’re not any better off, and the outcome only has been higher prices.

A recent article by Canso Investment newsletter reported one troubling trend – “gaming” with CMHC’s online automated appraisal system, EMILI. The system was created in 1996 to allow lenders to quickly check if the house price involved in a mortgage transaction was reasonable. According to Canso, while this streamlined the process of mortgage insurance and origination, it also removed any human check and balance.

EMILI uses an algorithm which looks at the address, and particularly the postal code, and metrics of the house to be insured. The key variables are “the square footage of the house and the prior sale prices for the geographic area of the house.”

According to Canso, “there has been extensive ‘gaming’ of this system and excessive prices generated by this system. If a higher price is required for CMHC insurance coverage, the square footage, which is input by the lender and supplied by the mortgage broker, can be increased as required.”

“Gaming” is a polite term. What this really looks like is fraud. Having said that, the impact of this fraud will, for the most part, be limited to excessive lending on a single property, as opposed to the greater problem of excessive money supply for mortgages. This excess money supply has floated the buyers’ market to extraordinary heights with very few real winners. Recent homebuyers may be able to afford their mortgage payments – providing interest rates remain low during the amortization term. But some amortization terms in the past decade have reached 40 years and it’s unreasonable to expect interest rates to remain low three to four decades down the road.

I believe that the CMHC is a major part of the problem: they’re insuring far too many mortgages and Canadian banks now have record amounts of mortgage debts on their books, both in absolute terms and in terms of the proportion of their assets. They can do this because the mortgages are insured – or, at least, they can be counted as insured until they default and CMHC suddenly gets more interested in the house’s square footage!

Eliminate the insurance and – business risks aside – the risk weight will go up. Risk Weight goes up, Risk Adjustjed Assets go up. Risk Adjusted Assets go up, capital requirement goes up. Capital Requirement goes up, banks’ cost of funds goes up. Cost of funds goes up, mortgage rates go up. Mortgage rates go up, mortgage demand goes down.

NASDAQ has provided an explanation for last week’s shutdown:

The malfunction began when NYSE Arca sent more than 20 “connect and disconnect sequences” as well as a stream of quotes for inaccurate stock symbols, according to Nasdaq’s summary. At one point, Nasdaq received over 2 1/2 times more data per second than the system’s tested capacity.

After being inundated with orders, the flaw in the SIP software prevented redundancy that is built into the system from “failing over cleanly” to a backup program, it said.

It was another day of modest advance in the Canadian preferred share market, with PerpetualDiscounts gaining 2bp, FixedResets up 8bp and DeemedRetractibles full steam ahead with a win of 46bp. The Performance Highlights table was heavily weighted towards winners. Volume was high.

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 -0.3423 % 2,610.7
FixedFloater 4.18 % 3.48 % 36,026 18.36 1 1.7905 % 3,974.8
Floater 2.58 % 2.91 % 70,768 19.90 5 -0.3423 % 2,818.9
OpRet 4.64 % 3.20 % 69,719 0.79 3 0.3104 % 2,618.6
SplitShare 4.73 % 4.85 % 55,629 3.85 6 0.1076 % 2,958.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3104 % 2,394.4
Perpetual-Premium 5.78 % 5.86 % 115,090 14.03 12 0.0371 % 2,241.7
Perpetual-Discount 5.64 % 5.77 % 152,448 14.19 25 0.0205 % 2,286.3
FixedReset 4.95 % 3.82 % 243,411 3.87 85 0.0830 % 2,448.8
Deemed-Retractible 5.21 % 5.11 % 204,225 6.96 43 0.4614 % 2,333.8
Performance Highlights
Issue Index Change Notes
GWO.PR.N FixedReset -2.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.65
Bid-YTW : 4.85 %
BAM.PR.N Perpetual-Discount -1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-29
Maturity Price : 20.21
Evaluated at bid price : 20.21
Bid-YTW : 5.99 %
BNA.PR.C SplitShare 1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.10
Bid-YTW : 5.13 %
CM.PR.G Perpetual-Premium 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-29
Maturity Price : 24.52
Evaluated at bid price : 24.76
Bid-YTW : 5.51 %
CM.PR.K FixedReset 1.06 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 2.75 %
BNS.PR.Y FixedReset 1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.15
Bid-YTW : 4.23 %
TD.PR.P Deemed-Retractible 1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : 5.11 %
CU.PR.F Perpetual-Discount 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-29
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 5.33 %
BNS.PR.M Deemed-Retractible 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 4.75 %
RY.PR.B Deemed-Retractible 1.26 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.96
Bid-YTW : 4.76 %
BMO.PR.J Deemed-Retractible 1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.97
Bid-YTW : 4.55 %
BAM.PR.X FixedReset 1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-29
Maturity Price : 22.66
Evaluated at bid price : 23.56
Bid-YTW : 4.12 %
BAM.PR.G FixedFloater 1.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-29
Maturity Price : 22.96
Evaluated at bid price : 22.74
Bid-YTW : 3.48 %
MFC.PR.B Deemed-Retractible 1.81 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.33
Bid-YTW : 6.49 %
BAM.PF.B FixedReset 1.87 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-29
Maturity Price : 22.74
Evaluated at bid price : 23.99
Bid-YTW : 4.61 %
TRP.PR.C FixedReset 2.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-29
Maturity Price : 22.51
Evaluated at bid price : 23.00
Bid-YTW : 3.87 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.C FixedReset 76,355 TD crossed blocks of 30,000 and 40,000, both at 25.33.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.36
Bid-YTW : 3.21 %
PWF.PR.G Perpetual-Premium 64,702 Scotia bought 19,000 from GMP at 24.90, then crossed 40,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-29
Maturity Price : 24.57
Evaluated at bid price : 24.82
Bid-YTW : 6.01 %
BNS.PR.T FixedReset 58,699 TD crossed 50,000 at 25.70.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.63
Bid-YTW : 3.06 %
PWF.PR.H Perpetual-Premium 45,347 Scotia crossed 39,700 at 24.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-29
Maturity Price : 24.22
Evaluated at bid price : 24.51
Bid-YTW : 5.93 %
RY.PR.N FixedReset 44,200 TD crossed 40,000 at 25.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : 3.11 %
BNS.PR.K Deemed-Retractible 43,850 RBC crossed 37,200 at 25.05.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 4.91 %
There were 56 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.B FixedReset Quote: 21.43 – 22.22
Spot Rate : 0.7900
Average : 0.5303

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-29
Maturity Price : 21.43
Evaluated at bid price : 21.43
Bid-YTW : 3.80 %

BAM.PR.J OpRet Quote: 26.35 – 26.78
Spot Rate : 0.4300
Average : 0.2430

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 26.35
Bid-YTW : 4.33 %

TCA.PR.Y Perpetual-Premium Quote: 49.10 – 49.60
Spot Rate : 0.5000
Average : 0.3470

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-29
Maturity Price : 48.56
Evaluated at bid price : 49.10
Bid-YTW : 5.76 %

ABK.PR.C SplitShare Quote: 31.65 – 32.19
Spot Rate : 0.5400
Average : 0.4011

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-10
Maturity Price : 31.64
Evaluated at bid price : 31.65
Bid-YTW : 3.71 %

GWO.PR.N FixedReset Quote: 21.65 – 22.19
Spot Rate : 0.5400
Average : 0.4081

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.65
Bid-YTW : 4.85 %

PWF.PR.I Perpetual-Premium Quote: 25.02 – 25.30
Spot Rate : 0.2800
Average : 0.1877

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-29
Maturity Price : 24.80
Evaluated at bid price : 25.02
Bid-YTW : 6.06 %

ETC.PR.A: Ticker Change to EQB.PR.A

Thursday, August 29th, 2013

Equitable Group Inc. has announced:

that, effective the start of trading on Tuesday, September 3, 2013, its ticker symbols on the Toronto Stock Exchange (TSX) will change from “ETC” and “ETC.PR.A” to “EQB” and “EQB.PR.A”, respectively.

In announcing the ticker symbol change, Andrew Moor, Equitable’s President and Chief Executive Officer, said “The change to our ticker symbol follows the conversion of Equitable’s wholly owned subsidiary, The Equitable Trust Company, to a Schedule I Bank called Equitable Bank in English and Banque Équitable in French effective July 1(st), 2013.”

ETC.PR.A is a FixedReset, 7.25%+453, announced August 17, 2009. As explained in the post regarding the announcement, the issue is not tracked by HIMIPref™ because it doesn’t have a credit rating from any agency.

DBRS Confirms WN After Review

Thursday, August 29th, 2013

DBRS has announced that it:

has today confirmed the Issuer Rating and Notes & Debentures rating of George Weston Limited (GWL or the Company) at BBB, its Commercial Paper rating at R-2 (high) and Preferred Shares rating at Pfd-3, all with Stable trends. This action removes the ratings from Under Review with Developing Implications.

On July 15, 2013, GWL’s ratings were placed Under Review with Developing Implications following Loblaw Companies Limited’s (Loblaw or the Company) announcement of an offer to acquire the shares of Shoppers Drug Mart Corporation (Shoppers) for $12.4 billion and the assumption of approximately $1.2 billion of debt (the Transaction).

The confirmation of GWL’s ratings is directly related to DBRS’s confirmation of Loblaw following the conclusion of our review of the Transaction.

The proposed financing, including GWL’s $500 million investment in Loblaw, would effectively reduce GWL’s voting ownership of Loblaw to approximately 45% from 63% at the end of F2012. That said, GWL remains in effective control of Loblaw and intends to subsequently increase its ownership stake to a majority position.

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

The onset of the Review-Developing was reported on PrefBlog.

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

DBRS Confirms L at Pfd-3 After Review

Thursday, August 29th, 2013

DBRS has announced that it:

has today confirmed the Issuer Rating, Medium-Term Notes and Debentures ratings of Loblaw Companies Limited (Loblaw or the Company) at BBB, its Commercial Paper rating at R-2 (middle) and its Cumulative Redeemable Second Preferred Shares, Series A, rating at Pfd-3, all with Stable trends. This action follows the conclusion of DBRS’s review of the Company’s intended acquisition of Shoppers Drug Mart Corporation (Shoppers) and removes Loblaw’s ratings from Under Review with Developing Implications.

In terms of financial profile, DBRS recognizes that the Transaction would result in a meaningful increase in Loblaw’s balance-sheet debt (approximately $4.5 billion) and leverage. Lease-adjusted debt-to-EBITDAR attributable to the retail operations is expected to peak at the time of closing at approximately 3.79 times (x), materially higher than current levels (2.70x for the LTM ended Q2 F2013). The Company will nevertheless generate healthy levels of free cash flow (estimated in the $600 million to $700 million range after dividends).

DBRS recognizes that Loblaw possesses the ability to deleverage at a good pace going forward, based on its solid free cash flow generating capacity. DBRS believes that the Company will use such free cash flow primarily for debt reduction over the near to medium term. Specifically, DBRS expects lease-adjusted debt-to-EBITDAR attributable to the retail operations to return below 3.50x, a level that would be considered acceptable for the current rating category, within a reasonable timeframe. The Company’s intention to deleverage, combined with the notable improvements to its business risk profile, lead DBRS to believe that Loblaw is best positioned in the BBB rating category. Should the Company not deleverage to indicated levels within an acceptable timeframe (12 to 24 months) as a result of more aggressive-than-expected financial management or should the Company experience weaker-than-expected operating performance, the current ratings could be pressured.

The instigation of the Review-Developing was reported on PrefBlog.

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

August 28, 2013

Wednesday, August 28th, 2013

The SEC and five other agencies in the US alphabet soup have release a securitization risk-retention rule for comment:

The original proposal generally measured compliance with the risk retention requirements based on the par value of securities issued in a securitization transaction and included a so-called premium capture provision. The agencies are now proposing that risk retention generally be based on fair value measurements without a premium capture provision.

As required by the Dodd-Frank Act, the proposal would define “qualified residential mortgage” (QRM) and exempt securitizations of QRMs from risk retention. The new proposal would define QRMs to have the same meaning as the term qualified mortgages as defined by the Consumer Financial Protection Bureau. The new proposal also requests comment on an alternative definition of QRM that would include certain underwriting standards in addition to the qualified mortgage criteria.

Similar to the original proposal, under the new proposal, securitizations of commercial loans, commercial mortgages, or automobile loans of low credit risk would not be subject to risk retention. Further, the rule would recognize the full guarantee on payments of principal and interest provided by Fannie Mae and Freddie Mac for their residential mortgage-backed securities as meeting the risk retention requirements while Fannie Mae and Freddie Mac are in conservatorship or receivership and have capital support from the U.S. government. This provision also is unchanged from the original proposal.

The agencies are requesting comment on the revised proposed rule by Oct. 30, 2013.

Some of us might observe that it was risk-retention that caused the problem in the first place, but logic never stopped Congress and regulators from doing anything.

What makes this interesting, however, is the dissenting statement from SEC Commissioner Michael S. Piwowar:

As a general principle, I believe that regulatory agencies should make greater use of reproposals. Reproposals offer regulators the opportunity to improve the efficiency and effectiveness of their rulemaking processes and provide the public the regulatory transparency and accountability they deserve. Such a measure of discipline is critically important in connection with Dodd-Frank, which requires regulators to promulgate hundreds of new, complex, and interrelated rules that affect every American by impacting capital formation, job creation, and economic growth. I am pleased that the agencies approving today’s release saw fit to repropose the rule to take into account public comment. However, because of my concerns about two serious deficiencies in this particular reproposal, I cannot support it and I respectfully dissent.

The Agencies Issuing The Reproposal Did Not Perform Necessary Economic Analyses

The FSOC Report concludes that the macroeconomic implications of credit risk retention requirements are complex and cautions that “[I]f overly restrictive, risk retention could constrain the formation of credit, which could adversely impact economic growth. The challenge is to design a risk retention framework that maximizes benefits while minimizing its costs.”[7] Notably, the reproposal does not contain any analysis of the macroeconomic implications identified in the FSOC Report.

The failure by the Rulemaking Agencies to articulate necessary economic analyses to support the reproposal is a significant omission and fundamental flaw that cannot be overlooked.

The Reproposal Does Not Adequately Consider Alternatives to Credit Risk Retention Requirements

In my view, the reproposal should have included disclosure requirements that, contingent on the availability of information regarding secondary market transactions,[14] could facilitate better, more informed decisions by both regulators and investors. Mandatory disclosure also would have the potential to directly reduce informational asymmetries and moral hazard problems. The Rulemaking Agencies could have, for example, proposed and sought comment on enhanced disclosures of loan level characteristics along with mandatory disclosures of the amount, type, and duration of the credit risk that the originators and securitizers voluntarily retained in each ABS.

The reproposal also should have given further consideration to subordinated performance fees that have components dependent on the performance of the overall pool or on junior tranches. Such fees could potentially mitigate concerns about misaligned incentives between originators, securitizers, and investors.

There’s also a dissenting statement from SEC Commissioner Daniel M.Gallagher.

Isn’t the US system great? They actually recognize that intelligent people can disagree, and that dissent is a sign of strength, not weakness. How unlike the pablum we get fed here in Canada.

It was another modestly good day for the Canadian preferred share market, with PerpetualDiscounts gaining 9bp, FixedResets up 18bp and DeemedRetractibles winning 19bp. Today’s Performance Highlights table is quite lengthy by normal standards, but is much shorter than we have been used to lately. Volume was quite high.

PerpetualDiscounts now yield 5.81%, equivalent to 7.55% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.8% (maybe a little under), so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 275bp, a slight (and perhaps spurious) decline from the 280bp reported August 21.

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 0.2058 % 2,619.7
FixedFloater 4.25 % 3.55 % 34,910 18.23 1 0.0448 % 3,904.9
Floater 2.57 % 2.91 % 71,500 19.89 5 0.2058 % 2,828.6
OpRet 4.66 % 3.73 % 72,181 0.79 3 0.0000 % 2,610.5
SplitShare 4.74 % 4.74 % 55,114 3.85 6 0.0870 % 2,955.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,387.0
Perpetual-Premium 5.78 % 5.84 % 114,460 14.04 12 0.2247 % 2,240.8
Perpetual-Discount 5.65 % 5.81 % 154,032 14.16 25 0.0866 % 2,285.9
FixedReset 4.95 % 3.87 % 243,173 3.87 85 0.1845 % 2,446.8
Deemed-Retractible 5.24 % 5.23 % 201,340 6.96 43 0.1909 % 2,323.0
Performance Highlights
Issue Index Change Notes
TRP.PR.B FixedReset -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 21.43
Evaluated at bid price : 21.76
Bid-YTW : 3.78 %
MFC.PR.K FixedReset -1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.05
Bid-YTW : 4.39 %
MFC.PR.C Deemed-Retractible -1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.73
Bid-YTW : 6.66 %
IAG.PR.A Deemed-Retractible -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.59
Bid-YTW : 6.28 %
RY.PR.D Deemed-Retractible 1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 4.82 %
RY.PR.A Deemed-Retractible 1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.46
Bid-YTW : 4.80 %
ENB.PR.P FixedReset 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 22.87
Evaluated at bid price : 24.29
Bid-YTW : 4.34 %
RY.PR.G Deemed-Retractible 1.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 4.82 %
FTS.PR.J Perpetual-Discount 1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 21.51
Evaluated at bid price : 21.80
Bid-YTW : 5.46 %
BAM.PF.B FixedReset 1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 22.54
Evaluated at bid price : 23.55
Bid-YTW : 4.71 %
BAM.PR.N Perpetual-Discount 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 5.90 %
FTS.PR.H FixedReset 1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 21.35
Evaluated at bid price : 21.65
Bid-YTW : 3.96 %
HSB.PR.D Deemed-Retractible 1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.90
Bid-YTW : 5.21 %
PWF.PR.O Perpetual-Premium 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 24.48
Evaluated at bid price : 24.95
Bid-YTW : 5.86 %
SLF.PR.G FixedReset 2.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.66
Bid-YTW : 4.07 %
CIU.PR.C FixedReset 2.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 22.86
Evaluated at bid price : 23.70
Bid-YTW : 3.47 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.K Deemed-Retractible 52,901 Desjardins crossed 41,000 at 24.95.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.83
Bid-YTW : 4.98 %
PWF.PR.H Perpetual-Premium 46,624 Nesbitt crossed 40,000 at 24.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 24.21
Evaluated at bid price : 24.50
Bid-YTW : 5.93 %
ENB.PR.Y FixedReset 42,390 Nesbitt crossed 18,600 at 23.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 22.64
Evaluated at bid price : 23.81
Bid-YTW : 4.35 %
PWF.PR.G Perpetual-Premium 42,120 Nesbitt crossed 40,000 at 24.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 24.60
Evaluated at bid price : 24.86
Bid-YTW : 6.00 %
TRP.PR.D FixedReset 41,128 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 23.02
Evaluated at bid price : 24.70
Bid-YTW : 4.18 %
BAM.PF.A FixedReset 39,740 Scotia crossed 25,000 at 25.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 4.64 %
There were 54 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CU.PR.C FixedReset Quote: 25.10 – 25.60
Spot Rate : 0.5000
Average : 0.3346

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 3.90 %

RY.PR.W Perpetual-Discount Quote: 24.36 – 24.73
Spot Rate : 0.3700
Average : 0.2190

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 24.10
Evaluated at bid price : 24.36
Bid-YTW : 5.05 %

MFC.PR.H FixedReset Quote: 25.46 – 25.85
Spot Rate : 0.3900
Average : 0.2445

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.46
Bid-YTW : 3.98 %

BAM.PR.M Perpetual-Discount Quote: 20.36 – 20.74
Spot Rate : 0.3800
Average : 0.2513

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 20.36
Evaluated at bid price : 20.36
Bid-YTW : 5.94 %

BAM.PF.B FixedReset Quote: 23.55 – 24.00
Spot Rate : 0.4500
Average : 0.3327

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-28
Maturity Price : 22.54
Evaluated at bid price : 23.55
Bid-YTW : 4.71 %

GWO.PR.J FixedReset Quote: 25.20 – 25.60
Spot Rate : 0.4000
Average : 0.2911

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 2.08 %

EMA: Review-Developing By DBRS

Wednesday, August 28th, 2013

DBRS has announced that it:

has today placed Emera Inc.’s (Emera or the Company) Issuer Rating and related ratings Under Review with Developing Implications. This rating action follows the announcement of the Company’s acquisition of the Bridgeport Energy, Tiverton and Rumford gas-fired generation facilities (the Portfolio) from Capital Power L.P. (rated BBB; the Acquisition). The Acquisition, total value of approximately USD $541 million, is expected to close in the fourth quarter of 2013, subject to various approvals.

The Portfolio is located in Connecticut, Rhode Island and Maine (the U.S. Northeast region) and has approximately 1,050 MW of total non-contracted generation capacity. All output from the facilities is sold into the New England power market. This Acquisition would increase Emera’s installed capacity in New England, as well as the Company’s total generation assets.

Business Risk Profile – Modestly Negative Based on its preliminary review, DBRS views the proposed acquisition as modestly negative with respect to Emera’s existing business risk profile. Upon completion of the Acquisition, this non-contracted portfolio would account for approximately 25% of Emera’s total generation capacity, exposing the Company to the currently low wholesale pricing environment.

Financial Risk Profile – Neutral to Negative DBRS expects the Company to fund the Acquisition in a prudent manner, such that there would be minimal impact on its deconsolidated leverage. The Company had a deconsolidated debt-to-capital ratio of 34.2% as of December 31, 2012. As noted in DBRS’s press release dated December 14, 2012 (“DBRS Changes Trend on Emera Inc. to Stable from Negative”), the Stable trend reflects DBRS’s expectation that Emera will continue to reduce its non-consolidated debt-to-capital ratio, in the medium term, to below 30%, to be in line with its current rating category. Should Emera’s financing strategy deviate from the aforementioned leverage improvement, there could be negative rating implications.

Emera’s press release states:

Emera plans to finance the purchase with cash and short term credit resources on closing; and ultimately expects to finance the acquisition with a combination of debt and equity consistent with maintaining its strong financial position and existing credit ratings. The transaction is subject to certain regulatory approvals and is expected to close by the end of 2013.

“Emera is making this investment for the long term,” said Mr. Huskilson. “The earnings profile is modest in the early years, but we have acquired these facilities at a fair price and we expect their value will increase over time, as we optimize within our portfolio, as older, less efficient assets in the region are retired, and more intermittent renewable generation is added to the system.”

EMA has three preferred share issues outstanding: EMA.PR.A and EMA.PR.C (both FixedReset) and EMA.PR.E (PerpetualDiscount). All are tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

August 27, 2013

Tuesday, August 27th, 2013

Is there high-closing in the FX market?

In the space of 20 minutes on the last Friday in June, the value of the U.S. dollar jumped 0.57 percent against its Canadian counterpart, the biggest move in a month. Within an hour, two-thirds of that gain had melted away.

The same pattern — a sudden surge minutes before 4 p.m. in London on the last trading day of the month, followed by a quick reversal — occurred 31 percent of the time across 14 currency pairs over two years, according to data compiled by Bloomberg. For the most frequently traded pairs, such as euro-dollar, it happened about half the time, the data show.

The recurring spikes take place at the same time financial benchmarks known as the WM/Reuters (TRI) rates are set based on those trades. Now fund managers and scholars say the patterns look like an attempt by currency dealers to manipulate the rates, distorting the value of trillions of dollars of investments in funds that track global indexes.

Because they receive clients’ orders in advance of the close, and some traders discuss orders with counterparts at other firms, banks have an insight into the future direction of rates, five dealers interviewed in June said. That allows them to maximize profits on their clients’ orders and sometimes make their own additional bets, according to the dealers, who asked not to be identified because the practice is controversial.

A large proportion of trading at that time is generated by index funds, which buy and sell stocks or bonds to match an underlying basket of securities, the traders said.

Banks that have agreed to make transactions for funds at the 4 p.m. WM/Reuters close need to push through the bulk of their trades during the window where possible to minimize losses from market movements, the traders said. That leads to a surge in trading volume, which can intensify any moves.

Fund managers rarely complain about getting a bad deal because they’re assessed on their ability to track an index rather than minimize trading costs, according to consultants hired by companies and investors to help execute trades efficiently.

“Where possible, I would always advise clients not to trade at the fix — but minimizing tracking error is so important to them,” said Russell’s [head of foreign exchange Michael] DuCharme. “That doesn’t seem to be the right attitude to take when you have a fiduciary duty to seek the best execution for pension holders.”

Hurrah for Mr. Ducharme who, unlike most market participants, appears to have retained the brains he was born with. It seems to me that there’s an opening for a market player to run a trade matching service on a subscription basis … orders are put in by subscribers throughout the day, all net imbalances are disclosed (to subscribers only!), all matching orders are filled at the benchmark rate based on time-stamp, all non-matching orders are cancelled. There would have to be a few rules to enforce all this, but it could work…

The portfolio managers have my sympathies – investing or generating significant amounts of cash to meet client orders can have a huge effect, given that indices are calculated at the close. Perhaps what’s needed is indices and portfolio valuations based on VWAP rather than closes … but that’s only going to work in very liquid markets.

It was a modestly good day for the Canadian preferred share market, with PerpetualDiscounts winning 13bp, FixedResets gaining 7bp and DeemedRetractibles up 10bp. There’s a surprisingly lengthy Performance Highlights table, totally disproportionate to the market move. Volume was very high.

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 -0.0098 % 2,614.3
FixedFloater 4.25 % 3.55 % 36,368 18.22 1 1.3158 % 3,903.1
Floater 2.57 % 2.91 % 68,011 19.91 5 -0.0098 % 2,822.7
OpRet 4.66 % 3.71 % 71,284 0.80 3 0.2463 % 2,610.5
SplitShare 4.73 % 4.42 % 55,184 3.86 6 -0.1202 % 2,953.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2463 % 2,387.0
Perpetual-Premium 5.80 % 5.92 % 115,810 13.98 12 0.1947 % 2,235.8
Perpetual-Discount 5.65 % 5.77 % 152,994 14.19 25 0.1332 % 2,283.9
FixedReset 4.96 % 3.88 % 246,036 3.88 85 0.0722 % 2,442.3
Deemed-Retractible 5.23 % 5.23 % 202,029 6.95 43 0.0963 % 2,318.6
Performance Highlights
Issue Index Change Notes
BNS.PR.Y FixedReset -2.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.92
Bid-YTW : 4.36 %
HSB.PR.D Deemed-Retractible -2.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.56
Bid-YTW : 5.41 %
CU.PR.F Perpetual-Discount -1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 21.14
Evaluated at bid price : 21.14
Bid-YTW : 5.35 %
FTS.PR.J Perpetual-Discount -1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 21.25
Evaluated at bid price : 21.53
Bid-YTW : 5.53 %
BNS.PR.Z FixedReset -1.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.05
Bid-YTW : 4.58 %
IFC.PR.C FixedReset -1.14 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.21
Bid-YTW : 4.16 %
VNR.PR.A FixedReset -1.14 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-10-15
Maturity Price : 25.00
Evaluated at bid price : 25.21
Bid-YTW : 4.29 %
FTS.PR.F Perpetual-Discount -1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 21.75
Evaluated at bid price : 21.75
Bid-YTW : 5.67 %
IFC.PR.A FixedReset -1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.49
Bid-YTW : 4.20 %
PWF.PR.O Perpetual-Premium -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 24.13
Evaluated at bid price : 24.60
Bid-YTW : 5.94 %
GWO.PR.H Deemed-Retractible 1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.11
Bid-YTW : 6.43 %
BAM.PR.N Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 20.23
Evaluated at bid price : 20.23
Bid-YTW : 5.98 %
ENB.PR.P FixedReset 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 22.76
Evaluated at bid price : 24.02
Bid-YTW : 4.40 %
BAM.PF.A FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 23.12
Evaluated at bid price : 24.90
Bid-YTW : 4.71 %
ENB.PR.Y FixedReset 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 22.57
Evaluated at bid price : 23.65
Bid-YTW : 4.39 %
GWO.PR.I Deemed-Retractible 1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.45
Bid-YTW : 6.39 %
IAG.PR.F Deemed-Retractible 1.24 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.31
Bid-YTW : 5.88 %
ENB.PR.H FixedReset 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 22.49
Evaluated at bid price : 23.39
Bid-YTW : 4.25 %
ENB.PR.D FixedReset 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 22.81
Evaluated at bid price : 24.00
Bid-YTW : 4.33 %
FTS.PR.H FixedReset 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 21.36
Evaluated at bid price : 21.36
Bid-YTW : 4.04 %
PWF.PR.S Perpetual-Discount 1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 22.35
Evaluated at bid price : 22.65
Bid-YTW : 5.34 %
BAM.PR.G FixedFloater 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 22.67
Evaluated at bid price : 22.33
Bid-YTW : 3.55 %
SLF.PR.G FixedReset 1.40 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.15
Bid-YTW : 4.30 %
W.PR.J Perpetual-Discount 1.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 23.69
Evaluated at bid price : 24.00
Bid-YTW : 5.91 %
CU.PR.E Perpetual-Discount 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 22.08
Evaluated at bid price : 22.37
Bid-YTW : 5.49 %
ENB.PR.T FixedReset 1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 22.77
Evaluated at bid price : 24.07
Bid-YTW : 4.39 %
MFC.PR.F FixedReset 1.86 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.02
Bid-YTW : 4.45 %
ENB.PR.N FixedReset 1.87 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-01
Maturity Price : 25.00
Evaluated at bid price : 24.55
Bid-YTW : 4.40 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.L Deemed-Retractible 81,370 RBC crossed blocks of 25,000 and 21,000 at 25.70.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.73
Bid-YTW : 4.97 %
BAM.PF.D Perpetual-Discount 80,300 RBC bought three blocks from Scotia, of 31,4000 shares, 11,100 and 15,600, all at 21.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 21.10
Evaluated at bid price : 21.10
Bid-YTW : 5.93 %
BMO.PR.R FixedReset 60,525 Recently exchanged issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-08-25
Maturity Price : 25.00
Evaluated at bid price : 24.96
Bid-YTW : 2.60 %
MFC.PR.C Deemed-Retractible 55,707 Scotia crossed 10,600 at 21.05. RBC crossed blocks of 14,000 and 10,000, both at 21.00.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.95
Bid-YTW : 6.54 %
TD.PR.R Deemed-Retractible 54,241 RBC crossed 11,600 at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 5.03 %
FTS.PR.E OpRet 50,750 TD crossed blocks of 40,000 and 10,000, both at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-01
Maturity Price : 25.50
Evaluated at bid price : 25.70
Bid-YTW : 3.71 %
There were 60 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
ELF.PR.H Perpetual-Discount Quote: 23.63 – 24.80
Spot Rate : 1.1700
Average : 0.7411

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 23.30
Evaluated at bid price : 23.63
Bid-YTW : 5.89 %

MFC.PR.F FixedReset Quote: 23.02 – 23.59
Spot Rate : 0.5700
Average : 0.4063

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.02
Bid-YTW : 4.45 %

PWF.PR.O Perpetual-Premium Quote: 24.60 – 24.98
Spot Rate : 0.3800
Average : 0.2190

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 24.13
Evaluated at bid price : 24.60
Bid-YTW : 5.94 %

BNA.PR.C SplitShare Quote: 23.91 – 24.38
Spot Rate : 0.4700
Average : 0.3230

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 23.91
Bid-YTW : 5.30 %

ELF.PR.G Perpetual-Discount Quote: 20.60 – 21.15
Spot Rate : 0.5500
Average : 0.4153

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 20.60
Evaluated at bid price : 20.60
Bid-YTW : 5.85 %

TCA.PR.X Perpetual-Discount Quote: 48.40 – 48.90
Spot Rate : 0.5000
Average : 0.3890

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-08-27
Maturity Price : 47.85
Evaluated at bid price : 48.40
Bid-YTW : 5.84 %