Archive for February, 2015

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New Issue: FFH FixedReset, 4.75%+398

Saturday, February 21st, 2015

Fairfax Financial Holdings Limited has announced (emphasis added):

that it will issue in Canada 8 million Preferred Shares, Series M at a price of C$25.00 per share, for aggregate gross proceeds of C$200 million, on a bought deal basis to a syndicate of Canadian underwriters led by BMO Capital Markets, RBC Capital Markets and Scotia Capital Inc. (the “Preferred Share Offering”).

As previously announced, in light of the positive impact of the announcement of the recommended cash offer for Brit plc on February 17, 2015 and approaches from certain investors who expressed interest in investing in Fairfax equity, Fairfax entered into a bought deal financing for 1,000,000 Subordinate Voting Shares (the “Subordinate Voting Shares”), plus up to an additional 150,000 Subordinate Voting Shares pursuant to an over-allotment option, at a price of C$650.00 per Subordinate Voting Share for gross proceeds of C$650,000,000 or C$747,500,000 if the over-allotment option is exercised in full (the “Subordinate Voting Share Offering”).

Holders of the Preferred Shares, Series M will be entitled to receive a cumulative quarterly fixed dividend yielding 4.75% annually for the initial five year period ending March 31, 2020. Thereafter, the dividend rate will be reset every five years at a rate equal to the then current 5-year Government of Canada bond yield plus 3.98%.

Holders of Preferred Shares, Series M will have the right, at their option, to convert their shares into Preferred Shares, Series N, subject to certain conditions, on March 31, 2020, and on March 31 every five years thereafter. Holders of the Preferred Shares, Series N will be entitled to receive cumulative quarterly floating dividends at a rate equal to the then current three-month Government of Canada Treasury Bill yield plus 3.98%.

Fairfax has granted the underwriters an option, exercisable in whole or in part at any time up to 9:00 a.m. on the date that is two business days prior to the closing date, to purchase up to an additional 2 million Preferred Shares, Series M at the same offering price for additional gross proceeds of C$50 million.

Fairfax intends to use the net proceeds of the Preferred Share Offering and the Subordinate Voting Share Offering to partially fund the previously announced proposed acquisition of all of the issued and to be issued shares of Brit plc. Fairfax may raise additional funding for the acquisition of Brit plc through possible future debt issuances. There can be no assurance that such acquisition will be completed. If the acquisition is not successfully completed, Fairfax intends to use the net proceeds from the offerings to augment its cash position, to increase short-term investments and marketable securities held at the holding company level, to refinance or retire outstanding debt and other corporate obligations of Fairfax and its subsidiaries from time to time, and for general corporate purposes. The Preferred Share Offering is expected to close on or about March 3 2015.

Fairfax intends to file a prospectus supplement to its short form base shelf prospectus dated December 19, 2014 in respect of the Preferred Share Offering with the applicable Canadian securities regulatory authorities. Details of the Preferred Share Offering will be set out in the prospectus supplement which will be available on the SEDAR website for Fairfax at www.sedar.com. To comply with the provisions of the UK Takeover Code in connection with Fairfax’s offer for the issued and to be issued shares of Brit plc, purchasers of Preferred Shares, Series M pursuant to the prospectus supplement will be deemed to have represented and agreed that they and their affiliates do not own any shares of Brit plc and will not acquire any shares of Brit plc prior to the completion of Fairfax’s offer.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. This press release is not an offer of securities for sale in the United States, and the securities may not be offered or sold in the United States absent registration or an exemption from the registration requirements. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended.

I find that a very interesting note about the prohibition on holding shares in Brit plc!

Fairfax has been busy since having their outlook downgraded to negative by S&P. First they offered $650-million in Subordinate Voting Shares:

Fairfax Financial Holdings Limited (“Fairfax” or the “Company”) (TSX:FFH)(TSX:FFH.U) has announced [February 19] that it has entered into an agreement with a syndicate of underwriters led by BMO Capital Markets, under which the underwriters have agreed to buy on a bought deal basis 1,000,000 Subordinate Voting Shares (the “Subordinate Voting Shares”), at a price of C$650.00 per Subordinate Voting Share for gross proceeds of C$650 million (the “Offering”). The Offering is expected to close on March 3, 2015.

Fairfax intends to use the net proceeds of the Offering to partially fund the previously announced proposed acquisition of all of the outstanding shares of Brit PLC (“Brit”). Fairfax may raise additional funding for the acquisition of Brit through possible future debt and/or preferred share issuances. There can be no assurance that the acquisition of Brit will be completed. If the acquisition is not successfully completed, Fairfax intends to use the net proceeds to augment its cash position, to increase short-term investments and marketable securities held at the holding company level, to refinance or retire outstanding debt and other corporate obligations of Fairfax and its subsidiaries from time to time, and for general corporate purposes.

Then they announced a $300-million 10-year notes offering:

Fairfax Financial Holdings Limited (TSX:FFH)(TSX:FFH.U) announces that it will issue C$300 million in aggregate principal amount of Senior Notes due 2025 on a bought deal basis to a syndicate of underwriters led by BMO Capital Markets, RBC Capital Markets and Scotiabank (the “Notes Offering”).

As previously announced, in light of the positive impact of the announcement of the recommended cash offer for Brit plc on February 17, 2015 and approaches from certain investors who expressed interest in investing in Fairfax equity, Fairfax entered into a bought deal financing for 1,000,000 Subordinate Voting Shares (the “Subordinate Voting Shares”), plus up to an additional 150,000 Subordinate Voting Shares pursuant to an over-allotment option, at a price of C$650.00 per Subordinate Voting Share for gross proceeds of C$650,000,000 or C$747,500,000 if the over-allotment option is exercised in full (the “Subordinate Voting Share Offering”). Fairfax also announced today a bought deal financing for 8 million Preferred Shares, Series M at a price of C$25.00 per share (the “Preferred Share Offering”). Fairfax has granted the underwriters in the Preferred Share Offering an option, exercisable in whole or in part at any time up to 9:00 a.m. on the date that is two business days prior to the closing date, to purchase up to an additional 2 million Preferred Shares, Series M at the same offering price.

Fairfax intends to use the net proceeds of the Notes Offering, the Preferred Share Offering and the Subordinate Voting Share Offering to partially fund the previously announced proposed acquisition of all of the issued and to be issued shares of Brit plc. There can be no assurance that such acquisition will be completed. If the acquisition is not successfully completed, Fairfax intends to use the net proceeds from the offerings to augment its cash position, to increase short-term investments and marketable securities held at the holding company level, to refinance or retire outstanding debt and other corporate obligations of Fairfax and its subsidiaries from time to time, and for general corporate purposes. The Notes Offering is expected to close on or about March 3, 2015.

And the notes offering was upsized:

Fairfax Financial Holdings Limited (TSX:FFH)(TSX:FFH.U) announces an increase in the size of its offering of Senior Notes due 2025 from $300 million to $350 million in aggregate principal amount, to be priced at $99.114 per $100 principal amount of Senior Notes (the “Notes Offering”). The Senior Notes are being offered through a syndicate of dealers led by BMO Capital Markets, RBC Capital Markets and Scotiabank. The Senior Notes will be unsecured obligations of Fairfax and will pay a fixed rate of interest of 4.95% per annum.

Fairfax has five other issues of FixedResets outstanding; FFH.PR.C, FFH.PR.E, FFH.PR.G, FFH.PR.I and FFH.PR.K.

FFH.PR.C reset 2014-12-31 to 4.578% (GOC5 +315bp) and about 40% of the issue was converted to FFH.PR.D, its FloatingReset Strong Pair counterpart. FFH.PR.E a FixedReset 4.75%+216 will have its first Exchange Date 2015-3-31, but no announcement has yet been made regarding extension; given a comparison of that spread and the new issue spread, I think extension can be regarded as a certainty!

Implied Volatility theory yields the following chart:

impVol_FFH_150220
Click for Big

According to this, the new issue is $0.87 cheap, which is not as cheap as FFH.PR.I, which resets 2015-12-31 at GOC5+285bp and is currently bid at 19.01 to be $1.11 cheap.

Posted in New Issues | No Comments »

February 19, 2015

Thursday, February 19th, 2015

It’s funny … the standard stock market manipulation in North America is Pump and Dump. In Asia, apparently, it’s Dump and Pump:

Scrutiny of anonymous research has intensified this month after the reports on Noble, a commodities trader, and Sound Global, a Chinese water-treatment firm, alleged accounting irregularities that both companies denied. The Monetary Authority of Singapore, or MAS, said it’s reviewing the report on Noble, produced by a group calling itself Iceberg Research, and will take action if securities laws were breached.

Noble, which said on Monday it “completely rejects the allegations,” lost as much as 15 percent over two days in Singapore trading after the Iceberg report. The stock rose 1.9 percent on Wednesday after the company said directors and management are “comfortable” that its balance sheet “fairly presents its book value.”

Iceberg doesn’t have any short position, or wager on a decline, in Noble securities and doesn’t work in tandem with funds, it said in the report. Iceberg’s website contains no analyst names, phone numbers or links to research notes, apart from the 17-page report on Noble.

The “Contact Us” page has a form for readers to submit comments and a link to follow a Twitter feed. When contacted on the website by Bloomberg News, Iceberg said it “cannot give phone calls” for an “anonymity reason.”
…
“No research should be anonymous,” said Jimmy Ho, president of the Society of Remisiers, Singapore’s biggest association of equity traders. “MAS should make sure analysts do not use their research for their own agenda.”

Thanks, Jimmy Ho, for calling for increased regulation! Will your operatives be combing through the commentary on Stockhouse and making sure nobody’s posting under a pseudonym?

More traders are jumping on the deflation bandwagon:

Federal fund futures give a 20.7 percent probability the central bank will lift borrowing costs at the June gathering, according to data compiled by Bloomberg. That is down from 25 percent yesterday.

Policy makers judged that risks facing the U.S. economy argued for keeping interest rates near record lows for longer, the minutes from the Jan. 27-28 meeting showed. Expectations for a possible June increase had been growing since a government report showed payroll gains in January capped the biggest three-month increase in 17 years.

SNC-Lavalin has been charged with doing business in Libya:

The RCMP has laid corruption and fraud charges against engineering firm SNC-Lavalin Group Inc. and two subsidiaries over alleged criminal acts that occurred doing business in Libya.

There is one count of corruption related to at least $47.7-million in alleged bribes to Libyan public or other officials. A second count is for fraud of about $130-million related to construction projects in Libya, including the Great Man Made River Project.
…
The RCMP, which worked with Swiss authorities, alleged in an affidavit last year that Mr. Ben Aissa funnelled an estimated $160-million in corrupt payments from SNC to Saadi Gadhafi, the son of the late Libyan dictator, and other officials in exchange for billions in engineering contracts.

Canada has an obligation to ensure that Libyan taxpayers are not overcharged for their engineering contracts, because they’re paying us a lot of money to look after their interests. Regrettably I was not able to find a media story specifying exactly how much we’re getting paid for our efforts, but I’m sure it’s billions. Billions!

The company has attempted to justify its conduct on the basis of having a Canadian headquarters:

The head of Canadian engineering giant SNC-Lavalin Group Inc. says any move by authorities to charge the company in connection with an extensive bribery scandal would immediately threaten its future and could force it to close down.

SNC chief executive officer Robert Card, speaking to The Globe and Mail’s editorial board, said he would be “deeply concerned” if the company was charged because it would hurt the business severely. And “if the company can’t do business, you really only have two choices. You are going to do some dismemberment and cease to exist entirely, or you are going to be owned by somebody else.”

A shift to a foreign owner would jeopardize the 5,000 Canadian SNC jobs that are associated with its headquarters, he said.

Our wise tough-on-crime masters consider corruption to be in the same category as wearing a niqab while pledging allegiance:

Anti-corruption experts say Ottawa has created a set of rules that is among the most far-reaching and inflexible anywhere in the world.

“The U.S., EU and World Bank all have a debarment process,” pointed out Peter Dent, president of the Canadian chapter of Transparency International, an organization committed to fighting corruption. “There is predictability, transparency and due process associated with all of them.”

The Canadian rules are “out of step” with regimes in most other countries, Transparency International said in a letter sent this week to Public Work Minister Diane Finley, who is considering possible changes to its regime.

… which brings us to S&P has downgraded the outlook for the company to negative:

  • • Federal charges have been laid by the Public Prosecution Service of
    Canada against SNC-Lavalin Group Inc., SNC-Lavalin International Inc., and SNC-Lavalin Construction Inc.

  • •Each entity has been charged with one count of fraud and one count of corruption.
  • •SNC-Lavalin has stated it will defend itself and plead not guilty
  • •There is no change to the company’s right and ability to bid or work on any public or private projects.
  • •As a result, we are revising our outlook on SNC-Lavalin to negative from stable and affirming all our ratings on the company, including our ‘BBB’ long-term corporate credit rating.
  • •The negative outlook reflects our concern as to the extent and magnitude that SNC’s competitive position will be affected following the charges being laid.

…
Standard & Poor’s is concerned about the effect that the charges will have on SNC-Lavalin’s competitive position, as well as how the company’s operations will be affected by management’s need to address the charges.

However, we continue to expect SNC-Lavalin will maintain strong liquidity over the next 18 months and that net cash will exceed recourse debt preserving the financial flexibility to manage possible financial penalties. We also note that the negative outlook could be maintained until we are confident as to the resolution of the criminal charges, which could take up to a number of years.

We could lower the ratings on the company if governance-related events affect its competitive position or if SNC-Lavalin increased recourse debt such that total debt-to-EBITDA increased beyond 1.5x with poor prospects for deleveraging. We also believe that downward pressure on the ratings could result from significantly weaker liquidity.

And Bombardier’s issuing shares:

Bombardier Inc. said it will issue about C$750 million ($600 million) in stock, fulfilling a pledge made last week when the company unveiled cost overruns on its CSeries family of jets.

Bombardier will sell 339.4 million Class B shares at C$2.21 apiece, 12 percent less than Wednesday’s closing price in Toronto. The offering is expected to be completed on or about Feb. 27, Montreal-based Bombardier said Thursday in a statement.

The company said Feb. 12 it would issue about $600 million of new equity and as much as $1.5 billion in long-term debt, depending on market conditions, to shore up its balance sheet. Bombardier also halted the dividend on its Class A and B shares, and named Alain Bellemare as CEO, replacing Pierre Beaudoin.
…
Together, unidentified members of the Bombardier family plan to place orders for about $50 million in subscription receipts, the company said. Each receipt will entitle the holder to receive one Class B share.

Bombardier’s Class B stock fell 2.4 percent to C$2.46 when trading was halted in late afternoon Toronto trading. The shares have lost 41 percent of their value this year.

Bombardier is the battered but still proud issuer of BBD.PR.B, BBD.PR.C and BBD.PR.D.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 8bp, FixedResets down 18bp and DeemedRetractibles off 2bp. The Performance Highlights table is its usual lengthy self, with Enbridge issues prominent among the losers. Volume was above average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150219
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.55 to be $1.13 rich, while TRP.PR.B, resetting 2015-6-30 at +128, is bid at 14.60 to be $0.79 cheap.

impVol_MFC_150219
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Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.20 to be $0.26 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 26.20 to be $0.52 cheap.

impVol_BAM_150219
Click for Big

The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.X, resetting at +180bp on 2017-6-30, bid at 17.87 to be $0.57 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.85 and appears to be $1.15 rich.

impVol_FTS_150219
Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.80, looks $1.02 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.61 and is $1.00 rich.

pairs_FR_150219
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All the investment grade break-even rates are scattered around zero!

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

pairs_FF_150219
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices
Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)		 Median
YTW		 Median
Average
Trading
Value		 Median
Mod Dur
(YTW)		 Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.5585 % 2,307.7
FixedFloater 4.37 % 3.52 % 19,579 18.38 1 -0.0460 % 4,046.5
Floater 3.12 % 3.32 % 66,697 18.89 4 1.5585 % 2,453.2
OpRet 4.04 % 2.12 % 105,426 0.32 1 0.0395 % 2,753.1
SplitShare 4.27 % 3.50 % 26,997 3.57 5 0.1425 % 3,223.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0395 % 2,517.4
Perpetual-Premium 5.33 % 0.36 % 56,781 0.08 24 -0.0065 % 2,513.5
Perpetual-Discount 4.95 % 4.78 % 119,699 15.11 10 0.0794 % 2,793.9
FixedReset 4.40 % 3.35 % 202,127 17.03 79 -0.1831 % 2,434.4
Deemed-Retractible 4.90 % 0.10 % 106,904 0.19 39 -0.0171 % 2,650.5
FloatingReset 2.45 % 2.95 % 85,780 6.40 7 -0.2404 % 2,315.8
Performance Highlights
Issue Index Change Notes
MFC.PR.F FixedReset -4.59 % Desjardins was on the sell side of 12 (3,450 shares) of the last 15 (4,850 shares) trades executed after 3pm, with prices beginning at 19.91 and ending at 19.34. VWAP was 20.31 on 48,445 shares.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.34
Bid-YTW : 5.54 %
TRP.PR.A FixedReset -3.84 % A last minute – literally! – collapse, with an anonymous seller executing twelve trades totalling 3,400 shares at prices beginning at 20.31 and finishing at 19.75. VWAP was 20.36 on 19,270 shares.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 19.52
Evaluated at bid price : 19.52
Bid-YTW : 3.63 %
ENB.PF.C FixedReset -1.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 22.15
Evaluated at bid price : 22.79
Bid-YTW : 3.94 %
ENB.PR.Y FixedReset -1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 20.08
Evaluated at bid price : 20.08
Bid-YTW : 4.14 %
ENB.PF.E FixedReset -1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 22.18
Evaluated at bid price : 22.86
Bid-YTW : 3.96 %
ELF.PR.H Perpetual-Premium -1.27 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-04-17
Maturity Price : 25.25
Evaluated at bid price : 25.57
Bid-YTW : 5.31 %
ENB.PF.A FixedReset -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 22.27
Evaluated at bid price : 22.96
Bid-YTW : 3.91 %
BAM.PR.R FixedReset -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 21.37
Evaluated at bid price : 21.67
Bid-YTW : 3.70 %
TRP.PR.B FixedReset -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 14.57
Evaluated at bid price : 14.57
Bid-YTW : 3.54 %
CU.PR.C FixedReset -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 23.31
Evaluated at bid price : 24.48
Bid-YTW : 3.20 %
MFC.PR.L FixedReset -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.20
Bid-YTW : 3.85 %
BNS.PR.C FloatingReset -1.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.76
Bid-YTW : 3.11 %
BMO.PR.Q FixedReset 1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.85
Bid-YTW : 3.75 %
CU.PR.D Perpetual-Premium 1.15 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-09-01
Maturity Price : 25.00
Evaluated at bid price : 25.44
Bid-YTW : 4.59 %
BAM.PF.B FixedReset 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 23.01
Evaluated at bid price : 24.40
Bid-YTW : 3.55 %
IFC.PR.A FixedReset 1.57 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.04
Bid-YTW : 5.77 %
BAM.PR.C Floater 1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 14.95
Evaluated at bid price : 14.95
Bid-YTW : 3.37 %
TRP.PR.D FixedReset 1.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 22.84
Evaluated at bid price : 24.00
Bid-YTW : 3.35 %
BAM.PR.B Floater 1.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 15.15
Evaluated at bid price : 15.15
Bid-YTW : 3.32 %
BAM.PR.K Floater 1.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 14.86
Evaluated at bid price : 14.86
Bid-YTW : 3.39 %
Volume Highlights
Issue Index Shares
Traded		 Notes
HSB.PR.C Deemed-Retractible 146,545 Nesbitt crossed blocks of 90,000 and 50,000, both at 25.30.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-21
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : -1.00 %
TD.PF.C FixedReset 126,910 TD sold 10,000 to Scotia at 24.85, crossed 50,000 at 24.87 and finally crossed 15,600 at 24.83.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 23.10
Evaluated at bid price : 24.82
Bid-YTW : 3.09 %
HSB.PR.D Deemed-Retractible 119,900 Desjardins crossed blocs of 99,500 and 19,900, both at 25.35.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-21
Maturity Price : 25.00
Evaluated at bid price : 25.37
Bid-YTW : -4.57 %
RY.PR.J FixedReset 77,843 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 23.19
Evaluated at bid price : 25.15
Bid-YTW : 3.35 %
ENB.PR.H FixedReset 71,785 RBC crossed 43,200 at 18.25.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 18.45
Evaluated at bid price : 18.45
Bid-YTW : 4.16 %
MFC.PR.N FixedReset 51,300 Scotia crossed 49,500 at 24.80.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.76
Bid-YTW : 3.67 %
There were 38 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.F FixedReset Quote: 19.34 – 20.48
Spot Rate : 1.1400
Average : 0.7539

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.34
Bid-YTW : 5.54 %
ELF.PR.H Perpetual-Premium Quote: 25.57 – 26.44
Spot Rate : 0.8700
Average : 0.5581

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-04-17
Maturity Price : 25.25
Evaluated at bid price : 25.57
Bid-YTW : 5.31 %
TRP.PR.A FixedReset Quote: 19.52 – 20.51
Spot Rate : 0.9900
Average : 0.6918

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 19.52
Evaluated at bid price : 19.52
Bid-YTW : 3.63 %
NEW.PR.D SplitShare Quote: 32.37 – 32.95
Spot Rate : 0.5800
Average : 0.3915

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.37
Bid-YTW : 3.35 %
HSE.PR.A FixedReset Quote: 17.60 – 18.13
Spot Rate : 0.5300
Average : 0.3709

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-19
Maturity Price : 17.60
Evaluated at bid price : 17.60
Bid-YTW : 3.70 %
BMO.PR.R FloatingReset Quote: 23.56 – 23.87
Spot Rate : 0.3100
Average : 0.1896

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.56
Bid-YTW : 3.01 %

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IAG.PR.F To Be Redeemed

Thursday, February 19th, 2015

Industrial Alliance Insurance and Financial Services Inc. has announced:

The net proceeds [from an offering of sub-debt] will be added to the Company’s general funds and will be used for general corporate purposes (including, subject to the prior approval of the Autorité des marchés financiers, the redemption of Industrial Alliance’s outstanding 5.90% Non-Cumulative Class A Preferred Shares Series F (the “Series F Preferred Shares”), which Industrial Alliance currently intends to effect on March 31, 2015 (the “Series F Redemption”)).

Subject to the prior approval of the Autorité des marchés financiers, following the closing of the Offering, Industrial Alliance intends to issue a redemption notice to redeem the Series F Preferred Shares. Upon the Series F Redemption, Industrial Alliance will pay to the holders of the Series F Preferred Shares the redemption price of $26 less any taxes required to be withheld or deducted. There are 4,000,000 Series F Preferred Shares outstanding as of today. A formal notice and instructions for the redemption of the Series F Preferred Shares will be sent to all shareholders in accordance with the rights, privileges, restrictions and conditions attached to the Series F Preferred Shares.

Separately from the redemption price, the final quarterly dividend of $0.36875 per Series F Preferred Share will be paid in the usual manner on March 31, 2015 to shareholders of record on February 27, 2015. After the Series F Preferred Shares are redeemed, holders of Series F Preferred Shares will cease to be entitled to distributions of dividends and will not be entitled to exercise any rights as holders other than to receive the redemption price and the final quarterly dividend described above.

On a pro forma basis, after giving effect to the Offering and the Series F Redemption, the Company estimates that, as at December 31, 2014: (i) its debt ratio would increase from 13.2% to 18.1% if only its outstanding debentures are considered “debt”; (ii) its debt ratio would increase from 23.7% to 26.1% if its outstanding debentures and preferred shares are considered “debt”; and (iii) its solvency ratio would increase by 7 percentage points to 216%.

Holders are reminded that the $26 redemption price is a premium of $1.00 over par value and this amount will be considered a Deemed Dividend for tax purposes – that is, the transaction will be considered as a sale at $25.00 and a dividend of $1.00. Thus, some taxable holders will find it advantageous to sell into the market at a few pennies below the redemption value, in order to maximize (minimize) their capital gain (loss) while minimizing dividend income. Please consult your personal tax advisor.

IAG.PR.F has been tracked by HIMIPref™ and is assigned to the DeemedRetractible subindex.

Posted in Issue Comments | 4 Comments »

TLM.PR.A Deal Approved – Redemption Coming Soon?

Thursday, February 19th, 2015

Talisman Energy Inc. has announced:

that the holders of its Common Shares and Preferred Shares have approved the proposed arrangement under which Repsol S.A., through a wholly-owned subsidiary, is to acquire all of the outstanding shares of Talisman. Of the votes cast, over 99% of holders of each class of shares voted in favour of the agreement at the special meeting of shareholders held earlier today.

The completion of the arrangement remains subject to the granting of a final order by the Court of Queen’s Bench of Alberta, the receipt of required regulatory approvals and the satisfaction or waiver of other customary closing conditions. It is anticipated that the completion of the transaction will occur in the second quarter of 2015 and all regulatory approvals are on track.

However, it looks like shareholder approval was already factored into market prices, since the common closed at $9.51, well within its range of the past two weeks and actually down $0.02 on the day, while the preferred improved from 24.00-12 yesterday to 24.25-34 today.

It looks like traders are still accounting for a healthy amount of deal risk, since the common closed today at USD 7.68 on the New York Exchange, with a closing quote of 7.45 bid without. The day’s range was 7.65-71, compared with a deal price of USD 8.00, which (at today’s currency close of 1.2459), equates to CAD 9.57. The USD 7.68 close represents a 4% discount to deal price.

Thus, given that the preferreds are bid at 24.25, and will go ex-dividend for $0.2625 on March 11 (estimated) payable March 31 (estimated), both issues are showing comparable deal-risk.

Is it too much or too little? I don’t know – as I stated in my initial report on the potential deal, I don’t do deal risk. I will, however, bet a nickel that if the deal falls through, the preferreds will drop by $10.00 instantly.

The deal has attracted the usual weeping and wailing over a head-office closing from the usual suspects, who consider Canadians to be too stupid to take whatever money they’ve made from the investment to start new companies.

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February 18, 2015

Wednesday, February 18th, 2015

Oh, what joy there is amongst the anti-market crusaders:

Credit trading just isn’t paying like in the old days. That’s why Wall Street dealers are putting less money at risk to broker the debt, and instead are matching buyers and sellers as much as they can before making trades.

Dealers are only acting as middlemen for about 60 percent of high-yield bond transactions bigger than $2 million, moving securities between two sides they already have lined up, according to data compiled by financial-research company Tabb Group LLC. Before the 2008 financial crisis, such trades accounted for an estimated 25 percent of their business.

The downside of this movement is that it takes longer for investment firms to complete bigger trades, because banks used to just buy blocks of bonds with their own money and then opportunistically sell them into the market.

The upside? The trend sets the stage for a dramatic transformation of credit trading, where investors pay less to transact because dealers aren’t taking the same kind of risk.

What a great upside! Now it will be harder, for instance, to sell a new issue, because to make room in their portfolios investors will – as always – have to sell something, and that will take longer (and because it will take longer, yields will go up) and since it will take longer, there will have to be a longer selling period because of deal uncertainty, so yields will go up again! Hurray! And then it will become uneconomic at the margins for companies to issue debt, so they’ll issue less, with the twin results of giving the regulators less work to do and decreasing economic activity, thereby making the benefits of a government job even more beneficial. In addition, an even smaller proportion of the issue universe will be available to retail, because of inventory concerns if retail ever wants to sell, which will result in fewer complaints! It’s a brave new world, all right.

Meanwhile, the war on stockbrokers is yielding benefits to new players:

A growing crop of financial technology services companies have entered the Canadian market in recent months, providing alternatives to consumers looking for lower investment management and borrowing fees.

The country is becoming a hotbed for these “fintech” firms, threatening a dramatic shift in the financial services sector, driven by technology and a set of savvy entrepreneurs.

Last fall, former BMO Nesbitt Burns investment banker Nauvzer Babul launched Smart Money Capital Management, a computer-assisted financial management company. Smart Money invests in exchange-traded funds (ETFs) and charges clients an annual asset-based fee of 0.45 per cent on top of ETF fees, which together totals less than 1 per cent, Mr. Babul says.

Nova Scotia Power, proud issuer of NSI.PR.D, has been confirmed at Pfd-2(low) by DBRS:

DBRS Limited (DBRS) has confirmed the Issuer Rating and Unsecured Debentures & Medium-Term Notes rating of Nova Scotia Power Inc. (NSPI or the Company) at A (low) as well as its Cumulative Preferred Shares rating at Pfd-2 (low) and its Commercial Paper rating at R-1 (low). All trends are Stable. The rating confirmations reflect the Company’s relatively low business risk profile operating under a reasonable regulatory environment in Nova Scotia (the Province), albeit somewhat below average compared to other provinces that have privatized or deregulated their power sectors. The confirmations also reflect NSPI’s reasonable financial risk profile, with all key credit metrics expected to remain in line with the current rating category and within regulatory parameters.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 2bp, FixedResets down 11bp and DeemedRetractibles gaining 7bp. Volatility continued to be high, with Enbridge FixedResets prominent among the losers. Volume was average.

PerpetualDiscounts now yield 4.92%, equivalent to 6.40% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 3.8%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 260bp, a narrowing from the 270bp reported February 11.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150218
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.52 to be $1.03 rich, while TRP.PR.B, resetting 2015-6-30 at +128, is bid at 14.80 to be $0.66 cheap.

impVol_MFC_150218
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.45 to be $0.32 rich, while MFC.PR.G, resetting at +290 on 2016-12-19 and MFC.PR.H, resetting at +313bp on 2017-3-19, are bid at 25.86 and 26.27, respectively, to be $0.35 cheap.

impVol_BAM_150218
Click for Big

The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.X, resetting at +180bp on 2017-6-30, bid at 17.83 to be $0.61 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.75 and appears to be $1.05 rich.

impVol_FTS_150218
Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.80, looks $1.08 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.65 and is $1.03 rich.

pairs_FR_150218
Click for Big

All the break-even rates are scattered around negative 10bp – the market has started believing the deflation story again!

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

pairs_FF_150218
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices
Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)		 Median
YTW		 Median
Average
Trading
Value		 Median
Mod Dur
(YTW)		 Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.4357 % 2,272.3
FixedFloater 4.37 % 3.52 % 19,590 18.38 1 0.6475 % 4,048.4
Floater 3.17 % 3.39 % 67,225 18.74 4 1.4357 % 2,415.6
OpRet 4.05 % 2.22 % 97,628 0.33 1 -0.1970 % 2,752.0
SplitShare 4.28 % 3.50 % 28,108 3.57 5 0.5046 % 3,218.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1970 % 2,516.4
Perpetual-Premium 5.33 % -2.66 % 57,016 0.08 24 -0.1370 % 2,513.6
Perpetual-Discount 4.96 % 4.92 % 120,992 15.66 10 -0.0209 % 2,791.7
FixedReset 4.39 % 3.40 % 202,865 17.08 79 -0.1118 % 2,438.9
Deemed-Retractible 4.90 % 0.10 % 105,520 0.10 39 0.0675 % 2,650.9
FloatingReset 2.44 % 2.94 % 83,763 6.40 7 0.2038 % 2,321.4
Performance Highlights
Issue Index Change Notes
IFC.PR.A FixedReset -4.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.73
Bid-YTW : 5.96 %
ENB.PR.B FixedReset -2.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 4.22 %
ENB.PR.H FixedReset -2.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 18.55
Evaluated at bid price : 18.55
Bid-YTW : 4.13 %
ENB.PR.F FixedReset -2.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 20.01
Evaluated at bid price : 20.01
Bid-YTW : 4.22 %
ENB.PR.D FixedReset -2.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 19.32
Evaluated at bid price : 19.32
Bid-YTW : 4.21 %
ENB.PR.Y FixedReset -1.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 20.40
Evaluated at bid price : 20.40
Bid-YTW : 4.07 %
GWO.PR.N FixedReset -1.68 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.09
Bid-YTW : 5.98 %
TRP.PR.D FixedReset -1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 22.62
Evaluated at bid price : 23.55
Bid-YTW : 3.44 %
PWF.PR.A Floater -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 18.75
Evaluated at bid price : 18.75
Bid-YTW : 2.67 %
ENB.PR.N FixedReset -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 21.31
Evaluated at bid price : 21.60
Bid-YTW : 4.04 %
BAM.PF.E FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 23.07
Evaluated at bid price : 24.75
Bid-YTW : 3.51 %
PVS.PR.D SplitShare 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2021-10-08
Maturity Price : 25.00
Evaluated at bid price : 24.58
Bid-YTW : 4.79 %
BAM.PR.C Floater 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 14.70
Evaluated at bid price : 14.70
Bid-YTW : 3.42 %
BAM.PR.R FixedReset 1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 21.56
Evaluated at bid price : 21.94
Bid-YTW : 3.65 %
PVS.PR.C SplitShare 1.14 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-12-10
Maturity Price : 25.50
Evaluated at bid price : 25.77
Bid-YTW : 3.14 %
MFC.PR.K FixedReset 1.34 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.22
Bid-YTW : 3.75 %
VNR.PR.A FixedReset 1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 23.51
Evaluated at bid price : 25.20
Bid-YTW : 3.52 %
BAM.PR.B Floater 1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 14.86
Evaluated at bid price : 14.86
Bid-YTW : 3.39 %
MFC.PR.L FixedReset 1.88 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.45
Bid-YTW : 3.72 %
HSE.PR.A FixedReset 2.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 17.51
Evaluated at bid price : 17.51
Bid-YTW : 3.72 %
BAM.PR.K Floater 5.27 % Just a reversal of yesterday‘s collapse.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 14.57
Evaluated at bid price : 14.57
Bid-YTW : 3.45 %
Volume Highlights
Issue Index Shares
Traded		 Notes
RY.PR.B Deemed-Retractible 127,371 RBC crossed 125,000 at 25.43.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-20
Maturity Price : 25.25
Evaluated at bid price : 25.42
Bid-YTW : -4.40 %
BMO.PR.S FixedReset 63,489 RBC crossed 30,000 at 25.12.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 23.25
Evaluated at bid price : 25.10
Bid-YTW : 3.09 %
RY.PR.J FixedReset 61,753 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 23.19
Evaluated at bid price : 25.15
Bid-YTW : 3.35 %
MFC.PR.M FixedReset 45,940 Scotia crossed 40,000 at 24.92.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.83
Bid-YTW : 3.68 %
SLF.PR.G FixedReset 44,158 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.73
Bid-YTW : 6.25 %
TD.PR.S FixedReset 41,560 TD crossed 39,400 at 25.28.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.28
Bid-YTW : 2.73 %
There were 32 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IFC.PR.A FixedReset Quote: 19.73 – 20.30
Spot Rate : 0.5700
Average : 0.3964

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.73
Bid-YTW : 5.96 %
TRP.PR.D FixedReset Quote: 23.55 – 24.10
Spot Rate : 0.5500
Average : 0.4059

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 22.62
Evaluated at bid price : 23.55
Bid-YTW : 3.44 %
BMO.PR.Q FixedReset Quote: 22.61 – 22.90
Spot Rate : 0.2900
Average : 0.1935

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.61
Bid-YTW : 3.92 %
ENB.PR.B FixedReset Quote: 19.20 – 19.59
Spot Rate : 0.3900
Average : 0.2942

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 4.22 %
PWF.PR.O Perpetual-Premium Quote: 26.35 – 26.62
Spot Rate : 0.2700
Average : 0.1808

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-20
Maturity Price : 26.00
Evaluated at bid price : 26.35
Bid-YTW : -7.43 %
BAM.PF.B FixedReset Quote: 24.06 – 24.39
Spot Rate : 0.3300
Average : 0.2426

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-18
Maturity Price : 22.87
Evaluated at bid price : 24.06
Bid-YTW : 3.62 %

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FFH: S&P Says Outlook Negative

Wednesday, February 18th, 2015

On February 16 Fairfax Financial Holdings announced:

that it has reached an agreement with Brit PLC (“Brit” or the “company”) to acquire all of the outstanding shares of Brit (the “Brit Shares”). Brit is a market-leading global Lloyd’s of London specialty insurer and reinsurer. The full announcement (the “Announcement”) is available for viewing on Fairfax’s website at www.fairfax.ca/britoffer.
…
The aggregate purchase price payable by Fairfax for the Offer is approximately US$1.88 billion. On February 12, 2015, Fairfax announced 2014 earnings of approximately US$1.6 billion. Excluding the final dividend expected to be declared by the board of directors of Brit for the year ended December 31, 2014 in an amount of 25 pence per Brit Share , Fairfax’s purchase price of 280 pence per Brit Share is less than ten times the company’s earnings based on the company’s annualized net earnings for the six months ended June 30, 2014. The acquisition is accretive to Fairfax on several metrics including gross revenue per share and investments per share.

I love the bit about how the acquisition is accretive to Fairfax on several metrics including gross revenue per share and investments per share. The Public Relations team must have been scratching their heads for a while before coming up with that one! I can’t even tell you just exactly what “investments per share” means, since the phrase was not mentioned in FFH’s last quarterly statements or MD&A. The assertion was repeated by Prem Watsa in the conference call, but was left unchallenged – there were only softball questions from equity salesmen hoping to line up a financing deal for their firms.

In response to all this Standard & Poor’s has announced:

  • •Fairfax Financial Holdings Ltd. announced on Feb. 16 that it had reached an agreement to acquire Brit PLC for about $1.88 billion.
  • •We are affirming the issuer credit rating on Fairfax Financial Holdings Ltd. at ‘BBB-‘ and the issuer credit and financial strength ratings of its core insurance affiliates at ‘A-‘.
  • •We are revising the outlook to negative from stable, considering the potentially significant reduction in the group’s capital adequacy, as measured by our proprietary capital model.

…
The company has several options for restoring capital adequacy to a level that Standard & Poor’s views as more supportive of the existing ratings. However, the company is still finalizing the capital enhancement strategy, and there is execution risk with regard to any capital management plan that it adopts.
…
The negative outlook on Fairfax reflects the significant potential decline in the group’s capital adequacy following the completion of the Brit PLC acquisition. The time horizon for our outlook is six to 12 months.

Fairfax has several preferred share issues outstanding, FFH.PR.C, FFH.PR.D, FFH.PR.E, FFH.PR.G, FFH.PR.I and FFH.PR.K; FFH.PR.D is a FloatingReset paired with FFH.PR.C;, all the others are FixedResets.

Update, 2015-02-23: DBRS has confirmed Fairfax with a Stable Trend:

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt of Fairfax Financial Holdings Limited (Fairfax) at BBB and the Company’s Preferred Shares at Pfd-3. The trends on all ratings remain Stable. The Senior Unsecured Notes of Fairfax (US) Inc. are guaranteed by Fairfax Financial Holdings Limited. This rating action follows the announcement that Fairfax has agreed to purchase Brit PLC (Brit) for $1.88 billion, a premium of 11.2% per share. Fairfax has obtained a sales agreement with approximately 73% of the voting shares of Brit. The transaction is expected to close in Q2 2015, subject to customary conditions, including regulatory approvals. As a Lloyd’s of London (Lloyd’s) insurer, Brit focuses on global specialty insurance and reinsurance and is the eighth-largest Lloyd’s insurer with a written premium capacity of GBP 1.0 billion as of July 2014.

The rating action reflects DBRS’s view that the purchase is consistent with Fairfax’s strategy of extending its franchise globally through opportunistic investments whereby it acquires businesses with demonstrated underwriting discipline that add to its existing franchise. Fairfax engages in property and casualty insurance, reinsurance and investment management. Brit focuses on property casualty (62% of premium) combined with complex specialty insurance lines such as marine, energy and terrorism risks. DBRS anticipates that the acquisition will help both Fairfax and Brit to expand globally. Fairfax is expected to benefit from the significant expansion in the specialty insurance markets, an enhanced distribution network and Brit’s underwriting skills in specialty insurance. Brit is expected to benefit from the greater scale of the combined companies in the Lloyd’s market, Fairfax’s franchise network presence and Fairfax’s resources, including Fairfax’s strong investment record. Pro forma, the purchase would result in Fairfax strengthening its position in the Lloyd’s market as it is expected to become the fifth-largest insurer with a premium capacity exceeding GBP 1.3 billion as of 2015, which is likely to enhance Fairfax’s ability to manage pricing and to facilitate greater lead opportunities in arranging deal terms.

Posted in Issue Comments | No Comments »

February 17, 2015

Wednesday, February 18th, 2015

Jeffrey M. Lacker had some interesting things to say about Education, Innovation and Economic Growth:

Recent data on economic inequality and economic mobility show that inequality has increased in recent years, while mobility has either decreased or remained flat. In other words, the rich are increasingly likely to remain rich and the poor are increasingly likely to remain poor.
…
A growing share of those who do complete high school now go on to college. But far too many of these students fail to earn a degree: Nationally, the college dropout rate is around 40 percent.7 The benefits of attending college for a few semesters without graduating are relatively small. The unemployment rate for workers with some college education but no degree is comparable to the rate for workers with only a high school degree. And while students who have attended some college do earn on average about 15 percent more than high school graduates, this pales in comparison with the average earnings of those who have completed bachelor’s degrees.
…
The large increase in the college premium has led many policymakers and educators to advocate college for all. But as the high college dropout rate indicates, there is a big difference between enrolling in college and graduating. During focus group meetings held recently in Virginia by the Richmond Fed, representatives from four-year colleges and community colleges shared that many students are surprised to discover they lack the basic math skills necessary for college-level work. If students overestimate their readiness for college, they may be more likely to enroll in college but then drop out after they get there. That can be a costly lesson to learn; the average debt burden among college dropouts who took out loans is more than $14,000.10 The high college dropout rate thus suggests that many students could benefit from more information about what is required for college success.

This is interesting in view of student loan delinquencies:

Student-loan delinquencies increased at the end of 2014, a troubling sign that Americans are failing to keep up with payments as education debt climbs, according to the Federal Reserve Bank of New York.

Data from the New York Fed released Tuesday showed 11.3 percent of student loans were delinquent in the final three months of 2014, up from 11.1 percent in the prior quarter. The share of auto loans at least 90 days overdue also rose, climbing to 3.5 percent from 3.1 percent the prior period, even as fewer credit card and mortgage loan payments were late.
…
The nation’s student-loan balance climbed by $31 billion last quarter to $1.16 trillion. That makes it the largest source of debt after mortgages, which gained $39 billion to $8.2 trillion in the fourth quarter. Auto-loan debt increased by $21 billion to $955 billion.

Education loan balances have skyrocketed over the past decade. In the first quarter of 2005, outstanding student debt stood at $363 billion — about a third of the current level, based on a 2013 New York Fed report.

Delinquency rates for student loans probably understate the actual situation, according to today’s report. About half of the student loans are in deferment, in grace periods or in forbearance, temporarily removing them from the repayment cycle.

There’s an excellent article Jon Ronson in the New York Times magazine about the people who get hurt by the current fashion for vitriolic moral crusades. Dalhousie dentistry, anyone?

We have more micromanagement from the central planners in Ottawa:

Freight traffic on Canadian Pacific Railway Ltd. is halted after contract talks failed with the Teamsters and more than 3,000 locomotive engineers and conductors went on strike just after midnight.

The government will introduce back-to-work legislation when Parliament resumes sitting on Monday, and federal Labour Minister Kellie Leitch has told both sides she will send the dispute to binding arbitration.

Well, I got PrefLetter out the door yesterday. Now it’s time to clean up my desk.

prefLetterWeekend
Click for Big

It was a poor day for the Canadian preferred share market with PerpetualDiscounts down 10bp, FixedResets losing 26bp and DeemedRetractibles off 1bp. The performance highlights table is its usual heightened-volatility self. Volume was high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150217
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.67 to be $1.03 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is bid at 16.63 to be $0.92 cheap.

impVol_MFC_150217
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.N, resetting at +230 on 2020-3-9, bid at 24.85 to be $0.35 rich, while MFC.PR.K, resetting at +222 on 2018-9-19 is bid at 23.90 to be $0.36 cheap.

impVol_BAM_150217
Click for Big

The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.X, resetting at +180bp on 2017-6-30, bid at 18.01 to be $0.44 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.50 and appears to be $0.84 rich.

impVol_FTS_150217
Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.75, looks $1.14 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.57 and is $0.98 rich.

pairs_FR_150217
Click for Big

All the break-even rates are scattered around negative 10bp – the market has started believing the deflation story again!

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

pairs_FF_150217
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices
Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)		 Median
YTW		 Median
Average
Trading
Value		 Median
Mod Dur
(YTW)		 Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.3405 % 2,240.1
FixedFloater 4.39 % 3.55 % 19,627 18.33 1 -0.6890 % 4,022.4
Floater 3.22 % 3.45 % 67,791 18.60 4 1.3405 % 2,381.4
OpRet 4.04 % 1.60 % 98,189 0.33 1 0.1183 % 2,757.5
SplitShare 4.27 % 4.05 % 27,797 3.54 5 -0.0649 % 3,202.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1183 % 2,521.4
Perpetual-Premium 5.32 % -6.31 % 57,774 0.08 24 -0.0359 % 2,517.1
Perpetual-Discount 4.96 % 4.78 % 122,602 15.11 10 -0.1044 % 2,792.3
FixedReset 4.38 % 3.36 % 199,388 17.10 79 -0.2598 % 2,441.6
Deemed-Retractible 4.91 % 0.10 % 107,207 0.12 39 -0.0091 % 2,649.1
FloatingReset 2.45 % 2.94 % 83,849 6.40 7 0.0000 % 2,316.7
Performance Highlights
Issue Index Change Notes
BAM.PR.K Floater -3.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 13.84
Evaluated at bid price : 13.84
Bid-YTW : 3.64 %
BAM.PF.B FixedReset -2.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 22.85
Evaluated at bid price : 24.01
Bid-YTW : 3.63 %
MFC.PR.L FixedReset -2.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 3.95 %
GWO.PR.N FixedReset -2.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.40
Bid-YTW : 5.77 %
IFC.PR.A FixedReset -1.90 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.60
Bid-YTW : 5.42 %
VNR.PR.A FixedReset -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 23.37
Evaluated at bid price : 24.80
Bid-YTW : 3.60 %
HSE.PR.A FixedReset -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 17.01
Evaluated at bid price : 17.01
Bid-YTW : 3.83 %
CU.PR.D Perpetual-Premium -1.18 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-09-01
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 4.86 %
BNS.PR.B FloatingReset -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.61
Bid-YTW : 3.03 %
BAM.PF.E FixedReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 22.97
Evaluated at bid price : 24.50
Bid-YTW : 3.56 %
BAM.PR.R FixedReset -1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 21.39
Evaluated at bid price : 21.70
Bid-YTW : 3.70 %
BAM.PR.C Floater 1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 3.46 %
MFC.PR.I FixedReset 1.39 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-09-19
Maturity Price : 25.00
Evaluated at bid price : 26.22
Bid-YTW : 2.74 %
TRP.PR.F FloatingReset 2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 3.23 %
PWF.PR.A Floater 5.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 2.63 %
Volume Highlights
Issue Index Shares
Traded		 Notes
TD.PF.C FixedReset 92,950 National sold 10,000 to anonymous at 24.85. TD crossed blocks of 16,700 and 50,000, both at 24.85.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 23.12
Evaluated at bid price : 24.86
Bid-YTW : 3.08 %
GWO.PR.N FixedReset 60,151 RBC crossed 49,800 at 18.98.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.40
Bid-YTW : 5.77 %
RY.PR.L FixedReset 47,730 Nesbitt crossed blocks of 23,100 and 20,000, both at 26.15.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-02-24
Maturity Price : 25.00
Evaluated at bid price : 26.11
Bid-YTW : 3.07 %
BMO.PR.S FixedReset 47,190 Nesbitt crossed 10,000 at 25.06.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 23.24
Evaluated at bid price : 25.06
Bid-YTW : 3.10 %
ENB.PR.B FixedReset 43,658 RBC crossed 20,000 at 19.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 19.74
Evaluated at bid price : 19.74
Bid-YTW : 4.10 %
ENB.PR.D FixedReset 37,922 RBC crossed 21,600 at 19.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 19.75
Evaluated at bid price : 19.75
Bid-YTW : 4.11 %
There were 41 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.K Floater Quote: 13.84 – 14.91
Spot Rate : 1.0700
Average : 0.6062

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 13.84
Evaluated at bid price : 13.84
Bid-YTW : 3.64 %
BNS.PR.B FloatingReset Quote: 23.61 – 24.20
Spot Rate : 0.5900
Average : 0.3881

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.61
Bid-YTW : 3.03 %
TRP.PR.F FloatingReset Quote: 18.50 – 19.15
Spot Rate : 0.6500
Average : 0.4617

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 3.23 %
MFC.PR.F FixedReset Quote: 20.19 – 20.78
Spot Rate : 0.5900
Average : 0.4079

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.19
Bid-YTW : 5.02 %
MFC.PR.L FixedReset Quote: 24.00 – 24.60
Spot Rate : 0.6000
Average : 0.4351

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 3.95 %
ENB.PF.G FixedReset Quote: 23.25 – 23.70
Spot Rate : 0.4500
Average : 0.2891

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-17
Maturity Price : 22.39
Evaluated at bid price : 23.25
Bid-YTW : 3.90 %

Posted in Market Action | No Comments »

February PrefLetter Released!

Tuesday, February 17th, 2015

The February, 2015, 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.

The regular appendices reporting on DeemedRetractibles and FixedResets are included.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the February, 2015, issue, while the “Next Edition” will be the March, 2015, issue, scheduled to be prepared as of the close March 13 and eMailed to subscribers prior to market-opening on March 16.

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!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

Posted in PrefLetter | No Comments »

February 13, 2015

Friday, February 13th, 2015

Nothing happened today.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 5bp, FixedResets off 1bp and DeemedRetractibles down 6bp. The Performance Highlights table is shorter than it has been of late, but still much lengthier than prior norms. Volume was very low.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150213
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.90 to be $1.13 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is bid at 16.77 to be $0.75 cheap.

impVol_MFC_150213
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.55 to be $0.49 rich, while MFC.PR.H, resetting at +313 on 2017-3-19 is bid at 26.16 to be $0.36 cheap.

impVol_BAM_150213
Click for Big

The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.X, resetting at +180bp on 2017-6-30, bid at 18.02 to be $0.64 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.76 and appears to be $0.87 rich.

impVol_FTS_150213
Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.70, looks $1.05 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.61 and is $1.08 rich.

pairs_FR_150213
Click for Big

All the break-even rates are scattered around negative 10bp – the market has started believing the deflation story again!

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

pairs_FF_150213
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 0.7079 % 2,210.5
FixedFloater 4.36 % 3.52 % 20,442 18.38 1 -0.5936 % 4,050.3
Floater 3.26 % 3.47 % 64,713 18.54 4 0.7079 % 2,349.9
OpRet 4.04 % 1.90 % 97,536 0.34 1 -0.1182 % 2,754.2
SplitShare 4.26 % 4.06 % 28,941 3.55 5 -0.0158 % 3,204.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1182 % 2,518.4
Perpetual-Premium 5.32 % -6.28 % 56,673 0.08 24 0.0424 % 2,518.0
Perpetual-Discount 4.95 % 4.81 % 123,845 15.27 10 0.0543 % 2,795.2
FixedReset 4.37 % 3.35 % 199,563 17.12 79 -0.0135 % 2,448.0
Deemed-Retractible 4.91 % -0.48 % 108,374 0.13 39 -0.0635 % 2,649.4
FloatingReset 2.45 % 2.87 % 82,658 6.42 7 0.2663 % 2,316.7
Performance Highlights
Issue Index Change Notes
SLF.PR.G FixedReset -1.93 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.75
Bid-YTW : 6.23 %
TRP.PR.B FixedReset -1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-13
Maturity Price : 14.85
Evaluated at bid price : 14.85
Bid-YTW : 3.47 %
TRP.PR.C FixedReset -1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-13
Maturity Price : 16.77
Evaluated at bid price : 16.77
Bid-YTW : 3.53 %
MFC.PR.F FixedReset -1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.25
Bid-YTW : 4.98 %
ENB.PR.F FixedReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-13
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 4.12 %
FTS.PR.F Perpetual-Discount 1.04 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-12-01
Maturity Price : 25.00
Evaluated at bid price : 25.19
Bid-YTW : 3.65 %
IFC.PR.A FixedReset 1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.00
Bid-YTW : 5.17 %
BAM.PR.R FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-13
Maturity Price : 21.55
Evaluated at bid price : 21.92
Bid-YTW : 3.65 %
MFC.PR.N FixedReset 1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.80
Bid-YTW : 3.65 %
PWF.PR.A Floater 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-13
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 2.77 %
Volume Highlights
Issue Index Shares
Traded		 Notes
TD.PF.C FixedReset 80,250 TD crossed 50,000 at 24.85. National bought 10,000 from Desjardins at 24.89.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-13
Maturity Price : 23.11
Evaluated at bid price : 24.85
Bid-YTW : 3.08 %
SLF.PR.G FixedReset 78,673 TD crossed 40,000 at 17.82.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.75
Bid-YTW : 6.23 %
RY.PR.C Deemed-Retractible 69,642 Desjardins crossed two blocks of 34,500 each, both at 25.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-15
Maturity Price : 25.25
Evaluated at bid price : 25.45
Bid-YTW : -6.61 %
MFC.PR.N FixedReset 49,550 RBC crossed 46,700 at 24.83.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.80
Bid-YTW : 3.65 %
MFC.PR.F FixedReset 38,140 TD crossed 10,400 at 20.50.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.25
Bid-YTW : 4.98 %
CM.PR.O FixedReset 37,460 TD crossed 20,000 at 24.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-13
Maturity Price : 23.17
Evaluated at bid price : 24.91
Bid-YTW : 3.12 %
There were 19 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.A Floater Quote: 18.00 – 18.99
Spot Rate : 0.9900
Average : 0.6168

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-13
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 2.77 %
PVS.PR.C SplitShare Quote: 25.76 – 26.50
Spot Rate : 0.7400
Average : 0.5096

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 25.76
Bid-YTW : 4.06 %
GWO.PR.P Deemed-Retractible Quote: 26.45 – 26.90
Spot Rate : 0.4500
Average : 0.2725

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-03-31
Maturity Price : 25.00
Evaluated at bid price : 26.45
Bid-YTW : 4.46 %
MFC.PR.I FixedReset Quote: 25.86 – 26.25
Spot Rate : 0.3900
Average : 0.2692

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.86
Bid-YTW : 3.30 %
MFC.PR.K FixedReset Quote: 24.00 – 24.40
Spot Rate : 0.4000
Average : 0.2901

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 3.85 %
MFC.PR.F FixedReset Quote: 20.25 – 20.55
Spot Rate : 0.3000
Average : 0.2083

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.25
Bid-YTW : 4.98 %

Posted in Market Action | No Comments »

DBRS Downgrades Bombardier

Friday, February 13th, 2015

DBRS has announced that it:

has today downgraded the Issuer Rating of Bombardier Inc. (Bombardier or the Company) to B (high) and the Trend has been changed to Negative. DBRS’s downgrade incorporates the Company’s progressively weaker financial profile due to debt and liquidity burdens, as well as the erosion of its business profile. The Company’s substantial negative net free cash flow and sizeable financing needs to support its aircraft developments programs have led to increasing indebtedness and weakening of all credit metrics in 2014. Substantial cost pressures have led to the erosion of margins at the aerospace and transportation businesses due to competitive and operational reasons. DBRS could take further negative rating action should the Company announce additional operating challenges, encounter difficulties in executing its ambitious financing, incur material indebtedness or see additional deterioration in profitability.
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DBRS’s rating action reflects the Company’s rapidly weakening financial and business risk profiles at its aerospace and transportation businesses. The Negative Trend reflects uncertainty surrounding the financial and business profiles of the Company, noting that both are subject to deterioration and potential rating action in the near-mid-term.

In November, 2013, DBRS announced that it:

downgraded the Issuer Rating and Senior Unsecured Debentures of Bombardier Inc. (BBD or the Company) to BB (low) and the Preferred Shares were downgraded to Pfd-4 (low). The trend on the Issuer Rating is Stable and DBRS has removed all ratings from Under Review with Negative Implications. Additionally, DBRS has discontinued the Company’s Senior Unsecured Debentures and Preferred Shares ratings effective immediately.

Earlier this year, PrefBlog reported that BBD.PR.B, BBD.PR.C & BBD.PR.D Downgraded to P-5(high) by S&P.

BBD.PR.B, BBD.PR.C and BBD.PR.D are all tracked by HIMIPref™ but are relegated to the Scraps index on credit concerns.

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