October 2, 2007

The private equity bid for Sallie Mae has been revised – the much lower price is attributed to cuts in the US Federal subsidy of student loans. Accrued Interest called it right! The idea that the bidders believe they’ll be able to finance a $20-billion takeover is a good sign for the credit markets. It looks as if the target company will not agree instantly to the proposed price reduction.

There’s more than one takeover in the news as cross-border shopping is taking off … TD is buying a US bank for $8.5-billion, doubling the size of their US operation. RBC has spent $2.2-billion on a Trinidadian bank. Even the Montreal Exchange is increasing its stake in the Boston Options Exchange. Despite this, the ‘Hollowing-Out Crowd’ is flexing its muscles in the apparent belief that Canadians are too stupid to charge a good price for assets and too lazy to put cash to good use once a sale closes.

Despite periodic chatter that the ‘market believes the credit crunch is over’, I’ll stick to my guns and say we haven’t seen the worst yet. Interest rate adjustments take some time to percolate through the system – and there was bad news from US housing today, with liquidity drying up a lot. However, in another sign that the market is reacting rationally to changed circumstances, there are rumours that:

Goldman Sachs Group Inc. may buy Litton Loan Servicing LP, the Houston-based servicer of U.S. subprime mortgages, said people with knowledge of the matter.

Goldman may be betting it can increase the value of mortgage assets by reworking loan terms to make it easier for borrowers to pay their debt, said Terry Couto, a partner at Newbold Advisors, a mortgage-consulting firm.

Buying a servicing business would allow the owners “to go out and buy distressed loan portfolios, or work out what they already own,” Couto said.

Don’t take the brevity of this post as a sign I am ignoring you! The following posts are new today:

Additionally, I added some new information to MAPF Performance : September, 2007 and the “fair price” of the two new issues. So read all that stuff instead.

Overall performance in the preferred share market was mixed, enlivened somewhat by the slowing, but never-the-less continuing decline in the PerpetualDiscount index. It is now down 3.89% from its value on September 24, and not much above the recent worst level of 943.3 reached on June 12.

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.58% 4.49% 904,582 16.20 1 0.0000% 1,065.0
Fixed-Floater 4.92% 4.79% 105,171 15.79 7 +0.2247% 1,030.6
Floater 4.49% 2.83% 79,770 10.73 3 -0.2171% 1,045.1
Op. Retract 4.85% 4.24% 77,084 3.35 15 +0.1248% 1,028.0
Split-Share 5.14% 4.91% 87,340 4.07 15 +0.1504% 1,046.5
Interest Bearing 6.35% 6.52% 55,752 3.63 3 -0.0512% 1,041.6
Perpetual-Premium 5.62% 5.38% 95,565 8.28 17 +0.0549% 1,017.8
Perpetual-Discount 5.31% 5.34% 211,203 14.92 45 -0.1045% 947.0
Major Price Changes
Issue Index Change Notes
ELF.PR.F PerpetualDiscount -2.0000% Now with a pre-tax bid-YTW of 5.53% based on a bid of 24.01 and a limitMaturity.
BMO.PR.J PerpetualDiscount -1.6018% New low today of 21.26. This was the volume leader for today. Technical analysis, anyone? Now with a pre-tax bid-YTW of 5.30% based on a bid of 21.50 and a limitMaturity.
RY.PR.G PerpetualDiscount +1.0565% Now with a pre-tax bid-YTW of 5.18% based on a bid of 22.00 and a limitMaturity.
HSB.PR.D PerpetualDiscount +1.0748% Now with a pre-tax bid-YTW of 5.13% based on a bid of 24.45 and a limitMaturity.
BAM.PR.G FixFloat +1.0998%  
SLF.PR.B PerpetualDiscount +1.3555% Now with a pre-tax bid-YTW of 5.20% based on a bid of 23.18 and a limitMaturity.
Volume Highlights
Issue Index Volume Notes
BMO.PR.J PerpetualDiscount 147,910 Now with a pre-tax bid-YTW of 5.30% based on a bid of 21.50 and a limitMaturity.
BMO.PR.H PerpetualPremium 128,741 Now with a pre-tax bid-YTW of 5.23% based on a bid of 25.13 and a limitMaturity.
BCE.PR.A FixFloat 57,200 RBC crossed 50,000 at 24.63.
SLF.PR.D PerpetualDiscount 38,726 Now with a pre-tax bid-YTW of 5.17% based on a bid of 21.61 and a limitMaturity.
NA.PR.L PerpetualDiscount 32,900 Now with a pre-tax bid-YTW of 5.38% based on a bid of 22.86 and a limitMaturity.

There were fourteen other index-included $25.00-equivalent issues trading over 10,000 shares today.

One Response to “October 2, 2007”

  1. Drew says:

    There appear to be an unusually large number of seemingly very attractive opportunities (ostensible inefficiencies) in P1’s presently. Do you concur?

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