January 31, 2012

The Greek tragedy continues:

Greece pledged a last-ditch effort to prevent the collapse of a second rescue package from creditors, aiming to complete talks this week on a financial lifeline that’s been in the works for six months.

Greek Premier Lucas Papademos said he would try to meet German-led demands for a bigger debt writedown by investors and deeper budget cuts by his government.

Papademos said “some difficulties” beset the debt-swap talks and hinted that donor governments may have to put up more money. Greek Finance Minister Evangelos Venizelos said today in Athens that a formal debt-swap offer must be made by Feb. 13.

Greek Needs
Merkel’s comments indicated that governments are loath to boost an October offer of 130 billion euros of loans in a second package, forcing investors to absorb net-present-value losses on Greek bonds that go beyond the 69 percent now on the table. Greece’s initial rescue of 110 billion euros in 2010 was fully taxpayer-funded.

Creditors are prepared to accept an average coupon of as low as 3.6 percent on new 30-year bonds, said a person familiar with the talks, who declined to be identified because a final deal hasn’t been struck yet. As recently as Jan. 23, creditors wanted an average coupon of about 4.25 percent, two people familiar with the talks said then.

In turn, Greece’s feuding political parties face pressure to deliver more savings and to verify in writing that the austerity program will be carried out, no matter who wins elections to replace Papademos’s interim Cabinet.

I suggest they call in Canadian defence minister Peter MacKay for a consultation. He’s good at putting things in writing!

But there’s a fascinating twist to the Greek negotiations:

In discussions late last week in Athens, creditors lowered their demands for an average coupon on the new 30-year securities they would receive to as little as 3.6 percent from 4.25 percent after European officials demanded they take steeper losses, people familiar with the matter said at the time.

While the lower coupon would lead to an estimated loss of 70 percent or more for investors, adding a so-called gross domestic product warrant — which would pay bondholders more if the Greek economy rebounds — would trim the loss in net present value terms by an estimated 0.5 to 3 percentage points, said two people, who declined to be identified because the talks are confidential.

I bet some people are watching the negotiations with keen interest:

California (STOCA1)’s cash may be exhausted by March, Controller John Chiang said in a letter to lawmakers.

The nation’s most-populous state needs $3.3 billion to deal with liquidity needs for March and the first two weeks of April, Chiang said in the letter to state Senator Mark Leno and Assemblyman Bob Blumenfield, who leads the Joint Legislative Budget Committee

State receipts were $2.6 billion lower than forecast through Dec. 31, while expenditures were an equal amount higher, Chiang said.

BRF.PR.A was affirmed at P-3(high) by S&P:

  • We are assigning our ‘BBB’ long-term corporate credit rating and ‘A-2’ short-term rating to the newly formed Brookfield Renewable Energy Partners L.P. (BREP).
  • We are also affirming our ‘BBB’ issue-level rating on the approximately C$1.1 billion rated unsecured debt at BRP Finance ULC and ‘BB+’ global scale and ‘P-3(High)’ Canada scale ratings on Brookfield Renewable Power Preferred Equity Inc.’s preferred stock that BREP assumed as part of the combination.
  • In addition, we are withdrawing our ratings, including our ‘BBB’
    long-term corporate credit rating, on both Brookfield Renewable Power Inc. (BRPI) and Brookfield Renewable Power Fund (BRPF) at the companies’ request as a consequence of combination of the two companies.
  • We base the rating on our view that the combined credit risk profile of BREP’s portfolio being at least as good as BRPI’s portfolio combined with BRPF.
  • The stable outlook reflects our view of the company’s satisfactory business risk profile, which reflects its diversified electricity generation asset portfolio.

The DBRS report on CZP.PR.A’s parent has been updated:

DBRS has today updated its report on Capital Power Income L.P. (the Partnership or CPILP). CPILP’s ratings were downgraded on November 16, 2011, following the close of the acquisition of CPILP by Atlantic Power Corporation (ATP, not rated by DBRS) (the Transaction) on November 7, 2011. At that time, an Issuer Rating of BB was assigned based on the assessment of the new combined entity and a recovery rating of RR4 (indicating an expected recovery of 30% to 50%) was assigned to the Senior Unsecured & Medium-Term Notes.

Post acquisition, CPILP is expected to generate reasonable cash flows from its diverse long-term power contracts. However, the overall credit quality of CPILP has deteriorated due to its weakened financial profile, complex financial structure and subordination implications. These factors have offset increases in the average power purchase agreement (PPA) term, asset base and market capitalization as well as benefits from the greater diversification of fuel source, geography and counterparty risk of the combined entity.

In the medium to long term, CPILP’s cash flow stability will be largely dependent upon its ability to continue to improve operating performance, enhance revenue by ensuring it renegotiates and renews PPAs expiring in the near term at economically acceptable terms and secure long-term energy supply and operating contracts. DBRS estimates cash flow-to-debt and EBITDA interest coverage ratios to average approximately 11% and 2.7 times respectively in the near to medium term. These metrics remain adequate for the current BB rating. DBRS expects that existing outstanding CPILP debt will be refinanced at the ATP level as they mature.

It was a calm day for the Canadian preferred share market, with PerpetualDiscounts up 1bp, FixedResets gaining 9bp and DeemedRetractibles winning 13bp. All entries on the Performance Highlights table were winners. Volume was above average.

PerpetualDiscounts now yield 4.90%, equivalent to 6.37% interest at the standard equivalency factor of 1.3x; note that this measure is plagued by the fact that there are only seven PerpetualDiscounts left in the index and that after the month-end index rebalacing there will only be four! The figures should be taken with a grain of salt – or perhaps a truckload. Long corporates now yield about 4.55%, so the pre-tax interest-equivalent spread (in this context it is referred to as the Seniority Spread) is now aout 180bp, slightly narrower than the 185bp reported on January 18.

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 0.7807 % 2,407.7
FixedFloater 4.69 % 4.07 % 42,041 17.26 1 0.0000 % 3,323.9
Floater 2.77 % 2.98 % 62,619 19.77 3 0.7807 % 2,599.6
OpRet 4.90 % 0.37 % 66,130 1.29 7 -0.0326 % 2,520.4
SplitShare 5.31 % -0.39 % 72,679 0.86 4 0.3819 % 2,636.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0326 % 2,304.6
Perpetual-Premium 5.40 % -6.34 % 101,888 0.09 23 0.0776 % 2,215.6
Perpetual-Discount 4.96 % 4.90 % 180,893 15.21 7 0.0058 % 2,442.9
FixedReset 5.03 % 2.68 % 206,878 2.33 65 0.0913 % 2,387.4
Deemed-Retractible 4.89 % 3.47 % 206,338 1.28 46 0.1270 % 2,311.9
Performance Highlights
Issue Index Change Notes
SLF.PR.F FixedReset 1.05 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.95
Bid-YTW : 2.87 %
BAM.PR.R FixedReset 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-01-31
Maturity Price : 23.64
Evaluated at bid price : 26.55
Bid-YTW : 3.56 %
PWF.PR.A Floater 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-01-31
Maturity Price : 21.35
Evaluated at bid price : 21.35
Bid-YTW : 2.45 %
BNA.PR.E SplitShare 1.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 5.43 %
BAM.PR.K Floater 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-01-31
Maturity Price : 17.70
Evaluated at bid price : 17.70
Bid-YTW : 2.98 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.L FixedReset 100,840 Scotia bought 12,400 from Nesbitt at 27.15, then crossed 25,000 at the same price. TD crossed 34,300 at the same price again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 27.16
Bid-YTW : 2.54 %
ENB.PR.F FixedReset 68,461 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-01-31
Maturity Price : 23.21
Evaluated at bid price : 25.36
Bid-YTW : 3.66 %
BNS.PR.N Deemed-Retractible 60,810 TD crossed 50,000 at 26.72.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-01-29
Maturity Price : 26.00
Evaluated at bid price : 26.73
Bid-YTW : 2.18 %
BNS.PR.Z FixedReset 58,196 TD crossed 22,000 at 25.515.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 3.05 %
SLF.PR.H FixedReset 55,291 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.05
Bid-YTW : 4.20 %
CM.PR.I Deemed-Retractible 46,966 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-31
Maturity Price : 25.25
Evaluated at bid price : 25.98
Bid-YTW : 3.65 %
There were 38 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PR.O Deemed-Retractible Quote: 25.95 – 26.19
Spot Rate : 0.2400
Average : 0.1422

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-03-01
Maturity Price : 25.75
Evaluated at bid price : 25.95
Bid-YTW : -4.82 %

SLF.PR.H FixedReset Quote: 24.05 – 24.30
Spot Rate : 0.2500
Average : 0.1695

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.05
Bid-YTW : 4.20 %

ENB.PR.A Perpetual-Premium Quote: 26.40 – 26.65
Spot Rate : 0.2500
Average : 0.1782

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-03-01
Maturity Price : 25.00
Evaluated at bid price : 26.40
Bid-YTW : -44.06 %

PWF.PR.L Perpetual-Premium Quote: 25.30 – 25.56
Spot Rate : 0.2600
Average : 0.2022

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-31
Maturity Price : 25.25
Evaluated at bid price : 25.30
Bid-YTW : 5.00 %

BMO.PR.N FixedReset Quote: 27.08 – 27.22
Spot Rate : 0.1400
Average : 0.0870

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-25
Maturity Price : 25.00
Evaluated at bid price : 27.08
Bid-YTW : 2.17 %

MFC.PR.C Deemed-Retractible Quote: 23.21 – 23.48
Spot Rate : 0.2700
Average : 0.2178

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.21
Bid-YTW : 5.54 %

One Response to “January 31, 2012”

  1. […] PerpetualDiscounts now yield 4.93%, equivalent to 6.41% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.5%, so the pre-tax interest-equivalent spread is now about 190bp, an interesting, but possibly spurious widening from the 180bp reported January 31. […]

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