PrefBlog

Some little kids want Mommy to make everything nice:

For nearly a year, a group of major bond investors has been looking for answers to a seemingly simple question — who among Canada’s many regulators is in charge of Cdor [Canadian Dealer Offered Rate], a benchmark rate affecting some $6-trillion bonds, corporate loans, derivatives and other securities held by investors across the country. They have yet to get an answer.

“It’s kind of exasperating,” said Joe Morin, chair of the Canadian Bond Investors Association, which represents some 30 fixed income funds with more than $300-billion of assets. “Nobody has stepped up to take responsibility.”
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On Aug 20, nearly five months [after whimpering to Mommy], they received a reply from the OSC, referring the group to a “review” of Cdor published by another regulator, the Investment Industry Regulatory Organization of Canada, made public in Jan 2013. The review found that the Cdor rate setting process had the “potential” for manipulation. It also found that none of this country’s regulators had proper jurisdiction over the rate.

In January of this year the Office of the Superintendent of Financial Institutions appeared to clear away the regulatory cobwebs, announcing it would “assume a role” in the oversight of Cdor, which was interpreted by many as a declaration that it was taking responsibility for the rate.

But it turned out that was not the case.

“We would like to clarify that OSFI is not the regulator of Cdor,” a spokesman for the regulator said in an email to the Financial Post on Feb 20.

Assiduous Readers will recognize that these are the same box-tickers who want bond covenants standardized in order to reduce the chance they might have to read a term sheet and, even worse, have to take a view on the value difference between slightly different covenants, as discussed on March 10.

Capital Power Corporation, proud issuer of CPX.PR.A, CPX.PR.C and CPX.PR.E, has been confirmed at Pfd-3(low) [Stable] by DBRS:

CPC’s preferred shares rating is based on the credit quality of its subsidiary, Capital Power L.P. (CPLP; rated BBB). The one-notch differential in the ratings of CPC and CPLP reflects structural subordination at CPC.
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CPC has no bonds/debentures issued at the parent level and is not expected to issue any debt in the foreseeable future. CPC currently has $464 million of preferred shares outstanding, of which $73 million is treated as debt by DBRS in CPC’s adjusted debt-to-capital calculation (adjusted debt-to-capital ratio was approximately 3% in 2013). In the adjusted debt-to-capital calculation, the amount of preferred shares over the 20% preferred shares-to-equity threshold (defined as the percentage of preferred shares outstanding divided by total equity, excluding preferreds and minority interest) is treated as debt. CPC’s adjusted debt-to-capital ratio remains in line with its rating category. In addition, the pro forma unconsolidated fixed charge coverage ratio is expected to remain high, at around four times.

It was a mildly negative day for the Canadian preferred share market, with PerpetualDiscounts down 3bp, FixedResets off 1bp and DeemedRetractibles flat. Volatility was not just minimal, it just reversed yesterday’s. Volume was below average.

This entry was posted on Friday, March 14th, 2014 at 7:00 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.