March 27, 2015

The new issue of LBS / LBS.PR.A was priced today at 19.60, compared to its March 26 NAVPU of 18.74. Nice work if you can get it! I have updated the post announcing the offering.

Brookfield Renewable Power Preferred Equity Inc., proud issuer of BRF.PR.A, BRF.PR.C, BRF.PR.E and BRF.PR.F, was confirmed at Pfd-3(high) by DBRS:

DBRS Limited (DBRS) has confirmed the Issuer Rating and the rating on the Senior Unsecured Debentures and Notes of Brookfield Renewable Energy Partners L.P. (BREP or the Company) at BBB (high), and the Class A Preference Shares at Pfd-3 (high), all with Stable trends. The rating actions reflect DBRS’s expectation that BREP will continue to prudently finance its growth initiatives to maintain its deconsolidated key credit metrics in line with the current rating. BREP’s ratings reflect its geographic and resource diversification, and highly contracted portfolio with investment-grade counterparties, while also factoring in the inherent renewable resource risk.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 5bp, FixedResets down 23bp and DeemedRetractibles gaining 6bp. The Performance Highlights table was of normal (for the past four months) size and comprised entirely of FixedResets. Volume was 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_150327
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.41 to be $1.16 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.17 cheap at its bid price of 24.93.

impVol_MFC_150327
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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.N, resetting at +230 on 2020-3-19, bid at 24.64 to be $0.53 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.87 to be $0.64 cheap.

impVol_BAM_150327
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.R, resetting at +230bp on 2016-6-30, bid at 20.95 to be $0.62 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 23.74 and appears to be $0.49 rich.

impVol_FTS_150327
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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 16.30, looks $1.59 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.71 and is $1.08 rich.

pairs_FR_150327
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Investment-grade pairs predict an average over the next five years of about 0.20% after a big increase today.TRP.PR.A / TRP.PR.F remains an outlier at -0.16%. The DC.PR.B / DC.PR.D pair is still off the charts and now predicts an average bill rate over the next 4 3/4 years of -2.06%.

pairs_FF_150327
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 0.0644 % 2,363.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0644 % 4,131.5
Floater 3.21 % 3.22 % 64,992 19.19 3 0.0644 % 2,512.0
OpRet 4.07 % 1.01 % 110,149 0.23 1 0.1192 % 2,765.8
SplitShare 4.36 % 4.03 % 32,793 3.48 4 0.2102 % 3,213.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1192 % 2,529.1
Perpetual-Premium 5.31 % 2.61 % 58,333 0.09 25 0.0094 % 2,523.6
Perpetual-Discount 4.97 % 4.99 % 158,961 15.21 9 -0.0465 % 2,815.4
FixedReset 4.40 % 3.39 % 235,021 16.75 85 -0.2263 % 2,423.0
Deemed-Retractible 4.89 % -1.13 % 110,808 0.14 37 0.0629 % 2,662.9
FloatingReset 2.42 % 2.78 % 80,666 6.30 8 0.2229 % 2,356.7
Performance Highlights
Issue Index Change Notes
BAM.PF.E FixedReset -2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 22.66
Evaluated at bid price : 23.74
Bid-YTW : 3.66 %
TRP.PR.C FixedReset -2.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 16.64
Evaluated at bid price : 16.64
Bid-YTW : 3.49 %
ENB.PR.H FixedReset -1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 18.20
Evaluated at bid price : 18.20
Bid-YTW : 4.23 %
ENB.PR.F FixedReset -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 4.35 %
MFC.PR.M FixedReset -1.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.65
Bid-YTW : 3.69 %
BAM.PR.R FixedReset -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 20.95
Evaluated at bid price : 20.95
Bid-YTW : 3.79 %
MFC.PR.I FixedReset -1.07 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.77
Bid-YTW : 3.15 %
CU.PR.C FixedReset 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 23.37
Evaluated at bid price : 24.56
Bid-YTW : 3.19 %
CIU.PR.C FixedReset 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 17.70
Evaluated at bid price : 17.70
Bid-YTW : 3.09 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.N FixedReset 93,275 Desjardins crossed 26,800 at 24.64. Scotia crossed 40,000 at the same price and bought 15,100 from RBC at 24.60.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.64
Bid-YTW : 3.64 %
TRP.PR.D FixedReset 76,905 Nesbitt crossed 66,900 at 24.10.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 22.80
Evaluated at bid price : 23.90
Bid-YTW : 3.33 %
BNS.PR.Y FixedReset 63,080 RBC crossed 40,300 at 22.16.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.17
Bid-YTW : 3.66 %
RY.PR.D Deemed-Retractible 50,650 Nesbitt crossed 50,000 at 25.59.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-04-26
Maturity Price : 25.25
Evaluated at bid price : 25.53
Bid-YTW : -4.35 %
RY.PR.J FixedReset 42,220 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 23.15
Evaluated at bid price : 25.01
Bid-YTW : 3.39 %
TRP.PR.E FixedReset 40,392 Desjardins crossed 25,000 at 24.60.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 22.98
Evaluated at bid price : 24.41
Bid-YTW : 3.28 %
There were 31 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.F FloatingReset Quote: 19.35 – 22.00
Spot Rate : 2.6500
Average : 1.4486

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 19.35
Evaluated at bid price : 19.35
Bid-YTW : 3.10 %

BAM.PF.E FixedReset Quote: 23.74 – 24.35
Spot Rate : 0.6100
Average : 0.3693

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 22.66
Evaluated at bid price : 23.74
Bid-YTW : 3.66 %

CGI.PR.D SplitShare Quote: 25.30 – 26.10
Spot Rate : 0.8000
Average : 0.6403

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 3.61 %

SLF.PR.I FixedReset Quote: 25.36 – 25.74
Spot Rate : 0.3800
Average : 0.2607

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.36
Bid-YTW : 3.38 %

ENB.PR.F FixedReset Quote: 19.50 – 19.89
Spot Rate : 0.3900
Average : 0.2729

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-27
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 4.35 %

RY.PR.K FloatingReset Quote: 24.17 – 24.45
Spot Rate : 0.2800
Average : 0.1800

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.17
Bid-YTW : 2.93 %

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