September 15, 2017

September 15th, 2017
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 -0.9443 % 2,425.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.9443 % 4,451.2
Floater 3.91 % 3.91 % 108,473 17.63 3 -0.9443 % 2,565.2
OpRet 0.00 % 0.00 % 0 0.00 0 0.1188 % 3,067.3
SplitShare 4.75 % 4.55 % 81,640 3.69 5 0.1188 % 3,663.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1188 % 2,858.0
Perpetual-Premium 5.43 % 4.92 % 57,023 6.12 16 0.0297 % 2,770.6
Perpetual-Discount 5.38 % 5.42 % 63,880 14.64 19 -0.0366 % 2,886.3
FixedReset 4.36 % 4.52 % 146,824 6.25 99 0.0286 % 2,402.0
Deemed-Retractible 5.15 % 5.71 % 98,435 6.08 31 0.1631 % 2,851.5
FloatingReset 2.83 % 2.92 % 46,713 4.11 8 -0.1206 % 2,637.8
Performance Highlights
Issue Index Change Notes
BAM.PR.C Floater -1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-15
Maturity Price : 14.30
Evaluated at bid price : 14.30
Bid-YTW : 3.91 %
BAM.PR.B Floater -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-15
Maturity Price : 14.40
Evaluated at bid price : 14.40
Bid-YTW : 3.88 %
BMO.PR.Q FixedReset 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.45
Bid-YTW : 5.66 %
SLF.PR.C Deemed-Retractible 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.09
Bid-YTW : 7.23 %
IFC.PR.A FixedReset 1.56 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.56
Bid-YTW : 7.35 %
Volume Highlights
Issue Index Shares
Traded
Notes
BAM.PF.I FixedReset 238,055 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 4.29 %
BAM.PF.J FixedReset 137,280 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 4.65 %
TD.PF.H FixedReset 114,420 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 3.87 %
RY.PR.A Deemed-Retractible 104,370 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-10-15
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 0.41 %
BAM.PF.A FixedReset 76,800 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-15
Maturity Price : 23.31
Evaluated at bid price : 23.85
Bid-YTW : 4.81 %
TD.PF.E FixedReset 53,504 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-15
Maturity Price : 23.09
Evaluated at bid price : 24.30
Bid-YTW : 4.54 %
There were 17 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BMO.PR.S FixedReset Quote: 22.26 – 22.63
Spot Rate : 0.3700
Average : 0.2392

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-15
Maturity Price : 21.77
Evaluated at bid price : 22.26
Bid-YTW : 4.54 %

IAG.PR.A Deemed-Retractible Quote: 21.95 – 22.54
Spot Rate : 0.5900
Average : 0.4732

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.95
Bid-YTW : 6.73 %

TRP.PR.F FloatingReset Quote: 19.25 – 19.64
Spot Rate : 0.3900
Average : 0.2753

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-15
Maturity Price : 19.25
Evaluated at bid price : 19.25
Bid-YTW : 3.72 %

CU.PR.D Perpetual-Discount Quote: 23.20 – 23.46
Spot Rate : 0.2600
Average : 0.1652

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-15
Maturity Price : 22.78
Evaluated at bid price : 23.20
Bid-YTW : 5.30 %

CU.PR.E Perpetual-Discount Quote: 23.01 – 23.30
Spot Rate : 0.2900
Average : 0.2008

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-15
Maturity Price : 22.62
Evaluated at bid price : 23.01
Bid-YTW : 5.35 %

SLF.PR.H FixedReset Quote: 20.40 – 20.70
Spot Rate : 0.3000
Average : 0.2129

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.40
Bid-YTW : 6.46 %

VNR.PR.A to Reset at 4.62%

September 15th, 2017

Valener Inc. has announced:

Following the August 8, 2017 decision of the Board of directors of Valener Inc. (“Valener” or the “Corporation”) (TSX: VNR), Valener reiterated today that it does not intend to exercise its right to redeem all or any part of the currently outstanding Cumulative Rate Reset Preferred Shares, Series A of the Corporation (“Series A shares”) (TSX: VNR.PR.A) on October 15, 2017. There are currently 4,000,000 Series A shares outstanding.

As a result, subject to certain conditions, the holders of the Series A shares have the right to convert all or part of their Series A shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series B of the Corporation (“Series B shares”) (TSX: VNR.PR.B) on October 15, 2017 (the “Conversion Date”). A formal notice of the right to convert Series A Shares into Series B Shares will be sent to the registered holders of the Series A Shares, subject to certain conditions.

Holders who do not exercise their right to convert their Series A shares into Series B shares will continue to hold their Series A shares and will have the opportunity to convert their shares again on October 15, 2022, and every five years thereafter as long as the shares remain outstanding.

The above conversion right is subject to the following conditions:

i. if the Corporation determines that there would be less than 1,000,000 Series B shares outstanding after the Conversion Date, then holders of Series A shares will not be entitled to convert their shares into Series B shares, and alternatively

ii. if the Corporation determines that there would remain outstanding less than 1,000,000 Series A shares after the Conversion Date, then all remaining Series A shares will automatically be converted into Series B shares on a one-for-one basis on the Conversion Date.

In either case, the Corporation will give written notice to that effect to any registered holders affected by the preceding condition no later than October 6, 2017.

The dividend rate applicable for the Series A shares for the five-year period from and including October 15, 2017 and ending on and excluding October 15, 2022, and the dividend rate applicable to the Series B shares for the 3-month period from and including October 15, 2017 and ending on and excluding January 15, 2018, are respectively 4.62% and 3.71%.

Beneficial owners of Series A shares who wish to exercise their conversion right should communicate with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from September 15, 2017 until 5:00 p.m. (Eastern Standard Time) on September 29, 2017.

According to the conditions of the Series A and Series B Shares, Valener may redeem the Series A Shares, in whole or in part, on October 15, 2022 and on October 15 every five years thereafter for $25.00 per share plus declared and unpaid dividends and may redeem the Series B Shares, in whole or in part, after October 15, 2017 for $25.50 per share plus declared and unpaid dividends, unless such Series B Shares are redeemed on October 15, 2022 or on October 15 every five years thereafter, in which case the redemption price will be $25.00 per share plus declared and unpaid dividends.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series B shares effective upon conversion. Listing of the Series B shares is subject to the Corporation fulfilling all the listing requirements of the TSX and upon approval, the Series B shares will be listed on the TSX under the trading symbol VNR.PR.B.

The Series A and Series B shares have not been and will not be registered under the United States Securities Act of 1933, as amended, or any state securities laws. The Series A and the Series B shares may not be offered, sold or delivered, directly or indirectly, in the United States of America for the account or benefit of U.S. persons. This press release does not constitute an offer to sell or a solicitation of an offer to buy such securities in the United States.

For more information on the terms and risks associated with an investment in the Series A and the Series B shares, please see the Corporation’s prospectus dated May 30, 2012 which is available on sedar.com.

VNR.PR.A is a FixedReset, 4.35%+281, that commenced trading 2012-6-6 after being announced 2012-5-15. The issue is tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., VNR.PR.A and the FloatingReset VNR.PR.B that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_fr_170915
Click for Big

The market appears to have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both below current market rates, at +0.67% and +0.51%, respectively! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the VNR.PR.A FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart VNR.PR.B given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset VNR.PR.B (received in exchange for VNR.PR.A) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 1.00% 0.50% 0.00%
VNR.PR.A 22.59 281bp 21.77 21.26 20.76

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, it seems likely that I will recommend that holders of VNR.PR.A continue to hold the issue and not to convert, but I will wait until it’s closer to the September 29 notification deadline before making a final pronouncement. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

September 14, 2017

September 14th, 2017
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 1.6560 % 2,448.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.6560 % 4,493.6
Floater 3.87 % 3.84 % 107,783 17.77 3 1.6560 % 2,589.7
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0475 % 3,063.6
SplitShare 4.75 % 4.64 % 80,282 3.69 5 -0.0475 % 3,658.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0475 % 2,854.6
Perpetual-Premium 5.43 % 4.93 % 59,387 6.13 16 -0.0173 % 2,769.8
Perpetual-Discount 5.37 % 5.43 % 66,546 14.70 19 0.3323 % 2,887.3
FixedReset 4.36 % 4.52 % 146,082 6.26 99 0.0555 % 2,401.3
Deemed-Retractible 5.15 % 5.72 % 98,428 6.07 31 0.1605 % 2,846.8
FloatingReset 2.82 % 2.96 % 44,923 4.11 8 0.2308 % 2,640.9
Performance Highlights
Issue Index Change Notes
IFC.PR.A FixedReset -1.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.26
Bid-YTW : 7.60 %
SLF.PR.A Deemed-Retractible 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.29
Bid-YTW : 6.64 %
BAM.PR.M Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-14
Maturity Price : 21.45
Evaluated at bid price : 21.45
Bid-YTW : 5.56 %
BAM.PR.N Perpetual-Discount 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-14
Maturity Price : 21.40
Evaluated at bid price : 21.40
Bid-YTW : 5.57 %
PWF.PR.P FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-14
Maturity Price : 16.90
Evaluated at bid price : 16.90
Bid-YTW : 4.68 %
BAM.PF.G FixedReset 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-14
Maturity Price : 22.92
Evaluated at bid price : 23.82
Bid-YTW : 4.72 %
BAM.PR.K Floater 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-14
Maturity Price : 14.32
Evaluated at bid price : 14.32
Bid-YTW : 3.91 %
BAM.PR.C Floater 1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-14
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 3.84 %
BAM.PF.D Perpetual-Discount 1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-14
Maturity Price : 21.86
Evaluated at bid price : 22.17
Bid-YTW : 5.53 %
BAM.PR.B Floater 2.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-14
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 3.84 %
Volume Highlights
Issue Index Shares
Traded
Notes
BAM.PF.J FixedReset 302,088 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-14
Maturity Price : 23.18
Evaluated at bid price : 25.10
Bid-YTW : 4.68 %
BAM.PR.Z FixedReset 211,270 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-14
Maturity Price : 23.09
Evaluated at bid price : 24.02
Bid-YTW : 4.82 %
BNS.PR.G FixedReset 102,200 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-07-25
Maturity Price : 25.00
Evaluated at bid price : 26.86
Bid-YTW : 3.65 %
TD.PF.C FixedReset 81,500 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-14
Maturity Price : 21.65
Evaluated at bid price : 22.08
Bid-YTW : 4.48 %
BMO.PR.C FixedReset 81,035 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.24
Bid-YTW : 4.35 %
TD.PF.H FixedReset 67,927 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 3.81 %
There were 29 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: 19.26 – 19.69
Spot Rate : 0.4300
Average : 0.2681

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.26
Bid-YTW : 7.60 %

TRP.PR.D FixedReset Quote: 21.89 – 22.35
Spot Rate : 0.4600
Average : 0.3043

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-14
Maturity Price : 21.52
Evaluated at bid price : 21.89
Bid-YTW : 4.70 %

MFC.PR.K FixedReset Quote: 21.27 – 21.78
Spot Rate : 0.5100
Average : 0.3690

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.27
Bid-YTW : 6.51 %

MFC.PR.J FixedReset Quote: 23.40 – 23.80
Spot Rate : 0.4000
Average : 0.2920

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.40
Bid-YTW : 5.38 %

GWO.PR.I Deemed-Retractible Quote: 21.35 – 21.65
Spot Rate : 0.3000
Average : 0.1921

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.35
Bid-YTW : 7.08 %

MFC.PR.B Deemed-Retractible Quote: 21.93 – 22.23
Spot Rate : 0.3000
Average : 0.2142

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.93
Bid-YTW : 6.82 %

BAM.PF.J Firm on Excellent Volume

September 14th, 2017

I should have posted this on September 13, but … well, better late than never!

Brookfield Asset Management Inc. has announced:

the completion of its previously announced Class A Preference Shares, Series 48 issue in the amount of C$300,000,000. The offering was underwritten on a bought deal basis by a syndicate led by CIBC Capital Markets, RBC Capital Markets, Scotiabank and TD Securities Inc.

The Preferred Shares, Series 48 were issued at a price of C$25.00 per share, for gross proceeds of C$300,000,000. Holders of the Preferred Shares, Series 48 will be entitled to receive a cumulative quarterly fixed dividend yielding 4.75% annually for the initial period ending December 31, 2022. Thereafter, the dividend rate will be reset every five years at a rate equal to the greater of: (i) the 5-year Government of Canada bond yield plus 3.10%, and (ii) 4.75%. The Preferred Shares, Series 48 will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BAM.PF.J. The Preferred Shares, Series 48 may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from the registration requirements under the U.S. Securities Act.

BAM.PF.J is a FixedReset, 4.75%+310M475, announced 2017-09-06. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 1,280,452 shares on September 13 in a range of 24.97-04 before closing at 25.02-03. Vital statistics are:

BAM.PF.J FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-13
Maturity Price : 23.15
Evaluated at bid price : 25.02
Bid-YTW : 4.70 %

Implied Volatility analysis continues to indicate that this issue is expensive:

impvol_bam_170914
Click for Big

With the parameters shown, the theoretical value of the new issue is 24.19, compared to 24.20 on announcement day. Critics will be quick to point out that in this calculation there is zero value assigned to the minimum rate guarantee … but I’d say that’s about right!

September 13, 2017

September 13th, 2017

The Toronto Stock Exchange is persnickety about listed companies’ dividend declarations:

When Declaring Dividends or Distributions

1. Provide notice to TSX as soon as the dividend/distribution has been declared and at least seven (7) trading days’ notice to TSX prior to the record date.

2. File TSX Reporting Form 5, Dividend/Distribution Declaration as soon as the dividend/distribution has been declared. You must file TSX Reporting Form 5 by TSX SecureFile.

3. Call Kay Dhanraj (416-947-4663) at TSX to:

a) Confirm the details of information of TSX Reporting Form 5, and
b) Discuss the filing of a Form 5 for a suspended dividend/distribution.


Do not send TSX a copy of the news release as written advice of the dividend/distribution. Dividend/distribution announcements are usually part of a longer news release. To avoid TSX missing certain information, you are required to file TSX Reporting Form 5.

Do not publish the ex-dividend date unless Ms. Dhanraj has confirmed it.

Today, AltaGas was naughty:

AltaGas Ltd. (“AltaGas”) (TSX:ALA) announced today that the September dividend will be paid on October 16, 2017, to common shareholders of record on September 25, 2017. The ex-dividend date is September 21, 2017. The amount of the dividend will be $0.175 for each common share. This dividend is an eligible dividend for Canadian income tax purposes.

and had to ‘fess up:

AltaGas Ltd. (“AltaGas”) (TSX:ALA) announced today that it has revised the ex-dividend date of the September dividend to be paid on October 16, 2017, to common shareholders of record on September 25, 2017. The ex-dividend date is revised from September 21, 2017 to September 22, 2017.

Looks like they forgot about two-day settlement!

Daniel Moss of Bloomberg has some interesting things to say about BoC communications:

The Canadian central bank took the unusual step this week of publicly rebutting criticism by the chief economist of one of the country’s biggest banks. Doug Porter of Bank of Montreal wrote in his weekly note on Sept. 8 that the bank had failed to sufficiently communicate its intention to raise its benchmark interest rate — a move that many economists rather shockingly didn’t see coming.

The critique clearly struck a nerve with the Bank of Canada, and spokesman Jeremy Harrison came out swinging. Harrison said the bank indicated in July that policy would be forward-looking and data-dependent. And while most economists didn’t forecast a step up last week, Harrison said that financial markets saw it as a more or less 50-50 proposition.

Sure. All true. But why be so defensive? This response to an outsider’s critique makes the Bank of Canada look vulnerable and unsure of itself. Worse, it risks creating the perception that the bank will respond to economist notes that it doesn’t like or that it feels are wide of the mark. Investors could end up speculating that the central bank’s silence about some economist’s note is equal to an endorsement. This kind of speculation is exactly what banks want to avoid by trying to be tempered in their public statements. And the bank surely doesn’t want broadsides against analysts to be another form of forward guidance. That would be a mistake.

PerpetualDiscounts now yield 5.45%, equivalent to 7.08% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.00% so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 310bp, a marked widening from the 300bp reported September 6.

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 0.6069 % 2,409.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.6069 % 4,420.4
Floater 3.90 % 3.95 % 106,698 17.44 3 0.6069 % 2,547.5
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0870 % 3,065.1
SplitShare 4.75 % 4.64 % 76,081 3.70 5 -0.0870 % 3,660.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0870 % 2,856.0
Perpetual-Premium 5.43 % 4.93 % 60,358 6.13 16 0.0470 % 2,770.3
Perpetual-Discount 5.38 % 5.45 % 69,323 14.64 19 0.0572 % 2,877.8
FixedReset 4.36 % 4.52 % 144,505 6.26 98 0.1368 % 2,400.0
Deemed-Retractible 5.16 % 5.80 % 98,996 6.06 31 -0.0204 % 2,842.2
FloatingReset 2.83 % 3.13 % 41,586 4.11 8 0.0935 % 2,634.9
Performance Highlights
Issue Index Change Notes
CCS.PR.C Deemed-Retractible -1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.25
Bid-YTW : 6.20 %
BAM.PR.T FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-13
Maturity Price : 20.52
Evaluated at bid price : 20.52
Bid-YTW : 4.81 %
HSE.PR.G FixedReset 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-13
Maturity Price : 23.07
Evaluated at bid price : 24.15
Bid-YTW : 5.27 %
BAM.PR.C Floater 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-13
Maturity Price : 14.45
Evaluated at bid price : 14.45
Bid-YTW : 3.93 %
MFC.PR.B Deemed-Retractible 1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.96
Bid-YTW : 6.80 %
CU.PR.C FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-13
Maturity Price : 21.54
Evaluated at bid price : 21.85
Bid-YTW : 4.72 %
VNR.PR.A FixedReset 1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-13
Maturity Price : 22.12
Evaluated at bid price : 22.74
Bid-YTW : 5.01 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.R FixedReset 110,620 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.72
Bid-YTW : 3.72 %
BNS.PR.Q FixedReset 101,412 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 3.60 %
IAG.PR.G FixedReset 78,675 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.80
Bid-YTW : 5.50 %
TD.PF.G FixedReset 75,701 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.83
Bid-YTW : 3.54 %
TRP.PR.K FixedReset 72,324 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 4.12 %
BMO.PR.W FixedReset 63,873 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-13
Maturity Price : 21.47
Evaluated at bid price : 21.82
Bid-YTW : 4.50 %
There were 24 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.G FixedReset Quote: 24.01 – 24.87
Spot Rate : 0.8600
Average : 0.6375

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-13
Maturity Price : 22.95
Evaluated at bid price : 24.01
Bid-YTW : 4.67 %

CU.PR.F Perpetual-Discount Quote: 21.02 – 21.40
Spot Rate : 0.3800
Average : 0.2470

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-13
Maturity Price : 21.02
Evaluated at bid price : 21.02
Bid-YTW : 5.40 %

BNS.PR.Z FixedReset Quote: 22.55 – 22.85
Spot Rate : 0.3000
Average : 0.1763

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.55
Bid-YTW : 4.86 %

CCS.PR.C Deemed-Retractible Quote: 23.25 – 23.69
Spot Rate : 0.4400
Average : 0.3361

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.25
Bid-YTW : 6.20 %

HSB.PR.D Deemed-Retractible Quote: 25.35 – 25.64
Spot Rate : 0.2900
Average : 0.1866

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-10-13
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 0.33 %

CU.PR.C FixedReset Quote: 21.85 – 22.25
Spot Rate : 0.4000
Average : 0.3136

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-13
Maturity Price : 21.54
Evaluated at bid price : 21.85
Bid-YTW : 4.72 %

FTN.PR.A To Get Bigger

September 13th, 2017

Quadravest Capital Management Inc. has announced:

Financial 15 Split Corp. (the “Company”) is pleased to announce it has filed a preliminary short form prospectus in each of the provinces of Canada with respect to an offering of Preferred Shares and Class A Shares of the Company. The offering will be co-led by National Bank Financial Inc., CIBC, Scotia Capital Inc., RBC Capital Markets and will also include BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp., Raymond James, Desjardins Securities Inc., Echelon Wealth Partners, Mackie Research Capital Corporation, Manulife Securities Incorporated and Industrial Alliance Securities Inc.

The Preferred Shares will be offered at a price of $9.90 per Preferred Share to yield 5.30% and the Class A Shares will be offered at a price of $10.40 per Class A Share to yield 14.50%.

The closing price on the TSX of each of the Preferred Shares and the Class A Shares on September 12, 2017 was $10.16 and $10.64, respectively.

Since inception of the Company, the aggregate dividends paid on the Preferred Shares have been $7.24 per share and the aggregate dividends paid on the Class A Shares have been $16.88 per share, for a combined total of $24.12. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.

The net proceeds of the offering will be used by the Company to invest in an actively managed, high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows:

Bank of Montreal National Bank of Canada Bank of America Corp.
The Bank of Nova Scotia Manulife Financial Corporation Citigroup Inc.
Canadian Imperial Bank of Commerce Sun Life Financial Services of Canada Inc. Goldman Sachs Group Inc.
Royal Bank of Canada Great-West Lifeco Inc. JP Morgan Chase & Co.
The Toronto-Dominion Bank CI Financial Corp. Wells Fargo & Co.

The Company’s investment objectives are:
Preferred Shares:
i. to provide holders of the Preferred Shares with fixed, cumulative preferential monthly cash dividends currently in the amount of 5.25% annually, to be set by the Board of Directors annually subject to a minimum of 5.25% until
2020; and
ii. on or about the termination date, currently December 1, 2020 (subject to further 5 year extensions thereafter), to pay the holders of the Preferred Shares $10.00 per Preferred Share.

Class A Shares:
i. to provide holders of the Class A Shares with regular monthly cash dividends in an amount to be determined by the Board of the Directors; and
ii. to permit holders to participate in all growth in the net asset value of the Company above $10 per Unit, by paying holders on or about the termination date of December 1, 2020 (subject to further 5 year extensions thereafter) such amounts as remain in the Company after paying $10 per Preferred Share.

The sales period of this overnight offering will end at 9:00 a.m. EST on September 14, 2017. The offering is expected to close on or about September 28, 2017 and is subject to certain closing conditions including approval by the TSX.

So the Whole Unit price is $20.30 versus a NAV of $16.39 as of August 31. Oh, it’s a great business when it works!

Update, 2017-09-14: The offering was successful!

Financial 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 3,897,000 Preferred Shares and up to 3,897,000 Class A Shares of the Company. The total proceeds of the offering are expected to be approximately $79.1 million.

September 12, 2017

September 12th, 2017
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 -0.5340 % 2,394.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.5340 % 4,393.7
Floater 3.92 % 3.97 % 105,610 17.39 3 -0.5340 % 2,532.1
OpRet 0.00 % 0.00 % 0 0.00 0 0.1188 % 3,067.8
SplitShare 4.75 % 4.57 % 70,458 3.70 5 0.1188 % 3,663.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1188 % 2,858.4
Perpetual-Premium 5.43 % 4.92 % 61,349 6.13 16 -0.0643 % 2,769.0
Perpetual-Discount 5.38 % 5.43 % 72,118 14.67 19 -0.1348 % 2,876.1
FixedReset 4.36 % 4.54 % 143,595 6.26 98 0.0083 % 2,396.7
Deemed-Retractible 5.15 % 5.71 % 98,759 6.06 31 0.0830 % 2,842.8
FloatingReset 2.83 % 3.22 % 43,191 4.11 8 0.1929 % 2,632.4
Performance Highlights
Issue Index Change Notes
TRP.PR.E FixedReset -1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-12
Maturity Price : 21.52
Evaluated at bid price : 21.90
Bid-YTW : 4.69 %
TRP.PR.D FixedReset -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-12
Maturity Price : 21.44
Evaluated at bid price : 21.78
Bid-YTW : 4.72 %
BMO.PR.Q FixedReset -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.33
Bid-YTW : 5.79 %
BMO.PR.Y FixedReset 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-12
Maturity Price : 22.91
Evaluated at bid price : 23.85
Bid-YTW : 4.51 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.B Deemed-Retractible 209,711 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-10-12
Maturity Price : 25.00
Evaluated at bid price : 25.09
Bid-YTW : 3.30 %
NA.PR.W FixedReset 111,465 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-12
Maturity Price : 21.40
Evaluated at bid price : 21.73
Bid-YTW : 4.57 %
CM.PR.R FixedReset 87,637 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.53 %
TD.PF.H FixedReset 84,804 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 3.81 %
BNS.PR.Q FixedReset 70,820 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.96
Bid-YTW : 3.62 %
RY.PR.D Deemed-Retractible 66,635 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-10-12
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : -4.73 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
HSE.PR.C FixedReset Quote: 23.10 – 23.57
Spot Rate : 0.4700
Average : 0.3837

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-12
Maturity Price : 22.59
Evaluated at bid price : 23.10
Bid-YTW : 5.17 %

HSE.PR.G FixedReset Quote: 23.90 – 24.24
Spot Rate : 0.3400
Average : 0.2626

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-12
Maturity Price : 22.96
Evaluated at bid price : 23.90
Bid-YTW : 5.33 %

CU.PR.C FixedReset Quote: 21.60 – 21.89
Spot Rate : 0.2900
Average : 0.2190

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-12
Maturity Price : 21.60
Evaluated at bid price : 21.60
Bid-YTW : 4.79 %

BAM.PR.B Floater Quote: 14.26 – 14.50
Spot Rate : 0.2400
Average : 0.1717

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-12
Maturity Price : 14.26
Evaluated at bid price : 14.26
Bid-YTW : 3.98 %

BAM.PF.D Perpetual-Discount Quote: 22.10 – 22.43
Spot Rate : 0.3300
Average : 0.2623

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-12
Maturity Price : 21.81
Evaluated at bid price : 22.10
Bid-YTW : 5.64 %

BAM.PR.K Floater Quote: 14.28 – 14.60
Spot Rate : 0.3200
Average : 0.2601

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-12
Maturity Price : 14.28
Evaluated at bid price : 14.28
Bid-YTW : 3.97 %

September 11, 2017

September 11th, 2017

The BoC has had a look at Canadian bond trading:

Technology, risk tolerance and regulation may influence dealers to reduce their trading as principals (using their own balance sheets for sales and purchases of securities) in favour of agency trading (matching client trades). A move toward agency trading would represent a change in the structure of Canadian bond markets and, in theory, could worsen some aspects of market liquidity. To assess the prevalence of agency trading in Canada, we use data from the Market Trade Reporting System to construct the first estimate of agency-based trading in Canadian bond markets. We find that agency trading is relatively uncommon across major segments of Canadian fixed-income market and that large bank broker-dealers are less likely than their smaller counterparts to trade as an agent.

tradereversal
Click for Big

One economist has been brave enough to criticize the BoC’s communications:

The Bank of Canada didn’t give a speech or make other public comments about the strength of an economic recovery in the days before its Sept. 6 increase, a decision that Bank of Montreal Chief Economist Doug Porter called “an epic fail” in a report on Friday. The quarter-point increase to 1 percent was anticipated by six of 29 economists surveyed by Bloomberg.

Jeremy Harrison, the central bank’s chief spokesman, said in emailed comments that policy makers indicated at the last decision in July that monetary policy would be forward-looking and depend on economic data. Trading in overnight index swaps had also priced in 50-50 odds of a move this month after a strong report on second-quarter gross domestic product, which was published during a traditional blackout period in the days just before a rate meeting, Harrison said. Harrison had initially provided these comments to the Globe and Mail newspaper.

Seems to me like Porter wants his policy forecasts to be served to him on a plate, as was the case with the July increase. The major problem with the BoC’s communications is that committee votes and reasons for dissents – a normal component of the communication of a professionally run central bank – are not specified in the bank’s press releases and that the bank’s outreach is very close to being all Poloz, all the time!

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 -0.1854 % 2,407.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.1854 % 4,417.3
Floater 3.90 % 3.95 % 109,308 17.44 3 -0.1854 % 2,545.7
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0950 % 3,064.1
SplitShare 4.75 % 4.53 % 65,251 3.70 5 -0.0950 % 3,659.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0950 % 2,855.1
Perpetual-Premium 5.43 % 4.92 % 62,749 6.13 16 -0.1999 % 2,770.8
Perpetual-Discount 5.37 % 5.43 % 66,841 14.70 19 -0.5296 % 2,880.0
FixedReset 4.36 % 4.53 % 145,685 6.26 98 -0.0149 % 2,396.5
Deemed-Retractible 5.16 % 5.74 % 96,928 6.07 31 -0.0761 % 2,840.5
FloatingReset 2.84 % 3.11 % 43,417 4.12 8 0.2209 % 2,627.3
Performance Highlights
Issue Index Change Notes
CU.PR.H Perpetual-Discount -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-11
Maturity Price : 24.09
Evaluated at bid price : 24.50
Bid-YTW : 5.38 %
SLF.PR.H FixedReset -1.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.55
Bid-YTW : 6.33 %
HSE.PR.A FixedReset -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-11
Maturity Price : 16.63
Evaluated at bid price : 16.63
Bid-YTW : 4.86 %
POW.PR.D Perpetual-Discount -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-11
Maturity Price : 23.41
Evaluated at bid price : 23.70
Bid-YTW : 5.35 %
MFC.PR.B Deemed-Retractible -1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.71
Bid-YTW : 6.98 %
BAM.PF.D Perpetual-Discount -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-11
Maturity Price : 21.90
Evaluated at bid price : 22.22
Bid-YTW : 5.61 %
IFC.PR.A FixedReset 1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.92
Bid-YTW : 7.26 %
VNR.PR.A FixedReset 1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-11
Maturity Price : 21.94
Evaluated at bid price : 22.45
Bid-YTW : 5.08 %
SLF.PR.J FloatingReset 1.51 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.86
Bid-YTW : 8.33 %
IFC.PR.E Deemed-Retractible 2.70 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.35
Bid-YTW : 5.94 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.H FixedReset 118,225 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.16
Bid-YTW : 3.79 %
CM.PR.R FixedReset 113,338 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.21
Bid-YTW : 4.52 %
BAM.PF.B FixedReset 98,418 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-11
Maturity Price : 22.42
Evaluated at bid price : 22.80
Bid-YTW : 4.80 %
W.PR.K FixedReset 91,200 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-01-15
Maturity Price : 25.00
Evaluated at bid price : 26.13
Bid-YTW : 4.08 %
BMO.PR.B FixedReset 90,992 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.16
Bid-YTW : 3.78 %
NA.PR.C FixedReset 83,425 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-11-15
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.54 %
There were 35 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.G FixedReset Quote: 24.00 – 25.05
Spot Rate : 1.0500
Average : 0.6057

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-11
Maturity Price : 22.94
Evaluated at bid price : 24.00
Bid-YTW : 4.67 %

TRP.PR.A FixedReset Quote: 19.02 – 19.56
Spot Rate : 0.5400
Average : 0.3492

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-11
Maturity Price : 19.02
Evaluated at bid price : 19.02
Bid-YTW : 4.72 %

HSE.PR.C FixedReset Quote: 23.13 – 23.53
Spot Rate : 0.4000
Average : 0.2890

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-11
Maturity Price : 22.61
Evaluated at bid price : 23.13
Bid-YTW : 5.16 %

W.PR.K FixedReset Quote: 26.13 – 26.47
Spot Rate : 0.3400
Average : 0.2321

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-01-15
Maturity Price : 25.00
Evaluated at bid price : 26.13
Bid-YTW : 4.08 %

ELF.PR.G Perpetual-Discount Quote: 22.00 – 22.36
Spot Rate : 0.3600
Average : 0.2595

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-09-11
Maturity Price : 21.75
Evaluated at bid price : 22.00
Bid-YTW : 5.48 %

SLF.PR.E Deemed-Retractible Quote: 20.93 – 21.17
Spot Rate : 0.2400
Average : 0.1526

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.93
Bid-YTW : 7.40 %

September PrefLetter Released!

September 10th, 2017

The September, 2017, 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.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the September, 2017, issue, while the “Next Edition” will be the October, 2017, issue, scheduled to be prepared as of the close October 13 and eMailed to subscribers prior to market-opening on October 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.

But Adrian2 now advises:

Well, as of now, FileApp is free (again?).

VSN.PR.A : Convert or Hold?

September 8th, 2017

It will be recalled that VSN.PR.A will reset to 4.464% (paid on par) effective September 30.

Holders of VSN.PR.A have the option to convert to FloatingResets, which will pay 3-month bills plus 292bp on the par value of $25.00, reset quarterly. The deadline for notifying the company of the intent to convert is 3:00 p.m. (MST) / 5:00 p.m. (EST) on September 15, 2017; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion. The ticker for the new FloatingReset, if it is issued, has not been announced.

VSN.PR.A is a FixedReset, 4.40%+292, that commenced trading 2012-2-14 after being announced 2012-2-3. The issue is tracked by HIMIPref™ but has been assigned to the Scraps index on credit concerns. As noted in the press release, there is an exchange offer from PPL outstanding that will take effect on closing of the Plan of Arrangement between the companies.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., VSN.PR.A and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_fr_170908
Click for Big

The market appears to have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both well below current market rates, at +0.61% and +0.68%, respectively! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the TA.PR.H FixedReset, we may construct the following table showing consistent prices for its maybe-soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for VSN.PR.A) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread +1.00% +0.50% 0.00%
VSN.PR.A 21.75 292bp 21.20 20.70 20.20

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of VSN.PR.A continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the new pair will reflect these conditions.