June 7, 2011

The Sino-Forest plot thickens:

Muddy Waters Research, the firm founded by short seller Carson Block, “pre-marketed” its June 2 report on Sino-Forest Corp. (TRE) to hedge funds for the past five weeks, said an analyst at Dundee Securities Ltd.

“Muddy Waters pre-marketed this smoking-gun report on Sino-Forest to hedge funds over the last five weeks,” said Richard Kelertas, a Montreal-based analyst at Dundee, which helped sell shares in Sino-Forest as recently as December 2009.

Kelertas said that the Muddy Waters report was inaccurate and there’s nothing fraudulent about Sino-Forest “to the best of our knowledge.” He recommended buying Sino-Forest shares from September 2007 until June 3, when he put his rating on the company under review.

Dundee was among institutions that helped Sino-Forest sell shares in December 2009 and also in May 2009.

Short selling, or selling borrowed shares with the hope of profiting when they fall, more than doubled to a record 35 percent of Sino-Forest’s outstanding stock as of June 3, up from 17 percent at the beginning of May and 13 percent at the end of 2010, according to Data Explorers, a New York-based research firm. Sino-Forest was the most-shorted stock in the Standard & Poor’s TSX Composite Index, which has an average short interest of 4.8 percent.

Offering a report to hedge funds before making it public is not illegal, said James Fanto, who teaches classes on international financial regulation and securities laws at Brooklyn Law School in New York.

“Muddy Waters can profit from this information itself, or allow others to profit from their insights as well,” Fanto said in an e-mail message. “The only problems emerge when research is in fact based on insider tips. But that doesn’t seem to be the case here.”

I haven’t heard such an impassioned defense of company from a dealer since Bre-X! I hope everybody has popcorn at hand to watch the rest of this show.

Speaking of companies getting trashed, there was another outbreak of yellow fever today:

YLO Issues, 2011-6-7
Ticker Quote
6/6
Quote
6/7
Bid YTW
6/7
YTW
Scenario
6/7
Performance
6/7
(bid/bid)
YLO.PR.A 22.69-85 22.05-30 13.50% Soft Maturity
2012-12-30
-2.82%
YLO.PR.B 16.38-52 15.77-86 14.75% Soft Maturity
2017-06-29
-3.72%
YLO.PR.C 18.33-40 17.60-98 9.44% Limit Maturity -3.98%
YLO.PR.D 18.73-95 18.00-20 9.41% Limit Maturity -3.90%

It was another muted day for the Canadian preferred share market, with PerpetualDiscounts gaining 6bp, FixedResets basically flat and DeemedRetractibles up 3bp. Volume was low.

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 0.3377 % 2,472.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.3377 % 3,718.4
Floater 2.44 % 2.22 % 44,769 21.68 4 0.3377 % 2,669.5
OpRet 4.86 % 2.88 % 64,130 0.39 9 0.3650 % 2,428.7
SplitShare 5.23 % -1.55 % 60,469 0.52 6 0.0636 % 2,506.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3650 % 2,220.8
Perpetual-Premium 5.64 % 5.02 % 154,009 1.41 12 0.0640 % 2,081.5
Perpetual-Discount 5.43 % 5.51 % 115,849 14.52 18 0.0582 % 2,185.6
FixedReset 5.14 % 3.18 % 192,969 2.83 57 0.0033 % 2,314.7
Deemed-Retractible 5.07 % 4.89 % 307,121 8.13 47 0.0326 % 2,156.4
Performance Highlights
Issue Index Change Notes
IAG.PR.E Deemed-Retractible -1.05 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.42
Bid-YTW : 5.71 %
Volume Highlights
Issue Index Shares
Traded
Notes
HSE.PR.A FixedReset 168,548 National bought 25,000 from Nesbitt at 25.60, then crossed 65,000 at the same price. RBC crossed 50,000 at the same price again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.57
Bid-YTW : 3.89 %
TD.PR.M OpRet 121,650 RBC crosed blocks of 50,000 shares, 36,900 and 30,000, all at 25.71.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-07-07
Maturity Price : 25.50
Evaluated at bid price : 25.76
Bid-YTW : -1.94 %
CM.PR.H Deemed-Retractible 110,016 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-07-07
Maturity Price : 25.75
Evaluated at bid price : 25.93
Bid-YTW : 2.05 %
CM.PR.I Deemed-Retractible 76,911 Desjardins crossed 33,700 at 25.11; Nesbitt crossed 25,000 at 25.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-03-01
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.65 %
RY.PR.B Deemed-Retractible 54,800 Desjardins crossed 50,000 at 25.05.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.03
Bid-YTW : 4.73 %
CU.PR.B Perpetual-Premium 52,333 Desjardins crossed 50,000 at 25.41.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-07-07
Maturity Price : 25.25
Evaluated at bid price : 25.41
Bid-YTW : -0.58 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IAG.PR.E Deemed-Retractible Quote: 25.42 – 26.00
Spot Rate : 0.5800
Average : 0.3671

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.42
Bid-YTW : 5.71 %

GWO.PR.J FixedReset Quote: 26.35 – 26.72
Spot Rate : 0.3700
Average : 0.2781

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-30
Maturity Price : 25.00
Evaluated at bid price : 26.35
Bid-YTW : 3.71 %

ELF.PR.F Perpetual-Discount Quote: 23.02 – 23.43
Spot Rate : 0.4100
Average : 0.3186

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-07
Maturity Price : 22.77
Evaluated at bid price : 23.02
Bid-YTW : 5.84 %

BAM.PR.J OpRet Quote: 26.54 – 26.81
Spot Rate : 0.2700
Average : 0.2009

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 26.54
Bid-YTW : 4.54 %

PWF.PR.M FixedReset Quote: 26.70 – 27.00
Spot Rate : 0.3000
Average : 0.2362

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-02
Maturity Price : 25.00
Evaluated at bid price : 26.70
Bid-YTW : 3.63 %

CIU.PR.A Perpetual-Discount Quote: 22.50 – 22.80
Spot Rate : 0.3000
Average : 0.2433

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-07
Maturity Price : 22.35
Evaluated at bid price : 22.50
Bid-YTW : 5.14 %

4 Responses to “June 7, 2011”

  1. drap1 says:

    I’ve been thinking about bce a bit lately. I find the way that the pairs trade to be rather strange.

    I would expect that given how low prime is, that the components of the pairs with a distant conversion date would trade at a larger spread than the pairs with a closer conversion. For example bce.pr.s/t should trade tighter than say, bec.pr.y/z, due to the former pair’s much earlier conversion. Am I out to lunch on this?

    Also, it seems to me that the floating piece on all the issues is generally too well bid, given the likely interest rate situation.

    Finally, bce.pr.e seems to stick out like a sore thumb. Are you aware of any fundamental difference between it and any of the other floating pieces (obviously, other than conversion date)?

  2. jiHymas says:

    I don’t really have the time to spend on this right now – but have you used the pairs equivalency calculator to derive implicit average primes?

  3. drap1 says:

    Yes, I’ve looked at it before and follow your logic. However, it doesn’t seem to me that the market is telegraphing very plausible interest rate scenarios. Perhaps, it’s just illiquidity, and the fact that these bce pref series’ certainly lend themselves to a wide variety of opinions…dirty little buggers

  4. […] Richard Kelertas? Analyst at Dundee Securities? On June 7 I reported: Kelertas said that the Muddy Waters report was inaccurate and there’s nothing […]

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