New Issues

New Issue: BMO 4.50% Perpetuals

The first week of the new year has started with a bang!

BMO has announced a bought deal for 14-million shares @ $25: these will be designated “Non-Cumulative Perpetual Class B Preferred Shares, Series 13”.

The anticipated closing date is January 17, 2007.

The redemption schedule is:

Redemption Schedule, BMO Ser 13
From To Price
2012-2-25 2013-2-24 $26.00
2013-2-25 2014-2-24 $25.75
2014-2-25 2015-2-24 $25.50
2015-2-25 2016-2-24 $25.25
2016-2-25 INFINITE DATE $25.00

More later.

Later, more:

Comparator Characteristics
Issue BNS.PR.K CM.PR.I RY.PR.D BMO.PR.? BNS.PR.?
Dividend 1.20 1.175 1.125 1.125 1.125
Quote 25.85-96 25.16-36 25.11-20 25.00 Issue 25.00 Issue
Redemption Schedule Start 2010-4-28 2012-1-31 2012-02-24 2012-2-25 2012-4-26
Price due to base-rate 24.25 24.07 23.45 23.38 23.37
Price due to short-term 0.03 0.04 0.03 0.03 0.03
Price due to long-term 0.49 0.49 0.48 0.46 0.46
Price due to error -0.01 0.02 -0.03 0.00 0.00
Price due to Credit Spread (Low) N/A -0.54 N/A N/A N/A
Intrinsic Curve Price 24.77 24.08 23.94 23.87 23.86
Price due to Liquidity 0.52 1.50 1.51 1.51? 1.51?
Curve Price 25.29 25.58 25.45 25.38? 25.37?
Yield-to-Worst (after Tax) 3.37% 3.66% 3.58% 3.58% 3.57%
Yield-to-Worst (Pre-Tax) 4.24% 4.61% 4.51% 4.50% 4.49%

So … the new issue looks like a good, but not great, purchase at the issue price.

Issue Comments

CL.PR.B : A Big Day, Yield-To-Worst Goes Negative

As noted in the January 5, 2007, Commentary, the yieldToWorst on CL.PR.B has gone negative … again! This happened previously on November 29, 2006 and I suggested then – and I still suggest – that this issue is a prime candidate for redemption.

Great-West’s last issue, GWO.PR.I, was issued in mid-April 2006, is still trading heavily and is yielding 4.53% based on a limitMaturity and GWO (who own CL) may well decide that with all the money flying around during RRSP season, now is a good time to refinance.

I’ve uploaded a graph of yieldToWorst for the past year, along with another one of flatBidPrice.

CL.PR.B hasn’t been a particularly enthralling issue to own for the last year, as this data from the performanceBox shows:

2005-12-30 0.00 27.26
2006-01-31  0.00  26.50
2006-02-28  0.00  27.27
2006-03-01  -0.39  26.72
2006-03-31  0.00  26.43
2006-04-28  0.00  26.20
2006-05-31  -0.39  26.37
2006-06-30  0.00  26.08
2006-07-31  0.00  26.24
2006-08-30  -0.39  26.14
2006-08-31  0.00  26.09
2006-09-29  0.00  26.25
2006-10-31  0.00  26.21
2006-11-29  -0.39  26.30
2006-11-30  0.00  26.15
2006-12-29  0.00  26.05
2007-01-05  0.00  26.43

The quarterly numbers do not compare well with the quarterly returns posted by Malachite Aggressive Preferred Fund:

Quarterly
Period Ending CL.PR.B MAPF
2006-03-31 -1.63 % +1.45%
2006-06-30 0.15 % -1.37%
2006-09-29 2.15 % +3.51%
2006-12-29 0.73 % +3.20%

Total return for the period 2005-12-30 to 2007-1-5 is 2.8266%

Market Action

January 5, 2007

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.07% 4.08% 29,768 17.29 1 +0.0400% 1,036.2
Fixed-Floater 4.79% 3.60% 84,265 8.36 7 -0.0211% 1,037.0
Floater 4.58% -22.40% 65,782 8.23 4 0.1188% 1,040.6
Op. Retract 4.67% 1.65% 81,811 2.05 17 -0.0232% 1,033.1
Split-Share 5.11% 1.24% 192,206 2.27 10 +0.0240% 1,045.0
Interest Bearing 6.70% 5.46% 74,078 2.39 6 +0.1327% 1,036.4
Perpetual-Premium 4.99% 3.21% 261,337 4.67 55 +0.0012% 1,055.2
Perpetual-Discount 4.48% 4.50% 790,937 16.41 3 +0.0001% 1,060.8
Major Price Changes
Issue Index Change Notes
GWO.PR.F PerpetualPremium -1.3904% Now with a pre-tax bid-YTW of 2.14% based on a bid of $27.66 and a call 2008-10-30 at $26.00. Given that it pays $1.475, I wouldn’t bet against the early call, but some would, hoping, I suppose, for a call 2012-10-30 at $25.00 to yield 3.89%.
CL.PR.B PerpetualPremium +1.3809% Another high-paying issue (pays $1.5625 annually) with a pre-tax bid-YTW of -12.20 based on a call 2007-02-04 at $26.00. Given that we’re now a week into the first call period and there’s been no news, I suppose there are some that are hoping that the issue won’t be called … but I’m not one of them!
Volume Highlights
Issue Index Volume Notes
GWO.PR.I PerpetualDiscount 36,820 Now with a pre-tax bid-YTW of 4.53% based on a bid of $24.91 and a limitMaturity
CM.PR.B PerpetualPremium 27,290 This has been called for redemption.
BAM.PR.M PerpetualPremium 26,925 Now with a pre-tax bid-YTW of 4.66% based on a bid of $25.24 and a call 2016-3-1 at $25.00.
PWF.PR.J OpRet 25,003 Now with a pre-tax bid-YTW of 2.23% based on a bid of $27.03 and a call 2008-5-30 at $26.00. It would appear that many investors are hoping for the softMaturity 2013-7-30 at $25.00, yielding 3.47%. Given that it pays $1.175 p.a. and the call premium declines by $0.25 annually, they might be right – but I won’t bet on it!
SLF.PR.D PerpetualDiscount 20,337 Now with a pre-tax bid-YTW of 4.49% based on a bid of $24.85 and a limitMaturity.

There were ten other “$25 p.v. equivalent” index-included issues with over 10,000 shares traded today.

Data Changes

FIG.PR.A Added to HIMIPref™ Database

I have added Income & Growth Split Trust Preferred Sec to the HIMIPref™ database for a number of reasons, mainly the probability that several other preferred securities I track will be converted into this security next week (FCI.PR.A, FCF.PR.A, FCN.PR.A).

I can’t say I’m a big fan of this issue. It has had a continuous call at par effective since issue date, which is annoying. I have long been an advocate of a declining call premium on split share preferreds, so that preferred holders have at least a sporting chance of a capital gain and can plan their portfolios with a bit more confidence.

According to their annual report, the fund had no redemptions in 2005, but this situation has changed markedly in 2006. The third-quarter report discloses that of the 5,545,000 units outstanding Dec. 31, 2005, 2,375,599 (or 42.8%) had been redeemed. No wonder they got the urge to merge!

Assuming they get approval, the underlying investments won’t be solely Income Trusts any more – the Investment strategy will include:

Subject to the Investment Restrictions, the net proceeds of any Offering, together with any amounts drawn under the Loan Facility, will under normal market conditions be invested by the Trust in an actively managed diversified portfolio of securities, consisting of the following asset classes: (i) Income Fund Securities, (ii) Dividend-Paying North American Equities, (iii) Non-Investment Grade Debt; (iv) Short Term Investments; (v) Convertible Debt; and (vi) other income-generating securities.’’

Which doesn’t sound exactly 100% thrilling, but as long as there’s a hefty asset coverage ratio, the pref holders shouldn’t mind.

Issue Comments

CVF.PR.A to be Redeemed

Via CCN Matthews:

Coastal Value Fund (TSX:CVF.PR.A) announced today that it will redeem all of its issued Senior Preferred shares on February 21, 2007 to holders of record on February 20, 2007. The redemption will be made in accordance with the Fund’s articles and results from a retraction of the Capital shares. Shareholders need not take any action relating to the redemption; the Fund’s transfer agent CIBC Mellon will automatically redeem the shares on February 21, 2007 and deposit cash proceeds directly into shareholder’s accounts equal to $25.4125, representing $25.20 per share plus $0.2125 per share representing accrued and unpaid dividends. Post the redemption, the Senior Preferred shares will no long be listed on the TSX.

It closed today at $25.80-25, 2×2, on no volume. Due to its usual low volume, it is not currently included in any of the HIMI Preferred Indices.

More later.

Later, more: From the graph of flatBidPrice, it is apparent that this issue has participated in the excellent returns posted by preferred shares in the last six months. It is also apparent, from the graph of yieldToWorst, that investors have been ignoring the worst-case scenario when investing.

Market Action

January 4, 2007

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.08% 4.08% 30,988 17.28 1 -0.0799% 1,035.8
Fixed-Floater 4.79% 3.63% 85,715 10.69 7 +0.1012% 1,037.2
Floater 4.58% -21.16% 66,971 8.25 4 0.1697% 1,039.4
Op. Retract 4.66% 1.41% 82,149 2.05 17 +0.0670% 1,033.3
Split-Share 5.11% 1.10% 194,528 2.27 10 +0.2282% 1,044.7
Interest Bearing 6.70% 5.35% 73,379 2.39 6 +0.3886% 1,035.0
Perpetual-Premium 4.99% 3.54% 265,397 4.36 55 +0.1153% 1,055.1
Perpetual-Discount 4.48% 4.50% 793,720 16.41 3 -0.0890% 1,060.8
Major Price Changes
Issue Index Change Notes
MST.PR.A InterestBearing +1.3834% Still with an attactive pre-tax bid-YTW of 5.44%, based on a price of 10.26 and a hardMaturity 2009-09-30 at $10.00
IAG.PR.A PerpetualPremium +1.3917% Now with a pre-tax bid-YTW of 4.34% based on a bid of $25.50 and a call 2015-04-30 at $25.00.
Volume Highlights
Issue Index Volume Notes
TD.PR.M OpRet 345,600 Global crossed 171,400 for cash at $28.28, then crossed 171,400 for regular settlement at $27.98 in with the same timestamp. This issue went ex-Dividend
PWF.PR.A Scraps 56,600 RBC crossed 35,000 at 25.50, then Scotia bought 11,000 from Desjardins, then crossed 10,000 all at the same price. I only just moved this from “Floaters” to “Scraps” on volume considerations. This trading is clearly a conspiracy to make me look silly.
RY.PR.A PerpetualPremium 25,600 Now with a pre-tax bid-YTW of 4.46%, based on a bid of 25.15 and a call 2015-6-23 at $25.00. The yield for the limitMaturity is the same, so take your pick.
SLF.PR.D PerpetualDiscount 24,988 Now with a pre-tax bid-YTW of 4.50% based on a bid of $24.82 and a limitMaturity
GWO.PR.I PerpetualDiscount 18,180 Now with a pre-tax bid-YTW of 4.53% based on a bid of $24.93 and a limitMaturity

There were six other “$25 p.v. equivalent” index-included issues with over 10,000 shares traded today.

Index Construction / Reporting

December 2006 : The Month in Review

Index December Total Return
Ratchet +1.56%
FixedFloater +0.85%
Floater -0.21%
OpRet +0.08%
SplitShare +0.32%
InterestBearing +0.99%
PerpetualPremium +0.34%
PerpetualDiscount +1.08%

 

The indices have now been rebalanced. Changes are

Ticker From Index To Index Reason
PWF.PR.A Floater Scraps Volume
PWF.PR.D OpRet Scraps Volume
BAM.PR.I Scraps OpRet Volume
SXT.PR.A Scraps SplitShare Volume
RY.PR.A PerpetualDiscount PerpetualPremium Price
BAM.PR.M PerpetualDiscount PerpetualPremium Price
IAG.PR.A PerpetualDiscount PerpetualPremium Price
RY.PR.D – PerpetualPremium New Issue, 12/13
FBS.PR.B – SplitShares New Issue, 12/15
FBS.PR.A Scraps – Redeemed, 12/15

More details will be added to this post shortly.

Update : Notable performances in December were:

Issue Index Performance
TCA.PR.X PerpetualPremium -1.5349%
WN.PR.B OpRet -1.5298%
WN.PR.C PerpetualPremium -1.2424%
WN.PR.D PerpetualPremium -1.2314%
BMO.PR.G OpRet -1.2002%
…
BSD.PR.A InterestBearing +2.1407%
SLF.PR.D PerpetualDiscount +2.2634%
PWF.PR.K PerpetualPremium +2.3561%
CM.PR.G PerpetualPremium +2.3605%
STW.PR.A InterestBearing +2.4835%

Not a very pleasant month for the Weston issues, presumably due to the 9-figure charge against inventory.

Update & Bump: The rebalanced indices have been uploaded here.

Market Action

January 3, 2007

Major Price Changes
Issue Index Change Notes
MST.PR.A InterestBearing -1.3645% Now with a pre-tax bid-YTW of 5.99% based on a bid of $10.12 and a hardMaturity 2009-09-30 at $10.00.
CM.PR.E PerpetualPremium -1.2668% Now with a pre-tax bid-YTW of 4.15% based on a bid of $26.50 and a call 2008-11-30 at $26.00.
FFN.PR.A SplitShare -1.2322% Now with a pre-tax bid-YTW of 3.72% based on a bid of $10.42 and a hardMaturity 2009-12-01 at $10.00
BMO.PR.I OpRet -1.1937% Still has a negative pre-tax bid-YTW! It now stands at -8.95% (annualized – the gross return is -0.73%) based on a bid of $25.66 and an immediate call at $26.00.
Volume Highlights
Issue Index Volume Notes
BAM.PR.K Floater 41,600 Scotia crossed 32,000 at 24.75 and was the seller for each of today’s six trades.
MFC.PR.A OpRet 38,410 Now with a pre-tax bid-YTW of 2.99% based on a bid of $27.10 and a call 2011-7-19 at $26.00. Will have yielded 3.06% if it lasts until its softMaturity 2015-12-18, so it hardly seems worthwhile. Even the latter figure, at an equivalency factor of 1.40, is equivalent to only 4.28% interest – you can do better with bonds.
TD.PR.O PerpetualPremium 37,600 Nesbitt processed an internal cross of 30,600 at $26.30. Now with a pre-tax bid-YTW of 4.16% based on a bid of $26.40 and a call 2014-11-30 at $25.00. Now that’s more like it!
BAM.PR.M PerpetualPremium 24,000 RBC crossed 10,700 at 25.10. Now with a pre-tax bid-YTW of 4.75% based on a bid of $25.06 and a call 2016-3-1 at $25.00.
CM.PR.I PerpetualPremium 18,542 Now with a pre-tax bid-YTW of 4.51% based on a bid of $25.32 and a call 2016-3-1 at $25.00

There were nine other index-included issues with over 10,000 shares traded today.

I know, I know … the indices still haven’t been updated. I’ll get to it, all right? Slavedrivers…

Update 2007-01-04 :

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.08% 4.08% 32,259 17.28 1 +0.0400% 1,036.7
Fixed-Floater 4.79% 3.72% 87,027 10.70 7 -0.3509% 1,036.2
Floater 4.59% -18.67% 67,520 8.28 4 0.0000% 1,037.6
Op. Retract 4.66% 1.42% 82,398 2.05 17 +0.0077% 1,032.6
Split-Share 5.12% 1.32% 199,563 2.27 10 +0.0757% 1,042.3
Interest Bearing 6.73% 5.77% 72,434 2.39 6 -0.1845% 1,031.0
Perpetual-Premium 5.00% 3.76% 271,477 4.61 55 -0.0667% 1,053.9
Perpetual-Discount 4.46% 4.50% 800,671 16.42 3 +0.2019% 1,060.7

Market Action

January 2, 2007

Not a good start to the new year!

There was a strange data problem with the TSX feed today … a missing line-break caused problems! The HIMIPref™ database has been updated, but there’s no time to do the daily report.

The redemptions of TA.PR.C and BAM.PR.S have been processed and reorgDataEntries processed. Now, there’s just time before I knock off to have a quick look at the interface to that !*%*#$ feed and see if I can set things up to capture a similar error in a more timely fashion next time …

Update : Mea culpa. It wasn’t the TSX’s fault – it was mine, revising the raw feed to remove the TA.PR.C redemption and not doing it right. Still … the programming has been revised so that the same problem will be caught much more efficiently and similar problems will be reported much better (to me, I mean). Just another day in the software-bulletproofing department.

Update 2007-01-04 :

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.09% 4.09% 31,372 17.27 1 +0.0000% 1,036.2
Fixed-Floater 4.78% 3.63% 88,427 8.39 7 +0.0843% 1,039.8
Floater 4.59% -18.56% 66,915 8.28 4 0.0899% 1,037.6
Op. Retract 4.66% 1.01% 82,278 2.05 17 -0.1087% 1,032.5
Split-Share 5.13% 1.47% 206,173 2.27 10 -0.1565% 1,041.5
Interest Bearing 6.72% 5.79% 72,617 2.40 6 +0.1486% 1,032.9
Perpetual-Premium 4.99% 3.56% 276,408 4.60 55 +0.0933% 1,054.6
Perpetual-Discount 4.49% 4.51% 812,110 16.40 3 +0.0811% 1,058.6

Another Update, 2007-01-04 :

Major Price Changes
Issue Index Change Notes
ELF.PR.G PerpetualPremium -1.1328%  
LBS.PR.A SplitShares -1.0092%  
W.PR.H PerpetualPremium +1.0558%  
Volume Highlights
Issue Index Volume Notes
NA.PR.L PerpetualPremium 36,000  
NA.PR.K PerpetualPremium 30,937  
CM.PR.I PerpetualPremium 18,940  

There were no other “$25 p.v. equivalent” index-included issues with over 10,000 shares traded today.

Publications

Research : Split Shares

As many will have noticed, Operating Retractibles, as a group, are getting more expensive all the time. In many cases, they are trading with a negative yieldToWorst and even when these worst-case-scenarios are positive, they yield less than Canadas after tax while retaining all their corporate risk.

The preferred shares issued by split-share corporations may be of interest to many who want a retractible investment … and I’ve written an introduction to this type of preferred share:

Look for the Research Link!

The cogniscenti will have noticed that Malachite Aggressive Preferred Fund has been known to hold a lot of these.

I have uploaded portfolio evaluations for the draft HIMI Preferred Indices for December 29, 2006, for the Operating Retractible and Split Share indices.

Update 2007-11-22: See Split Share and OpRet Yields for some updated yield numbers and a fascinating discussion in the comments.