Issue Comments

TD.PR.M & TD.PR.N Called for Redemption

TD Bank has announced:

that it will exercise its right to redeem all of its 14 million outstanding Class A First Preferred Shares, Series M (the “Series M Shares”) on October 31, 2011 at the price per share of $25.50 (for an aggregate total of approximately $357 million). The redemption price represents a $0.50 premium to the $25.00 per share face price.

TD also announced it will exercise its right to redeem all of its 8 million outstanding Class A First Preferred Shares, Series N (the “Series N Shares”) on October 31, 2011 at the price per share of $25.50 (for an aggregate total of approximately $204 million). The redemption price represents a $0.50 premium to the $25.00 per share face price.

On September 1, 2011, the Board of Directors of TD declared a quarterly dividend of $0.29375 per Series M Share and $0.2875 per Series N Share. These will be the final dividends on the Series M Shares and Series N Shares, respectively, and will be paid in the usual manner on October 31, 2011 to shareholders of record on October 11, 2011, as previously announced. After October 31, 2011, the Series M Shares and Series N Shares will cease to be entitled to dividends and the holders of such shares will not be entitled to exercise any right in respect thereof except that of receiving the redemption amount.

TD recommends shareholders consult with their tax advisors to determine the appropriate treatment and impact of the redemptions. A general summary of the tax implications will be available shortly on our website, www.td.com, under Investor Relations/Share Information/Preferred Shares.

Instructions with respect to receipt of the redemption amount will be set out in the Letter of Transmittal to be mailed to registered holders of the Series M Shares and Series N Shares shortly. Inquiries should be directed to our Registrar and Transfer Agent, CIBC Mellon Trust Company, at 1-800-387-0825 (or in Toronto 416-643-5500). Beneficial holders who are not directly the registered holder of these shares should contact the financial institution, broker or other intermediary through which they hold these shares to confirm how they will receive their redemption proceeds. Further details and instructions will be posted shortly to our website, http://www.td.com/investor-relations/ir-homepage/share-information/preferred-shares/preferred.jsp.

Holders are reminded that the fifty-cent premium over the par value that will be paid on redemption is a deemed dividend for tax purposes and will be taxed as a dividend. Many investors will therefore wish to sell into the market shortly before the last possible date in order that whatever premium received (probably just a few pennies less than the fifty cents) will be treated as a capital gain (or reduction of capital loss, as the case may be)

Issue Comments

BCE.PR.T Dividend Reset; Conversion to and from BCE.PR.S

BCE Inc. has announced:

As of November 1, 2011, the Series T Preferred Shares will, should they remain outstanding, pay, on a quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the following five years that will be based on a fixed rate equal to the product of: (a) the yield to maturity compounded semi-annually (the “Government of Canada Yield”), computed on October 11, 2011 by two investment dealers appointed by BCE Inc., that would be carried by non-callable Government of Canada bonds with a 5-year maturity, multiplied by (b) the “Selected Percentage Rate”. The “Selected Percentage Rate” determined by BCE Inc. is 215%. The annual dividend rate applicable to the Series T Preferred Shares will be published on October 12, 2011 in the national edition of the Globe and Mail, the Montreal Gazette and La Presse and will be posted on the BCE Inc. website at www.bce.ca.

BCE’s deadline for conversion is October 18:

Registered holders electing to convert all or part of their Series T Preferred Shares into Series S Preferred Shares must complete and sign the conversion panel on the back of their Series T Preferred Share certificate and deliver it, at the latest by 5:00 p.m. (Eastern time) on October 18, 2011, to one of the following addresses of Canadian Stock Transfer Company Inc. (“Canadian Stock Transfer”):
….
Delivery may be done in person, by courier, by registered mail or by mail. However, if share certificates are delivered by courier, by registered mail or by mail, shareholders must ensure that they are sent sufficiently in advance so that they are received by Canadian Stock Transfer by the above-mentioned deadline.

Holders are reminded that their brokers will almost certainly have deadlines that are a day or two prior to the BCE deadline – check well in advance if you intend to convert!

Naturally, the notice for BCE.PR.S, the RatchetRate half of this Strong Pair, specifies the same deadline for those wishing to convert the other way.

It’s too soon to make a recommendation on this – we don’t know the actual rate to which BCE.PR.T will be reset yet! However, as of today the 5-Year GOC rate is 1.45%, so the indicative rate for BCE.PR.T is 3.12%, or $0.78 on its $25 par value, which will – probably, maybe, I think – be preferable to the 3% (100% of Canadian Prime) being paid on BCE.PR.S, since the fraction of prime paid on the latter issue will be reduced if the price goes much above par. It’s a pretty close call though, so watch this space!

Market Action

September 16, 2011

Dealbreaker has an entertaining observation regarding the UBS unauthorized losses. After examining the bank’s published VaR calculations:

Oops! UBS’s maximum 95% value-at-risk in the second quarter was 98mm CHF, or around 85mm USD at current exchange rates. So if its returns are normally distributed and that’s a one-tail confidence interval it should have daily losses of over $52mm less than 16% of the time, $85mm less than 5% of the time, $104mm less than 2.3% of the time, $155mm or than 0.14% of the time …

You see where I’m going with this. A $2 billion loss is, um, 38.5 standard deviations. That exploded Excel’s brain but goofier methods suggest that a loss that big should occur about once in 10^324 days. Or the odds of it happening in the history of the universe are one in a googol. Cubed.

They have another thoughtful piece on how the lines between prop-trading and client trading can get blurred:

Perhaps I’m naïve in thinking that this is the circle of life. You’ll certainly see people who believe that the unpleasantness at UBS reveals that financial innovation and complexity should be banned, or that any units of banks with Greek letters in their names should be shut down. My own view is that you can’t really legislate a world where market makers don’t put their capital at risk – that’s what a market maker does. And if you’re willing to tolerate any form of financial complexity, you will have a world where the risks that market makers take are multiform, and where market makers have a lot of “proprietary” discretion to decide which risks to keep and which to hedge. And relying on forms of words like “proprietary trading” and “client facilitation” is not an intelligent way to think about systemic management of those risks.

In the meantime the accused trader has been charged:

Kweku Adoboli, the trader arrested Sept. 15 after UBS AG (UBSN) said it discovered unauthorized trades that caused a $2 billion loss, was charged with fraud and two counts of false accounting dating back to 2008.

The 31-year-old was taken into custody at a magistrates court in London yesterday until Sept. 22, when he can make an application for bail. Adoboli’s false accounting offenses started in October 2008, according to the court charge sheet. He is also charged with fraud dating back to January 2009.

Not an overnight thing!

Jefferson County may have avoided bankruptcy:

Jefferson County, Alabama, commissioners approved a settlement with holders of $3.14 billion of sewer debt to avert what would have been the largest municipal bankruptcy in U.S. history.

The County Commission voted 4-1 today to accept the terms of the agreement, which includes $1.1 billion in concessions from creditors. JPMorgan Chase & Co. (JPM), which arranged most of the debt, would take the biggest loss.

The threat of bankruptcy has loomed over Jefferson County, home to Birmingham, Alabama’s biggest city, for more than three years as officials sought to keep sewer fees from ballooning to pay off the debt. The deal hinges on action by the state Legislature, and Commission President David Carrington said bankruptcy is still possible if final terms aren’t agreed on.

The deal calls for three annual sewer-rate increases of 8.2 percent, followed by future annual boosts of no more than 3.25 percent.

BIS has released a working paper by Stephen Cecchetti, Madhusudan Mohanty and Fabrizio Zampolli titled The real effects of debt:

At moderate levels, debt improves welfare and enhances growth. But high levels can be damaging. When does debt go from good to bad? We address this question using a new dataset that includes the level of government, non-financial corporate and household debt in 18 OECD countries from 1980 to 2010. Our results support the view that, beyond a certain level, debt is a drag on growth. For government debt, the threshold is around 85% of GDP. The immediate implication is that countries with high debt must act quickly and decisively to address their fiscal problems. The longer-term lesson is that, to build the fiscal buffer required to address extraordinary events, governments should keep debt well below the estimated thresholds. Our examination of other types of debt yields similar conclusions. When corporate debt goes beyond 90% of GDP, it becomes a drag on growth. And for household debt, we report a threshold around 85% of GDP, although the impact is very imprecisely estimated.

The OSC released its decision on the Sino-Forest puts:

IT IS ORDERED, pursuant to section 144 of the Act, that the Cease Trade Order is hereby varied solely to permit (a) the holders of outstanding Put Contracts issued and cleared by CDCC to exercise their Put Contracts, whether or not such holder is a person described in paragraph 6(i) or 6(ii); (b) the holders of the Put Contracts to sell common shares of the Issuer under the terms of the Put Contracts; (c) the sellers of such Put Contracts to perform their obligations to purchase common shares of the Issuer under the terms of the Put Contracts; and (d) CDCC and its members to carry out their respective obligations under the Rules of CDCC, including all requisite acts in furtherance of the trades described in (a), (b) and (c), provided that this order shall not apply to permit the sale of Issuer common shares by a person described in paragraph 6(i) who does not currently own common shares, or who is an insider or other person described in paragraph 6(ii), and provided further that the Cease Trade Order shall otherwise remain in effect, unamended except as expressly provided in this order.

It looks to my untrained eye as if it’s illegal to borrow shares to make good delivery. I say the integrity of Canadian capital markets has taken a hit.

It was a modestly good day for the Canadian preferred share market, with PerpetualDiscounts winning 10bp, FixedResets up 6bp and DeemedRetractibles gaining 2bp. Volatility was low. Volume was extremely 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 -1.5163 % 2,144.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.5163 % 3,225.5
Floater 3.03 % 3.35 % 60,246 18.89 3 -1.5163 % 2,315.6
OpRet 4.81 % 2.47 % 62,302 1.64 8 -0.0819 % 2,461.8
SplitShare 5.36 % 0.58 % 50,594 0.45 4 0.2178 % 2,503.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0819 % 2,251.1
Perpetual-Premium 5.61 % 4.49 % 116,949 1.08 16 0.0995 % 2,118.3
Perpetual-Discount 5.26 % 5.32 % 110,732 14.97 14 0.0983 % 2,261.7
FixedReset 5.15 % 3.11 % 208,160 2.62 59 0.0618 % 2,331.0
Deemed-Retractible 5.04 % 4.58 % 238,585 5.92 46 0.0174 % 2,202.2
Performance Highlights
Issue Index Change Notes
PWF.PR.A Floater -3.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-16
Maturity Price : 20.71
Evaluated at bid price : 20.71
Bid-YTW : 2.55 %
BAM.PR.X FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-16
Maturity Price : 22.67
Evaluated at bid price : 23.85
Bid-YTW : 3.63 %
IAG.PR.F Deemed-Retractible 1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 5.40 %
Volume Highlights
Issue Index Shares
Traded
Notes
HSB.PR.E FixedReset 63,659 RBC traded 50,000 at 27.30.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 27.25
Bid-YTW : 3.14 %
CM.PR.G Perpetual-Premium 46,488 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-16
Maturity Price : 24.81
Evaluated at bid price : 25.11
Bid-YTW : 5.44 %
SLF.PR.A Deemed-Retractible 39,393 Nesbitt crossed 25,000 at 23.13.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.06
Bid-YTW : 5.76 %
SLF.PR.F FixedReset 31,412 RBC crossed 15,100 at 26.65.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.65
Bid-YTW : 3.44 %
TD.PR.S FixedReset 29,380 RBC crossed 25,000 at 26.02.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.04
Bid-YTW : 2.96 %
SLF.PR.H FixedReset 25,375 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.86
Bid-YTW : 3.84 %
There were 12 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
ELF.PR.F Perpetual-Discount Quote: 23.30 – 23.83
Spot Rate : 0.5300
Average : 0.3707

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-16
Maturity Price : 23.01
Evaluated at bid price : 23.30
Bid-YTW : 5.78 %

SLF.PR.F FixedReset Quote: 26.65 – 26.90
Spot Rate : 0.2500
Average : 0.1803

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.65
Bid-YTW : 3.44 %

FTS.PR.H FixedReset Quote: 25.40 – 25.72
Spot Rate : 0.3200
Average : 0.2571

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-16
Maturity Price : 23.41
Evaluated at bid price : 25.40
Bid-YTW : 2.83 %

SLF.PR.G FixedReset Quote: 25.12 – 25.30
Spot Rate : 0.1800
Average : 0.1297

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 3.31 %

PWF.PR.K Perpetual-Discount Quote: 23.98 – 24.15
Spot Rate : 0.1700
Average : 0.1224

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-16
Maturity Price : 23.69
Evaluated at bid price : 23.98
Bid-YTW : 5.22 %

MFC.PR.A OpRet Quote: 25.43 – 25.58
Spot Rate : 0.1500
Average : 0.1091

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 25.43
Bid-YTW : 3.67 %

Issue Comments

S&P Downgrades CM.PR.D & CM.PR.E One Notch on NVCC

Standard & Poor’s has announced:

  • CIBC has received confirmation from its regulators establishing two rated hybrid issues as nonviable contingent capital (NVCC) instruments.
  • We’re lowering our ratings on the two CIBC hybrids to ‘BBB+’ from ‘A-‘, reflecting contingent capital triggers as detailed in our contingent capital criteria (see “Related Criteria And Research”).
  • We are affirming our ‘A+/A-1’ counterparty credit ratings on CIBC, and the outlook remains stable.

“The rating action reflects our view that the level of the trigger and the details of the mechanisms for the conversion of NVCCs are critical,” said Standard & Poor’s credit analyst John Bartko. The Canadian regulator’s (Office of the Superintendent of Financial Institutions, or OSFI) confirmation of treatment of these issues as NVCCs required CIBC to renounce its rights to convert the issues into common shares, except in circumstances considered a trigger event under the OSFI’s NVCC Advisory. The formal designation of these preferred shares as NVCC instruments, in conjunction with relevant OSFI guidance, establishes clear expectations as to circumstances in which the issuer would convert these issues to equity.

“In our opinion, because the conversion would occur at the point of nonviability, and not early enough to preempt nonviability, the formal designation of these instruments as NVCC does not in itself reduce the issuer’s default risk,” said Mr. Bartko. “Instruments with this conversion feature are rated one notch below hybrids that do not have the feature because the instruments would, at nonviability, have a lower ranking in the capital structure. If the issuer moves closer to the trigger point, we could lower the rating further to reflect the increased risk relative to other junior instruments in the issuer’s capital structure.”

The third CM issue to receive NVCC status was CM.PR.G (as reported in August), which is not mentioned in the release. I suspect that this is simply a careless oversight which will soon be corrected. There is also no indication as yet as to whether the downgrade will affect the “National Scale” rating of P-1(low).

I’ve been complaining for a long time – most recently in August – about OSFI’s prediliction for a “low-trigger” conversion rule, which they have never deigned to explain, arrogant idiots that they are. Now the low-trigger is having an observable effect. Thank you OSFI!

Update, 2011-9-17: S&P has updated their on-line rating summaries; the downgrade has not affected the P-1(low) rating on the courser “National Scale”.

Market Action

September 15, 2011

The Toronto Star has some details regarding the Equitable Trust fraud:

More than 1,000 condo owners across Toronto fear they are on the hook for millions of dollars as victims of an alleged property fraud.

Lawyers estimate the total misappropriation may exceed $20 million.

Manzoor Moorshed Khan, president of Channel Property Management, borrowed millions against at least five buildings without their knowledge, according to documents obtained by the Star.

“It seems to be a case where a fairly sophisticated criminal fraud has been perpetrated,” Andrew Moor, president of The Equitable Trust Company, said in an interview. He said the suspected scheme “managed to penetrate a longstanding process that has kept us safe.”

The Star has learned that at least four condominium corporations managed by Khan’s company were victims in the alleged fraud. Of these, one has filed a lawsuit for $3.1 million against Khan, his company and several financial firms, including Equitable Trust.

The suit, filed by owners at 25 Grenville St., a luxury condo with around 200 units in downtown Toronto, alleges Khan registered a fake bylaw without the board’s knowledge that authorized him to borrow more than $3 million against the property, according to court document.

The fraud against Equitable, proud issuer of ETC.PR.A, was reported on August 23; the depature of its CFO on September 12.

UBS announced unauthorized losses:

UBS AG (UBSN), Switzerland’s biggest bank, said it may be unprofitable in the third quarter after a $2 billion loss from unauthorized trading at its investment bank.

London police arrested Kweku Adoboli, a UBS employee, in connection with the loss, according to a person with knowledge of the situation who requested anonymity. City of London police and UBS declined to identify the man.

UBS management aims to “get to the bottom of the matter as quickly as possible, and will spare no effort to establish exactly what has happened,” the bank’s group executive board, led by Chief Executive Officer Oswald Gruebel, said in a memo to staff today.

A 31-year-old man was arrested at business premises in central London at 3:30 a.m. on “suspicion of fraud by abuse of position,” City of London Police Commander Ian Dyson said in a statement today. The man remains in custody while the police investigate, the police said.

Adoboli’s LinkedIn page lists him as a director in ETF and Delta1 Trading at UBS investment bank in London. He previously held the position of trade support analyst at the investment bank, according to the LinkedIn profile. A University of Nottingham spokeswoman confirmed that Adoboli graduated from the school in July 2003, earning a degree in Computer Science.

Details are slowly trickling out:

As Switzerland’s central bank imposed a limit on the franc’s appreciation against the euro on Sept. 6, UBS AG (UBSN) trader Kweku Adoboli’s Facebook profile had a plea for his friends: “Need a miracle.”

Just over a week later, at 3:30 a.m. yesterday, police in London arrested the 31-year-old Adoboli on suspicion of fraud by abuse of position. UBS told investors less than five hours later that “unauthorized trading by a trader” it didn’t identify caused a $2 billion loss.

Moody’s Investors Service put credit ratings for UBS under review for possible downgrade. The examination will focus on “weaknesses in the group’s risk management and controls that have become evident again,” Moody’s said in a statement. The loss itself “would be manageable for the group given its sound liquidity and capital position.”

UBS asked British police at 1 a.m. yesterday to arrest Adoboli, before alerting the U.K. financial regulator or prosecutors, according to two people familiar with the matter. The Financial Services Authority was notified shortly after the police, and prosecutors at the Serious Fraud Office weren’t contacted at all, according to the two people, who asked not to be identified because the investigations are private.

UBS declined yesterday to say how the trading allegedly lost the bank $2 billion. Gruebel called the loss “unauthorized” and “distressing” in an e-mail to employees, without giving details. No client positions were affected, the Zurich-based company said in the statement, issued on the third anniversary of Lehman Brothers Holdings Inc. (LEHMQ)’s collapse.

Securities regulators are publicizing a request for comments:

The CSA, and the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) (together referred to as the self-regulatory organizations or SROs), are working to develop requirements in a number of areas related to a client’s relationship with a registrant. This initiative is referred to as the CRM Project. As part of this work, the CSA has already developed requirements relating to:

• relationship disclosure information delivered to clients at account opening

• comprehensive conflicts of interest requirements

These requirements were included in the Rule when it came into force.

The amendments outlined in this Notice relate to the remaining elements of CRM, specifically:

• disclosure of charges related to a client’s account and securities transactions

• account performance reporting

The performance reporting is a welcome feature, but there are no provisions requiring advisors to publicize their composites. They’re allowing dollar-weighted calculations as well, which is craziness, and they are making a big fuss about original cost reporting, which is crazier.

It’s heavily influenced by a report Report: Performance Reporting
And Cost Disclosure
:

Only two common investment terms are understood well by more than 2/3 of investors, namely, ‘rate of return’ and ‘Term deposit/GIC interest’. Understanding drops off quickly to the 4 out of 10 level when we talk about synthetic measures like market indices or ‘benchmark funds’. Terms like ‘Management Expense Ratio’ are understood by less than 1/3 of investors.

When we look at how investors assess the performance of their portfolio, we find that most people simply assess the amount of money they gained or lost since their last account statement. The use of market indices and benchmark performance is most common among those with the most money invested.

YLO had a filing on SEDI today, but there was nothing of particular interest – just two more days of buying of YLO.PR.B, YLO.PR.C and YLO.PR.D in the familiar daily quantities, followed by a cancellation of all shares held by the firm on September 14.

It was a mixed day for the Canadian preferred share market with PerpetualDiscounts up 7bp, FixedResets down 9bp and DeemedRetractibles winning 12bp. Volatility was at its normal low levels. 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 2.1887 % 2,177.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 2.1887 % 3,275.1
Floater 2.99 % 3.34 % 61,341 18.90 3 2.1887 % 2,351.3
OpRet 4.81 % 2.33 % 62,134 1.64 8 0.0434 % 2,463.8
SplitShare 5.37 % 0.57 % 52,681 0.45 4 0.0727 % 2,498.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0434 % 2,252.9
Perpetual-Premium 5.62 % 4.49 % 118,283 1.08 16 0.0861 % 2,116.2
Perpetual-Discount 5.27 % 5.32 % 114,367 14.97 14 0.0746 % 2,259.4
FixedReset 5.15 % 3.11 % 206,038 2.65 59 -0.0901 % 2,329.6
Deemed-Retractible 5.04 % 4.58 % 239,357 7.81 46 0.1151 % 2,201.8
Performance Highlights
Issue Index Change Notes
BAM.PR.T FixedReset -1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-15
Maturity Price : 22.86
Evaluated at bid price : 24.26
Bid-YTW : 3.92 %
MFC.PR.B Deemed-Retractible 1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.53
Bid-YTW : 5.97 %
MFC.PR.C Deemed-Retractible 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 6.11 %
PWF.PR.A Floater 4.93 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-15
Maturity Price : 21.51
Evaluated at bid price : 21.51
Bid-YTW : 2.45 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.J Deemed-Retractible 134,145 RBC crossed blocks of 60,900 and 29,500, both at 25.01
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 4.56 %
IFC.PR.C FixedReset 56,050 Recent new issue.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.01
Bid-YTW : 4.10 %
HSB.PR.E FixedReset 53,102 RBC crossed 44,700 at 27.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 27.20
Bid-YTW : 3.21 %
RY.PR.G Deemed-Retractible 48,778 TD crossed 17,200 at 24.98.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.88
Bid-YTW : 4.62 %
RY.PR.A Deemed-Retractible 48,462 Nesbitt crossed 25,000 at 25.14.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 4.36 %
RY.PR.B Deemed-Retractible 44,020 National crossed 40,000 at 25.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-08-24
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : 4.36 %
There were 26 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.M Deemed-Retractible Quote: 25.50 – 25.88
Spot Rate : 0.3800
Average : 0.2843

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 5.55 %

CM.PR.K FixedReset Quote: 26.73 – 26.95
Spot Rate : 0.2200
Average : 0.1513

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.73
Bid-YTW : 3.08 %

CM.PR.M FixedReset Quote: 27.60 – 27.93
Spot Rate : 0.3300
Average : 0.2731

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 27.60
Bid-YTW : 3.02 %

BAM.PR.K Floater Quote: 15.57 – 15.80
Spot Rate : 0.2300
Average : 0.1814

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-15
Maturity Price : 15.57
Evaluated at bid price : 15.57
Bid-YTW : 3.36 %

TRP.PR.A FixedReset Quote: 25.85 – 26.03
Spot Rate : 0.1800
Average : 0.1416

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-15
Maturity Price : 23.60
Evaluated at bid price : 25.85
Bid-YTW : 3.20 %

BMO.PR.L Deemed-Retractible Quote: 27.01 – 27.15
Spot Rate : 0.1400
Average : 0.1027

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-25
Maturity Price : 26.00
Evaluated at bid price : 27.01
Bid-YTW : 3.40 %

Market Action

September 14, 2011

Well, here’s a blunt proposal:

Hong Kong would “absolutely” welcome London-based banks HSBC Holdings Plc (HSBA) and Standard Chartered Plc (STAN) if they decided to move headquarters to the former British territory, according to Chief Executive Donald Tsang.

“If HSBC or Standard Chartered were to change headquarters it would not undermine their business at all,” Tsang said in an interview yesterday. Tsang added he didn’t “want to encourage a move that would impair relations” with trading partners including London and New York.

HSBC and Standard Chartered, the two U.K. lenders dependent on Asia for a majority of their profit, faced calls from investors to consider moving after the U.K. government imposed a bank levy last year to raise 2.5 billion pounds from lenders. Shifting to Hong Kong would also allow the banks to sidestep any financial transaction tax imposed by the European Union.

With a top tax rate of 50 percent, London-based bankers making more than 1 million pounds will pay about three times more in tax and social security than colleagues in Hong Kong, accounting firm KPMG estimated last year.

“If you ask businesses why they choose Hong Kong over other places, our surveys show that almost all of them place taxes at the top of the list – or perhaps I should say a lack of taxes,” Tsang said in a speech at the Think Asia Think Hong Kong conference in London.

More bad news for the Europeans:

The European Central Bank said it will lend dollars to two euro-area banks tomorrow, a sign they are finding it difficult to borrow the U.S. currency in markets.

The ECB allotted $575 million in a regular seven-day liquidity-providing operation at a fixed rate of 1.1 percent. It’s the first time since Aug. 17 that a lender requested dollars from the ECB. The spot rate was $1.3625. An ECB spokesman declined to comment on which banks borrowed the funds.

The premium European banks pay to borrow in dollars through the swaps market is close to the highest level in almost three years. The cost of converting euro-based payments into dollars, as measured by the one-year cross-currency basis swap, was 99.1 basis points below the euro interbank offered rate, or Euribor, at 12:24 p.m. in Frankfurt, indicating a premium to buy the greenback. It widened to as much as 112.6 basis points earlier this week, the most since Dec. 2, 2008, according to data compiled by Bloomberg.

U.S. money-market funds “have stopped rolling over dollar loans of European banks,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “I wouldn’t be surprised if demand increased in the next weeks.”

As anticipated, Moody’s downgraded Credit Agricole and SocGen:

Credit Agricole was lowered to Aa2, Moody’s third-highest rating, and remains under review. Paris-based Societe Generale (GLE) was reduced to Aa3, with a negative outlook, as Moody’s re- evaluated its level of state support. BNP Paribas, the largest French bank, had its Aa2 long-term rating kept on review for a possible cut.

Credit Agricole’s new ratings “are more consistent with the bank’s sizeable exposures to the Greek economy,” Moody’s said in the statement.

The western world is getting a long-overdue lesson on the relationship between pipers, payments and tunes:

And, reminding his audience of his nation’s economic power, he said China is ready to invest more in Europe, but called on Europe to take “bold steps” toward recognizing China as a full market economy.

The World Trade Organization set a 2016 deadline for its member nations to recognize China’s market economy on the country’s admission to the organization in 2001. But, to China’s frustration, neither EU countries nor the United States have done so, amid continuing disputes over dumping of cheaply made Chinese consumer goods and anti-dumping tariffs in the receiving countries.

“We have been concerned about the difficulties faced by the European economy for a long time, and we have repeated our willingness to extend a helping hand and increase our investment,” Mr. Wen said. “To show one’s sincerity on this issue [of the market economy] a few years ahead of that time is the way a friend treats another friend.”

And by the way, shut up about that stupid human rights thing, OK? And spies? Shut up about them too, got it?

The TRE puts situation is causing headaches:

After a hearing on Wednesday morning, the Ontario Securities Commission announced that it needed an extra day before ruling whether or not Sino-Forest Corp.’s (TRE-T4.81—-%) put options that are affected by its cease-trade order will be allowed to be exercised.

CDCC’s main argument is that these puts are insurance contracts that were signed before the halt was put into effect, and that letting the holders exercise them does not constitute a new investment decision. (The new investment decision is a key part of the argument because the cease prevents new decisions from being made.)

Sino-Forest options in question are American style, which means that they can be exercised at any time up to and on the exercise date. (Whereas European options can only be exercised on the exercise date.) Those who argue against CDCC claim that the right to have exercised before the puts makes these options equivalent to stocks. In other words, they say, holding a put is no different than being short the stock, and like the short sellers who are now stuck, the put holders should have exercised earlier.

I certainly hope that the argument regarding equivalency to stocks has been very badly reported, because it’s nonsensical as stated. They aren’t stocks. They’re put options. Losses for both parties are limited (which is not the case for call options).

Saying they’re insurance contracts can lead to murky consequences as well. We’ve already had to listen to shrill screams that buying a credit default swap on a security you don’t own is like buying fire insurance on a house you don’t own. It’s a slippery slope.

Unfortunately, the Financial Post has a direct quote:

“The holder was buying insurance against the situation that has arisen,” said lawyer James Tory of Torys LLP, who is representing the CDCC.

Those words may yet come back to haunt us.

I continue to be amazed that this issue was not dealt with long in advance; and continue to believe that in future the CDCC should simply adjust the expiration dates by a term equal to the term of the cease-trading order. Wasn’t there something a long time ago, with options having strike prices that were unaffected in Canada by a major special dividend, when every other options exchange in the world made an adjustment? It was a $5 dividend if I remember correctly, which is by no means a sure bet.

The Financial Post claims that a National Bank – HSBC retail brokerage deal is all over but the shouting.

The Canadian preferred share market fared poorly today, with PerpetualDiscounts down 8bp, FixedResets losing 12bp and DeemedRetractibles off 3bp. Volatility was OK, with BAM issues well represented – to some extent reversing their sparkling performance yesterday. Volume was on the high side of average.

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 -1.1109 % 2,131.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.1109 % 3,205.0
Floater 3.05 % 3.35 % 61,946 18.88 3 -1.1109 % 2,300.9
OpRet 4.81 % 2.12 % 60,633 1.65 8 0.0676 % 2,462.8
SplitShare 5.37 % 0.57 % 52,576 0.45 4 0.0880 % 2,496.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0676 % 2,252.0
Perpetual-Premium 5.62 % 4.52 % 119,221 1.08 16 -0.0295 % 2,114.3
Perpetual-Discount 5.27 % 5.34 % 115,960 14.95 14 -0.0775 % 2,257.8
FixedReset 5.15 % 3.08 % 199,322 2.66 59 -0.1189 % 2,331.7
Deemed-Retractible 5.04 % 4.59 % 239,633 7.86 46 -0.0305 % 2,199.3
Performance Highlights
Issue Index Change Notes
BAM.PR.X FixedReset -2.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-14
Maturity Price : 22.56
Evaluated at bid price : 23.62
Bid-YTW : 3.68 %
PWF.PR.A Floater -1.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-14
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 2.57 %
FTS.PR.H FixedReset -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-14
Maturity Price : 23.41
Evaluated at bid price : 25.41
Bid-YTW : 2.83 %
BAM.PR.K Floater -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-14
Maturity Price : 15.50
Evaluated at bid price : 15.50
Bid-YTW : 3.38 %
POW.PR.D Perpetual-Discount -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-14
Maturity Price : 24.04
Evaluated at bid price : 24.33
Bid-YTW : 5.21 %
BAM.PR.J OpRet 1.34 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 26.50
Bid-YTW : 4.32 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.J Deemed-Retractible 125,550 TD crossed 75,000 at 25.25.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 4.47 %
FTS.PR.C OpRet 100,000 RBC crossed 100,000 at 25.85.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-10-14
Maturity Price : 25.50
Evaluated at bid price : 25.86
Bid-YTW : -9.21 %
BAM.PR.P FixedReset 95,644 RBC crossed blocks of 44,600 and 44,500, both at 27.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-30
Maturity Price : 25.00
Evaluated at bid price : 27.15
Bid-YTW : 3.91 %
TRP.PR.C FixedReset 87,730 RBC crossed blocks of 31,400 and 31,500, both at 26.10. Desjardins crossed 17,900 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-14
Maturity Price : 23.50
Evaluated at bid price : 25.98
Bid-YTW : 2.89 %
BMO.PR.J Deemed-Retractible 68,054 TD crossed 37,000 at 25.16.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.01
Bid-YTW : 4.55 %
CM.PR.L FixedReset 57,607 Nesbitt crossed 50,000 at 27.57.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 27.49
Bid-YTW : 2.87 %
There were 35 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.A Floater Quote: 20.50 – 22.00
Spot Rate : 1.5000
Average : 1.1980

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-14
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 2.57 %

HSB.PR.C Deemed-Retractible Quote: 24.88 – 25.50
Spot Rate : 0.6200
Average : 0.3855

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.88
Bid-YTW : 5.17 %

HSE.PR.A FixedReset Quote: 25.47 – 25.97
Spot Rate : 0.5000
Average : 0.3139

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-14
Maturity Price : 23.34
Evaluated at bid price : 25.47
Bid-YTW : 3.15 %

CIU.PR.A Perpetual-Discount Quote: 24.33 – 24.90
Spot Rate : 0.5700
Average : 0.3911

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-14
Maturity Price : 23.85
Evaluated at bid price : 24.33
Bid-YTW : 4.73 %

GWO.PR.G Deemed-Retractible Quote: 24.90 – 25.14
Spot Rate : 0.2400
Average : 0.1663

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.90
Bid-YTW : 5.26 %

TD.PR.K FixedReset Quote: 27.38 – 27.61
Spot Rate : 0.2300
Average : 0.1594

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 27.38
Bid-YTW : 3.07 %

Market Action

September 13, 2011

Assiduous Readers will be aware of my admiration for American institutions. The politics may be crazy – and I feel that the SEC has been compromised by politicization – but there’s no doubt but that the finest quality ingredients go into the sausage-making process, regardless of what one might think of the final product. The latest example of this is living-will regulations:

U.S. regulators approved two sets of guidelines that banks including Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) will have to follow in drafting plans to protect the broader economy in the event of their own collapse.

The Federal Deposit Insurance Corp. board voted unanimously today to release a joint final rule laying out what the largest and most complex financial firms must include in so-called living wills they’re required to file. The panel also approved contingency planning guidelines for insured banks.

Regulators are requiring financial firms to file plans that are developed under the context of the bankruptcy code, with each designed to give a blueprint for how a firm could be taken apart. Subsidiaries with critical operations or core functions would also have to be addressed in resolution plans, a senior FDIC official said before today’s meeting.

Can you imagine? Requiring the plans to be compatible with the bankruptcy code that has been developed globally over three hundred years, adjusted, tweaked and refined in response to every conceivable contingency? It’s unheard of! It’s brilliant! I think the FDIC board members should all get Nobel Prizes, and that’s just for starters.

The Italian 5-year auction didn’t go too well:

Italian borrowing costs jumped at a 6.5 billion-euro ($8.8 billion) bond auction as contagion from Europe’s debt crisis leaves investors shunning the region’s most-indebted nations.

The Rome-based Treasury sold 3.9 billion euros of a new benchmark five-year bond to yield 5.6 percent, up from 4.93 percent when similar-maturity securities were sold on July 14.

Greece is finally getting some good advice:

Greece should default on its bonds to stop a deterioration of the economy, said Mario Blejer, a former Bank of England adviser who took the reins of Argentina’s central bank after its 2001 default on $95 billion.

“Greece should default, and default big,” Blejer, who was an adviser to Bank of England Governor Mervyn King from 2003 to 2008, said in an interview in Buenos Aires. “You can’t jump over a chasm in two steps.”

Rescue programs backed by the International Monetary Fund and European Central Bank are “recession creating” efforts that will leave Greece saddled with more debt relative to the size of its economy in coming years and stifle growth, Blejer said. A Greek default would push Portugal to do the same and would put Ireland “under tremendous pressure to at least symbolically default” on some of its debt, he added.

IIROC has published a rather cutesy Guide to Trading on Equity Markets. The interactive graphics are in desperate need of proof-reading … for example, item #5, purportedly indicating the “last trade” on the explanation of buy and sell orders is misplaced; while the explanation of limit orders illustrates the instruction “Sell 500 @ 20.00” with an explanation of the consequences if the order had in fact been “Sell 500 @ 20.40”. Good old IIROC, always good for a laugh.


Click for Big


Click forBig

The situation with TRE options is a disgrace:

Shareholders of Sino-Forest Corp. (TRE-T4.81—-%) aren’t the only ones with headaches after the Ontario Securities Commission halted trading in the company’s shares.

Investors who thought they were buying insurance using “put” options against a decline in the forestry company’s shares are facing the prospect that their protection could be worthless.

Last week, the OSC extended the cease-trade order to Jan. 25, 2012. During the four-month break, about 9,000 put options are scheduled to expire. Each put allows the holder to sell 100 shares at a predetermined price.

The issue first flared up on Aug. 26 when the Canadian Derivatives and Clearing Corp., which oversees options trading in Canada, announced that Sino-Forest options could not be exercised while trading in the stock was halted. That rattled investors who held put contracts that were now frozen.

After discussions with the investors, the CDCC filed a request with the OSC asking for permission to allow some investors to exercise the options.

It is requesting special treatment for contracts that were purchased as protection against a long position in the shares. That means anyone who bought puts purely for speculative purposes will still be out of luck if the OSC approves the request.

I’m surprised at two things – mainly that such a situation isn’t common enough that it was foreseen and provided for in the contract specifications. It seems to me – at first blush – that the most logical way to address the problem is to extend the expiration date of the options by a term equal to the term of the cease trading order.

CDCC’s press release states:

In accordance with CDCC prior practice, CDCC made application to the OSC on September 7, 2011 for an order varying the Cease Trade Order to permit the outstanding put contracts to be exercised.

OSC staff are considering CDCC’s application and have advised CDCC that, if OSC staff determine it is appropriate to recommend that the requested variation order be granted, OSC staff may recommend that a condition be included in the variation order that limits the relief to holders of outstanding put contracts who are not current or former members of management or other insiders of Sino-Forest Corporation.

However, the application for the variance states:

CDCC members will be informed that if they (or their clients or other beneficiaries) wish to exercise a Put Contract, they must currently own the shares to make good delivery.

Even this wouldn’t be so bad, if you could at least sell your puts to somebody who did own shares (or who was short the puts already) – but the Montreal Exchange reports no trading in TRE options since the cease-trading order became effective. And I don’t know whether it would be legal to borrow the shares required to make good delivery.

If you were given the task of thinking up a response to such a situation most harmful to market integrity, you would suggest treating puts differently according to the moral virtue of the holder (speculators, of course, being EVIL! EVIL! EVIL!).

I don’t know much about the intricacies of the option market, but would dearly love to be guided to some authoritative discussion of the topic by somebody who does.

IAG issued equity:

DBRS regards favourably the decision by Industrial Alliance Insurance and Financial Services Inc. (IAG or the Company; Subordinated Debentures rated “A”, Claims Paying Ability rated IC-2, and Non-Cumulative Preferred Shares rated Pfd-2 (high)) to privately place six million common shares worth close to $200 million with the Caisse de dépôt et placement du Québec. Pro forma the new issue, the new shares will represent 6.7% of the Company’s 90 million in outstanding common shares. The Company’s solvency ratio will increase by 14 percentage points as of June 30, 2011, to 208%. Ostensibly, the raising of capital at this time was a reaction to the recent weakness in the global economy as suggested by soft equity markets and continued downward pressure on interest rates. Both market developments could result in a required increase in actuarial reserves, which could erode earnings in the short run. To issue new capital in the current uncertain economic and market environment is therefore regarded as prudent.

IAG has been increasing its exposure to equity markets by virtue of segregated fund guarantees, increased equity assets held opposite long-tailed liabilities, and through the impact on management fee income in both the segregated fund operations and in the IA Clarington mutual fund operation. The Company is also exposed to falling interest rates. While IAG, like most life insurance companies, is dynamically hedging some of these market exposures, it is increasingly exposed to financial market volatility, which justifies the decision to increase its regulatory capital relative to the peer group.

IAG has stated:

The Company considers that its solvency ratio will remain above 175% as long as the S&P/TSX remains above 9,600 points (compared to 10,600 points without this issue) and will remain above 150% as long as the S&P/TSX remains above 8,100 points (compared to 8,800 points without this issue).

It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts winning 16bp, FixedResets up 10bp and DeemedRetractibles losing 3bp. There was good volatility, all positive and dominated by BAM – perhaps the market forgot that all those issues went ex-Dividend today. 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 0.8084 % 2,154.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.8084 % 3,241.0
Floater 3.02 % 3.34 % 62,376 18.92 3 0.8084 % 2,326.8
OpRet 4.81 % 2.00 % 62,882 1.65 8 0.3805 % 2,461.1
SplitShare 5.38 % 1.56 % 54,744 0.46 4 -0.0983 % 2,494.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3805 % 2,250.4
Perpetual-Premium 5.62 % 4.51 % 123,673 1.09 16 0.0652 % 2,115.0
Perpetual-Discount 5.27 % 5.32 % 114,723 14.98 14 0.1560 % 2,259.5
FixedReset 5.14 % 3.00 % 202,273 2.63 59 0.0983 % 2,334.5
Deemed-Retractible 5.04 % 4.61 % 241,234 7.79 46 -0.0278 % 2,199.9
Performance Highlights
Issue Index Change Notes
BAM.PR.O OpRet 1.05 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 2.82 %
BAM.PR.P FixedReset 1.05 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-30
Maturity Price : 25.00
Evaluated at bid price : 27.15
Bid-YTW : 3.90 %
BAM.PR.N Perpetual-Discount 1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-13
Maturity Price : 21.96
Evaluated at bid price : 22.29
Bid-YTW : 5.33 %
BAM.PR.B Floater 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-13
Maturity Price : 15.61
Evaluated at bid price : 15.61
Bid-YTW : 3.36 %
POW.PR.D Perpetual-Discount 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-13
Maturity Price : 24.30
Evaluated at bid price : 24.60
Bid-YTW : 5.15 %
BAM.PR.R FixedReset 1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-13
Maturity Price : 23.39
Evaluated at bid price : 25.71
Bid-YTW : 3.78 %
FTS.PR.E OpRet 1.47 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.99
Bid-YTW : 2.00 %
BAM.PR.K Floater 1.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-13
Maturity Price : 15.70
Evaluated at bid price : 15.70
Bid-YTW : 3.34 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.C FixedReset 85,275 RBC crossed 30,000 at 26.10; TD crossed 45,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-13
Maturity Price : 23.53
Evaluated at bid price : 26.10
Bid-YTW : 2.87 %
RY.PR.T FixedReset 54,200 RBC crossed 50,000 at 27.35.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 27.30
Bid-YTW : 3.11 %
BNS.PR.P FixedReset 52,235 RBC crossed 50,000 at 25.95.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 2.98 %
NA.PR.M Deemed-Retractible 46,367 RBC crossed 22,800 at 26.90.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-15
Maturity Price : 26.00
Evaluated at bid price : 26.95
Bid-YTW : 3.78 %
CM.PR.J Deemed-Retractible 40,750 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.36
Bid-YTW : 4.41 %
TD.PR.G FixedReset 38,791 RBC crossed 25,000 at 27.31.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 27.23
Bid-YTW : 3.00 %
There were 22 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BNA.PR.E SplitShare Quote: 23.07 – 24.04
Spot Rate : 0.9700
Average : 0.7158

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 23.07
Bid-YTW : 6.42 %

PWF.PR.A Floater Quote: 20.90 – 22.00
Spot Rate : 1.1000
Average : 0.8669

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-13
Maturity Price : 20.90
Evaluated at bid price : 20.90
Bid-YTW : 2.52 %

BMO.PR.P FixedReset Quote: 26.54 – 27.00
Spot Rate : 0.4600
Average : 0.3133

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.54
Bid-YTW : 3.59 %

BAM.PR.O OpRet Quote: 25.90 – 26.35
Spot Rate : 0.4500
Average : 0.3316

YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 2.82 %

ELF.PR.F Perpetual-Discount Quote: 23.10 – 23.41
Spot Rate : 0.3100
Average : 0.2313

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-09-13
Maturity Price : 22.81
Evaluated at bid price : 23.10
Bid-YTW : 5.83 %

SLF.PR.G FixedReset Quote: 25.10 – 25.35
Spot Rate : 0.2500
Average : 0.1805

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 3.32 %

Issue Comments

BBO.PR.A To Get Bigger Via Treasury Offering

Claymore Investments Inc. has announced:

that Big Bank Big Oil Split Corp. (the “Company”) has filed a preliminary short form prospectus in connection with a follow‐on offering (the “Offering”) of Capital Shares and Preferred Shares of the Company.

The Company completed its initial public offering of Capital Shares and Preferred Shares on June 16, 2006. The outstanding Capital Shares and Preferred Shares currently trade on the Toronto Stock Exchange (the “TSX”) under the symbols “BBO” and “BBO.PR.A” respectively.

The Company invests in a portfolio (the “Portfolio”) of common shares of the six big Canadian banks and the ten biggest (by market capitalization) Canadian oil and gas companies utilizing a split share structure. The Company invests on an equal‐weighted basis and provides a low fee approach to the underlying sectors. The Preferred Shares are rated Pfd‐2 by Dominion Bond Rating Service Ltd. The Company may write covered call options and cash covered put options on the Portfolio in order to generate additional returns.

The investment objectives for the Preferred Shares are: (i) to provide holders with fixed cumulative preferential quarterly cash distributions in the amount of $0.13125 per Preferred Share; and (ii) to return the original issue price of $10.00 per Preferred Share to holders on December 30, 2016. The investment objectives for the Capital Shares are: (i) to provide holders with regular monthly cash distributions, which are currently $0.09 per Capital Share; and (ii) to provide holders with the opportunity for growth in the net asset value per Capital Share.

The Offering is being made on a best efforts agency basis in each of the provinces and territories in Canada through a syndicate of investment dealers co‐led by TD Securities Inc. and CIBC World Markets Inc. and including GMP Securities L.P., RBC Dominion Securities Inc., Scotia Capital Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc., Canaccord Genuity Corp., HSBC Securities (Canada) Inc., Raymond James Ltd., Desjardins Securities Inc., Macquarie Private Wealth Inc., Dundee Securities Ltd., Mackie Research Capital Corporation, and Rothenberg Capital Management Inc.

I was startled to see the claim that the issue is rated Pfd-2 by DBRS, because BBO.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-2(low). Did I miss something? Nope – it is still rated Pfd-2(low) and was confirmed at that level 2011-9-6.

Asset Coverage is currently 2.1-:1. The July, 2008 prospectus (for a warrant issue) indicates that there is a NAV test (1.5:1) and monthly retraction [96%(NAV – C)]

The issue has heretofore been too small to warrant tracking by HIMIPref™ (only about 1.6-million outstanding), but who knows? Maybe that will change.

Update, 2011-9-14: I wasn’t the only one who was startled:

Claymore Investments, Inc. wishes to confirm that the outstanding Preferred Shares of Big Bank Big Oil Split Corp. (the “Company”), which trade on the Toronto Stock Exchange under the symbol “BBO.PR.A”, are currently rated Pfd-2(low) by Dominion Bond Rating Service Ltd.

A press release issued on behalf of the Company on September 13, 2011 announcing the filing of a short form preliminary prospectus in respect of a proposed offering of Preferred Shares and Capital Shares of the Company inadvertently referred to the rating as Pfd-2.

Issue Comments

DBRS Places BRF.PR.A On Review-Developing

Brookfield has announced:

a plan to combine Brookfield Renewable Power Fund and the power generating assets owned Brookfield Renewable Power Inc., to create Brookfield Renewable Energy Partners L.P. (“BREP”), a global, publicly-traded partnership focused on renewable power generation.

The transaction will require approval by 662/3% of Fund unitholders and a majority of unitholders other than Brookfield and related persons present at the meeting in person or by proxy and Ontario court approvals. In addition, Brookfield will seek approval from 662/3% of the holders of Preferred Shares and Brookfield Renewable Power’s unsecured bondholders, which are conditions to closing. Meeting materials containing details of the proposed transaction are expected to be mailed to security holders of the Fund, Brookfield Renewable Power Equity and Brookfield Renewable Power as soon as practicable. It is anticipated that meetings of security holders to seek the approvals referred to above will be held in October and November of 2011.

In response, DBRS has announced:

has today placed the Senior Unsecured Debentures and Notes rating of Brookfield Renewable Power Inc. (BRPI) Under Review with Developing Implications. DBRS has also placed the Issuer Rating and Income Fund rating of Brookfield Renewable Power Fund (the Fund) and the Preferred Shares, Series 1 (the Preferred Shares) rating of the Fund affiliate Brookfield Renewable Power Preferred Equity Inc. (Equity Inc.) Under Review with Developing Implications.

Equity Inc.’s Preferred Shares will become the obligation of a BREP subsidiary, guaranteed on a subordinate basis by BREP, mimicking the current structure under which the Preferred Shares are guaranteed on a subordinate basis by the Fund. Similar to the Fund, BREP would feature a contracted generation portfolio, with a weighted-average term of approximately 24 years. For the Preferred Shareholders, DBRS views the Transaction as offering a number of positive aspects that reduce business risk:

(1) BREP would be a much larger and more diverse renewable generator than the Fund, with the addition of contracted assets in the United States and Brazil. BREP’s approximate $13 billion in total assets would be more than double the Fund’s current size (C$5.6 billion as of June 30, 2011). BREP’s generating capacity (approximately 4,400 MW) is also substantially larger than that of the current Fund (approximately 1,700 MW). As mentioned above, BREP is expected to generate $1.1 billion annual EBITDA and $550 million cash flow from operations, based on long-term average hydrology and production levels. The added geographic diversity would result in lower exposure to weak hydrology in any one area.

(2) Average contract prices for the Ontario generation operations, which represent approximately 50% of the Fund’s production, will increase from C$68/MWh to C$88/MWh.

(3) Counterparty exposure to BRPI will be reduced. Currently, BRPI is the counterparty on more than 70% of the Fund’s revenues (DBRS estimate); with the addition of the new assets, this concentration is expected to decline to the range of 50% to 60%.

(4) BREP is expected to have improved access to equity capital given its larger market capitalization and broader investor base.

However, the Transaction is expected to increase the financial risk from the perspective of the Preferred Shareholders as post-Transaction, the Preferred Shares would rank behind the C$1.1 billion of MTNs as opposed to behind the minimal levels of Fund-level debt that existed historically. Additionally, many of the U.S. and Brazilian generating assets have existing non-recourse project debt (as do many of the Fund’s current assets). DBRS views this negative effect as being balanced by the above-mentioned improvement in business risk resulting from the much larger, diverse contracted asset base and, therefore, as neutral from the perspective of an Equity Inc. Preferred Shareholder.

New Issues

New Issue: CU FixedReset 4.00%+240

Canadian Utilities first announced:

it has entered into an agreement with a syndicate of underwriters co-led by RBC Capital Markets and BMO Capital Markets, and including TD Securities Inc. and Scotia Capital Inc. The underwriters have agreed to buy 8 million 4.00% Cumulative Redeemable Second Preferred Shares Series Y at a price of $25.00 per share for aggregate gross proceeds of $200 million. The proceeds will be used for capital expenditures, to repay indebtedness and for other general corporate purposes.

Canadian Utilities Limited has granted the underwriters an option to purchase at the offering price an additional 2 million Series Y Preferred Shares exercisable in whole or in part at any time up to 9:00 AM on the date that is 2 days prior to closing. Should the option be fully exercised, the total gross proceeds of the Series Y Preferred Share offering will be $250 million.

The Series Y Preferred Shares will be issued to the public at a price of $25.00 per share and holders will be entitled to receive fixed cumulative preferential cash dividends, payable quarterly for an initial period of five and a half years, as and when declared by the Board of Directors of the Corporation, at an annual rate of $1.00 per share, to yield 4.00% annually. Thereafter, the dividend rate will reset every five years to the then current 5-Year Government of Canada Bond yield plus 2.40%. On June 1, 2017, and on June 1 of every fifth year thereafter, the Corporation may redeem the Series Y Preferred Shares in whole or in part at par.

Holders may elect to convert any or all of their Series Y Preferred Shares into an equal number of Cumulative Redeemable Second Preferred Shares Series Z on June 1, 2017, and on June 1 of every fifth year thereafter.

Holders of the Series Z Preferred Shares will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of the Corporation, equal to the then current 3-month Government of Canada Treasury Bill yield plus 2.40%. On June 1 of every fifth year after conversion, the Corporation may redeem the Series Z Preferred Shares in whole or in part at par; on any other date, the Corporation may redeem the Series Z Preferred Shares in whole or in part by the payment of $25.50 for each share to be redeemed.

The offering is being made only in the provinces of Canada by means of a prospectus supplement and the closing date of the issue is expected to be on or about September 21, 2011.

They later announced:

that as a result of strong investor demand for its previously announced offering of Cumulative Redeemable Second Preferred Shares Series Y, the size of the offering has been increased to 11 million shares. The aggregate gross proceeds will now be $275 million. The proceeds will be used for capital expenditures, to repay indebtedness and for other general corporate purposes.

Canadian Utilities Limited has granted the underwriters an option to purchase at the offering price an additional 2 million Series Y Preferred Shares exercisable in whole or in part at any time up to 9:00 AM on the date that is 2 days prior to closing. Should the option be fully exercised, the total gross proceeds of the Series Y Preferred Share offering will be $325 million.

Update, 2011-9-15: DBRS assigns Pfd-2(high).