BMO: Preferred Technical Downgrade by S&P

December 14th, 2011

Standard & Poor’s has announced:

  • Following a review of Bank of Montreal (BMO) under our revised bank criteria (published on Nov. 9, 2011), we are affirming our ‘A+/A-1’ issuer credit rating on BMO. The outlook is stable.
  • Our rating on BMO reflects our adequate scores for the bank’s business position, capital and earnings, and risk position, and average funding and adequate liquidity.
  • The issuer credit rating on BMO incorporates one notch of uplift, reflecting BMO’s high systemic importance in Canada and our assessment of the Canadian government as supportive.
  • We expect the bank to continue to generate consistent earnings, supported by its stable retail banking operations and to benefit from its higher proportion of commercial lending with better growth prospects and manageable loan losses.

As we previously announced, on Dec. 13, 2011, Standard & Poor’s Ratings Services affirmed its ‘A+/A-1’ issuer credit rating on Bank of Montreal (BMO). The stand-alone credit profile (SACP) is ‘a’. At the same time, we lowered our ratings on the bank and its subsidiaries’ hybrid securities and preferred stock to ‘BBB+’ from ‘A-‘, two notches below the SACP, consistent with application of our revised bank hybrid capital criteria (published Nov. 1, 2011). The outlook is stable.

As a result of this, the global scale rating is now BBB+; the preferred scale rating is P-2(high); for all issues.

BMO has the following preferred share issues outstanding: BMO.PR.H, BMO.PR.J, BMO.PR.K and BMO.PR.L (DeemedRetractible); and BMO.PR.M, BMO.PR.N, BMO.PR.O, BMO.PR.P and BMO.PR.Q (FixedReset).

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CM: Preferred Technical Downgrade by S&P

December 14th, 2011

Standard & Poor’s has announced:

  • Following a review under Standard & Poor’s revised bank criteria (published on Nov. 9, 2011), we have affirmed our ‘A+/A-1’ issuer credit rating on Canadian Imperial Bank of Commerce (CIBC). The outlook is
    stable.

  • Our ratings on CIBC reflect our adequate assessments for its business position, capital and earnings, risk position, and liquidity, and average funding.
  • The ratings on CIBC benefit from one notch of uplift for potential extraordinary government support in a crisis.
  • We expect CIBC’s profitability to continue to improve as loan quality improves and the company further executes on its core banking strategy.

As we previously announced, on Dec. 13, 2011, Standard & Poor’s Ratings Services affirmed its ‘A+/A-1’ issuer credit rating (ICR) on CIBC. The outlook is stable. The stand-alone credit profile (SACP) is ‘a’. In addition, we lowered the rating on CIBC’s nondeferrable subordinated debt to ‘A-‘ from ‘A’ and the rating on its preferred stock to ‘BBB+’ from ‘A-‘. CIBC’s nondeferrable subordinated debt is rated one notch below the ‘a’ SACP as opposed to being notched from the ‘A+’ ICR, based on our new hybrid criteria. Nondeferrable subordinated debt is rated below a bank’s SACP in countries whose legal or regulatory frameworks may not support this type of debt in a stress scenario. Recent guidance from Canada’s Office of the Superintendant of Financial Institutions expresses an expectation that all Tier 1 and Tier 2 capital instruments “must be able to absorb losses in a failed financial institution.” We expect different treatment would apply to capital instruments and senior debt as a Canadian bank approaches a state of nonviability. Preferred stock is rated two notches below the ‘a’ SACP, consistent with our new hybrid criteria.

CM has the following preferred share issues outstanding: CM.PR.D, CM.PR.E and CM.PR.G (PerpetualPremium); CM.PR.I, CM.PR.J and CM.PR.P (DeemedRetractible); and CM.PR.K, CM.PR.L and CM.PR.M (FixedReset).

The change has affected the rating of the preferreds on the local scale: CM.PR.D and CM.PR.E are now P-2 (CM.PR.G is not rated by S&P): all other issues are now P-2(high).

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BNS: Preferred Technical Downgrade on Global Scale by S&P

December 14th, 2011

Standard & Poor’s has announced:

  • Following a review of the Bank of Nova Scotia (BNS) under Standard & Poor’s revised bank criteria (published on Nov. 9, 2011), we are affirming the ‘AA-/A-1+’ long- and short-term issuer credit ratings on
    BNS. The outlook is stable.

  • Our ratings on BNS reflect the bank’s strong business position, adequate
    capital and earnings, strong risk position, and average funding and adequate liquidity, as our criteria define these terms.

  • The ratings on BNS benefit from a one-notch uplift for potential extraordinary government support in a crisis.
  • We expect the bank to continue to generate consistent earnings supported by its stable retail banking operations and manageable loan losses.

As we previously announced, on Dec. 13, 2011, Standard & Poor’s Ratings Services affirmed its ‘AA-/A-1+’ long- and short-term issuer credit ratings on The Bank of Nova Scotia. The outlook is stable. At the same time, we lowered the ratings on the bank and its subsidiaries’ hybrid securities and preferred stock to ‘A-‘ from ‘A’, two notches below the SACP, consistent with the application of our revised bank hybrid capital criteria (published Nov. 1, 2011).

The issues remain at P-1(low) on the Preferred Scale.

BNS has the following issues outstanding: BNS.PR.J, BNS.PR.K, BNS.PR.L, BNS.PR.M, BNS.PR.N and BNS.PR.O (DeemedRetractible) and BNS.PR.P, BNS.PR.Q, BNS.PR.R, BNS.PR.T, BNS.PR.X, BNS.PR.Y and BNS.PR.Z (FixedReset).

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RY: Preferred Technical Downgrade on Global Scale by S&P

December 14th, 2011

Standard & Poor’s has announced:

  • Following a review of Royal Bank of Canada (RBC) under Standard & Poor’s revised bank criteria (published Nov. 9, 2011), we are affirming the ‘AA-/A-1+’ issuer credit ratings on the bank. The outlook is stable.
  • Our ratings on RBC are based on its strong business position, moderate capital and earnings, strong risk position, and average funding and adequate liquidity, as our criteria define these terms.
  • The issuer credit rating on RBC receives one notch of uplift, reflecting RBC’s high systemic importance in Canada and our assessment of the Canadian government as supportive.
  • We expect the bank to continue to generate consistent earnings supported
    by its premier business franchises in Canada with its stable retail banking operations and manageable loan losses.

As we previously announced, on Dec. 13, 2011, Standard & Poor’s Ratings Services affirmed its ‘AA-/A-1+’ issuer credit ratings on Royal Bank of Canada (RBC). The stand-alone credit profile (SACP) is ‘a+’. The outlook is stable. At the same time, we lowered the ratings on the bank and its subsidiaries’ hybrid securities and preferred stock to ‘A-‘ from ‘A’, two notches below the SACP, consistent with application of our revised bank hybrid capital criteria (published Nov. 1, 2011).

We also lowered our ratings on RBC and its subsidiaries’ nondeferrable subordinated debt to ‘A’ from ‘A+’. RBC’s nondeferrable subordinated debt is rated off the ‘a+’ SACP as opposed to being notched from the ‘AA-‘ issuer credit rating, based on our new hybrid criteria. We stipulate that nondeferrable subordinated debt would be rated below a bank’s SACP in countries whose legal or regulatory frameworks may not support this type of debt in a stress scenario. Recent guidance from the Office of the Superintendent of Financial Institutions (OSFI) expresses an expectation that, after a transition period, all Tier 1 and 2 capital instruments “must be able to absorb losses in a failed financial institution”. Standard & Poor’s expects differentiated treatment would apply to capital instruments and senior debt as a Canadian bank approaches a state of nonviability.

The issues remain at P-1(low) on the Preferred Scale.

RY has the following preferred shares outstanding: RY.PR.A, RY.PR.B, RY.PR.C, RY.PR.D, RY.PR.E, RY.PR.F, RY.PR.G and RY.PR.H (DeemedRetractible); RY.PR.I, RY.PR.L, RY.PR.N, RY.PR.P, RY.PR.R RY,PR.T, RY.PR.X and RY.PR.Y (FixedReset); and RY.PR.W (PerpetualDiscount)

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SLF Put on CreditWatch Negative by S&P

December 14th, 2011

Sun Life Financial announced December 12:

the completion of a major strategic review of its businesses. Dean A. Connor, President and Chief Executive Officer, said the company will be repositioned to accelerate growth, improve return on shareholders’ equity and reduce volatility by concentrating its future growth into four key pillars:

  • Continuing to build on its leadership position in Canada in insurance, wealth management and employee benefits;
  • Becoming a leader in group insurance and voluntary benefits in the U.S.;
  • Supporting continued growth in MFS Investment Management, and broadening Sun Life’s other asset management businesses around the world; and
  • Strengthening Sun Life’s competitive position in Asia.

As a result of this strategic review, the Company announced that it will close its domestic U.S. variable annuity and individual life products to new sales effective December 30, 2011. The decision to discontinue sales in these two lines of business is based on unfavourable product economics which, due to ongoing shifts in capital markets and regulatory requirements, no longer enhance shareholder value. This decision reflects the Company’s intensified focus on reducing volatility and improving the return on shareholders’ equity by shifting capital to businesses with superior growth, risk and return characteristics.

Standard & Poor’s has announced:

  • Sun Life Financial Inc. announced that it will discontinue sales of its U.S. variable annuity (VA) and U.S. individual life products effective Dec. 31, 2011.
  • We have placed our ratings on Sun Life Financial Inc., including our ‘A’ counterparty credit rating, on CreditWatch with negative implications, reflecting the potential loss of earnings quality and diversification at the holding company.
  • In addition, we have revised our view of Sun Life Assurance Co. of Canada (U.S.) and subsidiaries (SLUS) to nonstrategically important to Sun Life Financial Inc., from core.
  • As a result, we lowered our long-term counterparty and financial strength rating on SLUS to ‘A-‘ and placed the ratings on CreditWatch with negative implications.
  • The ratings on the Canadian entities within the group are unaffected.

…
We expect to resolve the CreditWatch within three months, following a more in-depth analysis of the SLUS prospective stand-alone capitalization, earnings, the details of the run-off plan, and the potential parental support.

We could affirm the ratings on Sun Life Financial if, upon further analysis, we believe the loss of earnings from SLUS is immaterial and coverage ratios and earnings diversification from remaining operations continue to support the current holding company notching. Otherwise, we could lower our ratings on the holding company by one notch, so that we would rate it three notches below the financial strength rating on the group’s core subsidiaries instead of the current two notches.

In contrast:

DBRS has today commented on the decision announced today by Sun Life Financial Inc. (SLF or the Company) to stop selling variable annuity and individual life insurance products in the U.S. market. DBRS views the decision favourably. There are no rating changes as a result of this action.

SLF has the following preferred shares outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D and SLF.PR.E (DeemedRetractible) and SLF.PR.F, SLF.PR.G, SLF.PR.H and SLF.PR.I (FixedReset). All are tracked by HIMIPref™ and assigned to their respective indices.

Posted in Issue Comments | 2 Comments »

MFC.PR.G Underwriters' Clearance Sale

December 13th, 2011

Usually reliable sources tell me that the underwriters of MFC.PR.G are blowing out their inventory at 23.75.

MFC.PR.G is a 4.40%+290 FixedReset that settled December 6 to widespread revulsion and despair … the inventory blow-out is happening while the ink’s still wet on the certificate!

It is interesting to compare this with the BCE.PR.K reopening announced yesterday … BCE.PR.K is a 4.15%+188 FixedReset trading at around par.

I don’t get it.

You want to talk about BCE being a better credit than MFC? We can talk. You want to talk about BCE being non-financial and therefore having some scarcity value? We can talk. But is that worth A WHOLE FRIGGIN’ POINT of dividend after reset? Even before accounting for the price difference? You better talk real good!

Posted in Issue Comments | 4 Comments »

December 12, 2011

December 12th, 2011

The European governments need the banks, because the banks buy their debt. Guess who the banks depend on?

European banks turning to their governments to raise required capital could trigger a downward spiral of declining sovereign-debt prices and further losses for the lenders.

The European Banking Authority ordered the region’s banks on Dec. 8 to raise 115 billion euros ($154 billion) by June. Faced with dwindling profits and unable to tap capital markets to sell new shares, firms may be forced to seek government help. About 70 percent of the capital requirement falls on lenders in Spain, Greece, Italy and Portugal, countries struggling to convince the world they can pay their debts.

“If the Southern governments put money in their banks, their sovereign debt will go up, exacerbating their problems,” said Karel Lannoo, chief executive officer of the Centre for European Policy Studies in Brussels. “Then the banks’ losses will rise because they hold the government debt. That’s a vicious cycle. It’s hard to know which one to stabilize first, the sovereign bonds or the banks.”

Moody’s blue:

European leaders unveiled a blueprint after meetings on Dec. 8 and 9 for a closer fiscal accord to save the euro, adding 200 billion euros to their bailout fund and tightening rules to curb future debts. They also agreed to start a 500 billion-euro rescue fund next year.

The agreement offered few new measures and doesn’t diminish the risk of credit-ranking revisions, Moody’s said in its Weekly Credit Outlook. “In the absence of any decisive policy initiatives that stabilize credit-market conditions effectively, our intention as announced in November is to revisit the level and dispersion of ratings during the first quarter of 2012,” the company said.

Bad news from Sino-Forest:

The company won’t be able to publish the earnings within the 30-day period stated on Nov. 15, Hong Kong- and Mississauga, Ontario-based Sino-Forest said today in a statement. There’s no assurance if or when the results will be released, it said. Sino-Forest also said a report by an independent committee into the fraud allegations now won’t be issued until 2012, instead of the year-end as previously stated.

Sino-Forest said it decided it won’t make a $9.78 million interest payment on its 2016 convertible notes that’s due Dec. 15. The company said it retained Houlihan Lokey and Bennett Jones LLP as its financial and legal advisers to assist in the evaluation of its options.

“In these circumstances, the board has determined that it must consider all strategic options available,” the company said in the statement. “The company may consider obtaining other sources of capital, including through the recapitalization of the company or the sale of some or all of its business.”

A lot of the fuss could be – could! – simply hysteria. That’s just people talking. But not being able to produce financials, another delay in the special committee report and skipping an interest payment … that’s real.

The Republicans are going to love this:

China may use tax cuts to shore up expansion in the second-largest economy next year as export growth weakens and the threat of bad loans from stimulus spending narrows the government’s options.

Another thing that’s real is Sun Life retreating from the US:

Sun Life Financial Inc. (SLF), Canada’s third-largest insurer, plans to stop selling variable annuities and individual life insurance products in the U.S. and will cut 800 jobs there as it shifts focus to Canada and Asia. The stock had its biggest gain in more than two years.

Sun Life expects to record costs of about C$75 million ($73 million) to C$100 million from the changes, a portion of which will be in the fourth quarter, the Toronto-based company said today in a statement. The insurer will also take a writedown of about C$97 million.

Variable annuities, which provide guaranteed incomes to customers regardless of market performance, have led to losses at Sun Life and bigger rival Manulife Financial Corp. (MFC) after equities plunged. Sun Life’s U.S. insurance unit had losses of C$569 million in the third quarter, and C$279 million in the first nine months of 2011.

The common soared, but the preferreds were actually down on good volume!

DBRS commented:

Over the past several years, volatility has highlighted SLF’s economic exposure to the capital markets from guarantees written on variable annuities and embedded interest rate guarantees associated with life insurance products. However, the Company’s ability to mitigate these market fluctuations is limited by the disadvantageous accounting and regulatory capital treatment faced by Canadian life insurance companies, especially with regard to these long-tailed products. Since U.S.-based competitors have not faced the same disadvantage, the ability of Canadian companies to compete on a level playing field in these increasingly commoditized product lines has deteriorated. Despite recent efforts to de-risk, re-price and hedge these products, the cost to the Company in terms of capital allocation charges and earnings volatility, combined with cost and product disadvantages, has been deemed by the management team under new Sun Life CEO Dean Connor to be unsustainable. As of December 30, 2011, sales of these products will therefore cease.
…
While reduced exposure to the U.S. variable annuity and individual life markets makes good sense from a capital and earnings perspective, DBRS recognizes that the Canadian life insurance industry continues to move away from its core and unique expertise in life underwriting in favour of more commoditized and more competitive wealth management products that require less regulatory capital.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 4bp, FixedResets down 1bp and DeemedRetractibles losing 12bp. Volatility was good, mostly on the down side. 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 -0.3484 % 2,045.4
FixedFloater 4.87 % 4.61 % 34,789 17.10 1 -1.6625 % 3,166.4
Floater 3.24 % 3.55 % 65,229 18.32 3 -0.3484 % 2,208.5
OpRet 4.91 % 3.05 % 57,555 1.42 6 -0.2179 % 2,468.1
SplitShare 5.83 % 6.85 % 59,229 5.10 3 -0.7322 % 2,516.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2179 % 2,256.8
Perpetual-Premium 5.50 % 2.92 % 90,968 0.86 18 0.2238 % 2,166.6
Perpetual-Discount 5.23 % 5.15 % 105,413 15.08 12 0.0413 % 2,313.9
FixedReset 5.10 % 3.03 % 221,207 2.52 64 -0.0102 % 2,340.2
Deemed-Retractible 5.04 % 4.32 % 194,199 3.38 46 -0.1244 % 2,227.2
Performance Highlights
Issue Index Change Notes
BAM.PR.G FixedFloater -1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-12
Maturity Price : 25.00
Evaluated at bid price : 19.52
Bid-YTW : 4.61 %
BNA.PR.E SplitShare -1.35 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 22.64
Bid-YTW : 6.85 %
SLF.PR.G FixedReset -1.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.10
Bid-YTW : 4.25 %
SLF.PR.E Deemed-Retractible -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.96
Bid-YTW : 6.73 %
GWO.PR.H Deemed-Retractible -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.40
Bid-YTW : 5.69 %
CIU.PR.A Perpetual-Discount 1.86 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-12
Maturity Price : 24.20
Evaluated at bid price : 24.70
Bid-YTW : 4.66 %
Volume Highlights
Issue Index Shares
Traded		 Notes
SLF.PR.C Deemed-Retractible 29,465 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.83
Bid-YTW : 6.75 %
BAM.PR.B Floater 21,677 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-12
Maturity Price : 14.95
Evaluated at bid price : 14.95
Bid-YTW : 3.55 %
ENB.PR.D FixedReset 21,635 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-12
Maturity Price : 23.15
Evaluated at bid price : 25.16
Bid-YTW : 3.61 %
SLF.PR.B Deemed-Retractible 20,193 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.10
Bid-YTW : 6.37 %
TRP.PR.C FixedReset 19,075 RBC crossed 17,200 at 25.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-12
Maturity Price : 23.45
Evaluated at bid price : 25.68
Bid-YTW : 2.89 %
SLF.PR.D Deemed-Retractible 18,776 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.83
Bid-YTW : 6.75 %
There were 19 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
ELF.PR.G Perpetual-Discount Quote: 21.30 – 22.02
Spot Rate : 0.7200
Average : 0.6353

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-12
Maturity Price : 21.30
Evaluated at bid price : 21.30
Bid-YTW : 5.67 %
CM.PR.I Deemed-Retractible Quote: 25.90 – 26.20
Spot Rate : 0.3000
Average : 0.2238

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-31
Maturity Price : 25.25
Evaluated at bid price : 25.90
Bid-YTW : 3.97 %
BAM.PR.Z FixedReset Quote: 25.40 – 25.64
Spot Rate : 0.2400
Average : 0.1686

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-12
Maturity Price : 23.23
Evaluated at bid price : 25.40
Bid-YTW : 4.26 %
HSB.PR.D Deemed-Retractible Quote: 25.42 – 25.73
Spot Rate : 0.3100
Average : 0.2421

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.42
Bid-YTW : 4.94 %
BNA.PR.E SplitShare Quote: 22.64 – 22.94
Spot Rate : 0.3000
Average : 0.2401

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 22.64
Bid-YTW : 6.85 %
CIU.PR.B FixedReset Quote: 26.91 – 27.45
Spot Rate : 0.5400
Average : 0.4839

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.91
Bid-YTW : 3.56 %

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BCE.PR.K Reopening: Ridiculous Rip-Off Wrinkle

December 12th, 2011

BCE Inc. has announced:

that it has entered into an agreement to issue and sell 10,000,000 Cumulative Redeemable First Preferred Shares, Series AK (series AK preferred shares), at a price of $25.00 per share, for aggregate gross proceeds of $250 million on a bought deal basis to a syndicate led by RBC Capital Markets, BMO Capital Markets and TD Securities Inc. This offering constitutes an additional issuance to the 13,800,000 series AK preferred shares that BCE initially issued on July 5, 2011.

The underwriters have also been granted an over-allotment option to purchase, at the offering price, up to an additional 1,200,000 series AK preferred shares exercisable until the date that is 30 days following the closing. Should the over-allotment be fully exercised, the total gross proceeds of the offering will be $280 million.

The series AK preferred shares will have the same terms and conditions as the existing series AK preferred shares and will pay on a quarterly basis (with the first quarterly dividend to be paid March 31, 2012), for the initial fixed rate period ending December 31, 2016, if, as and when declared by the Board of Directors of BCE, a fixed cash dividend of $0.25938. The dividend rate will be reset on December 31, 2016 and every five years thereafter at a rate equal to the 5-year Government of Canada bond yield plus 1.88%. The series AK preferred shares are redeemable by the issuer on or after December 31, 2016, in accordance with their terms.

Holders of series AK preferred shares have the right, at their option, to convert their shares into Cumulative Redeemable First Preferred Shares, Series AL, (series AL preferred shares) subject to certain conditions, on December 31, 2016 and on December 31 every five years thereafter. Holders of series AL preferred shares are entitled to receive quarterly floating adjustable cash dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 1.88%.

The series AK preferred shares will be offered for sale to the public in each of the provinces of Canada pursuant to a short form prospectus to be filed with Canadian securities regulatory authorities in all Canadian provinces. The offering is scheduled to close on or about January 4, 2012, subject to certain conditions, including obtaining all necessary regulatory approvals.

The net proceeds of this offering will be used for general corporate purposes.

The extant issue traded today slightly above 25.00, but IIROC halted trading shortly before the close.

I’m surprised the underwriters are letting BCE get away with this, but all’s fair in love, war and investments!

BCE.PR.K is a 4.15%+188 FixedReset that began trading in July. At the time of its announcement on June 20, the GOC 5-Year yield was about 2.20%. Since then it has tumbled to about 1.33% … implying that the normal structure would require an Issue Reset Spread of about 275bp if a new issue was done today. Naturally, the company prefers to issue new shares with a spread of 188bp!

One reason the structure evolved the way it did was because of all of the bank issuance – OSFI will allow index-based coupons in Tier 1 Capital, but only if there’s no future step-up implied in the calculation on approval date. I wonder how they feel about step-downs!

I had a number of things to say about the price effect of projected reset rates for discounted and near-par FixedResets in the December edition of PrefLetter which was published early this morning. Correlation or Causation?

Update: DBRS rates Pfd-3(high), Trend Stable.

Posted in Issue Comments, New Issues | 5 Comments »

December PrefLetter Released!

December 12th, 2011

The December, 2011, 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.

The December edition contains an appendix discussing “Liquidity Black Holes” – violent and brief downturns in the market, aka Flash Crashes.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the December, 2011, issue, while the “Next Edition” will be the January, 2012, issue, scheduled to be prepared as of the close January 13 and eMailed to subscribers prior to market-opening on January 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!

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December PrefLetter Now in Preparation!

December 9th, 2011

The markets have closed and the December edition of PrefLetter is now being prepared.

PrefLetter is the monthly newsletter recommending individual issues of preferred shares to subscribers. There is at least one recommendation from every major type of preferred share with investment-grade constituents. The recommendations are taylored for “buy-and-hold” investors.

The December edition will contain an appendix reviewing the concept of “Liquidity Black Holes”.

Those taking an annual subscription to PrefLetter receive a discount on viewing of my seminars.

PrefLetter is now available to all residents of Canada.

The December issue will be eMailed to clients and available for single-issue purchase with immediate delivery prior to the opening bell on Monday. I will write another post when the new issue has been uploaded to the server … so watch this space carefully if you intend to order “Next Issue” or “Previous Issue”! Until then, the “Next Issue” is the December issue.

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