PrefBlog

The FOMC statement was pretty gloomy:

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013

Of perhaps more interest was the voting:

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.

I reported on October 13 that Kocherlakota was decrying Opertation Twist, and extracted a big piece of Fisher’s dissent on September 27. This time, however, the dissenter wants looser policy. Uh-oh.

Speaking of Central Banks, Lapdog Carney’s opening statement to the House of Commons Standing Committee on Finance discussed the inflation target:

At the time of the last renewal, the Bank committed to continue its research into potential improvements that might build on the success of the current framework. A concerted and ambitious research agenda focused on evaluating whether two specific changes – targeting a lower rate of inflation or a path for the level of prices – could provide significant net benefits to the Canadian economy and Canadian households. Subsequently, the experience of the global financial and economic crisis prompted the Bank to add a third item to its research agenda – asking to what extent monetary policy should take account of financial stability considerations.

Allow me to highlight just some of the initiatives and work undertaken by the Bank over the past five years. Since 2008, we have had three major conferences for our staff and other researchers to present work on inflation targeting and the monetary policy framework. The most important of these research papers have been published in three special issues of the Bank of Canada Review – Winter 2007–08, Spring 2009 and Summer 2010. As well, Governing Council members have spoken regularly and publicly about the issues.

The research he mentions is basically with respect to Price Level Targetting, which has been discussed on PrefBlog and which I favour. What makes this interesting, however, is that there was no mention of the rumoured move to a dual mandate:

In an all-party vote on Thursday, members of the House of Commons finance committee decided they will hold at least one hearing on whether the bank’s mandate should be changed to include targets beyond inflation, such as full employment or nominal gross domestic product.

However such large-scale changes appear to be off the table.

“The Governor and I have discussed this [inflation targeting mandate renewal] at some length and I think we are understanding each other. We are … in line with each other on this,” Mr. Flaherty said. “So we’re not talking about a new policy or a new mandate for the Bank of Canada. What we are talking about is being more explicit about what the mandate of the Bank of Canada is.”

Mr. Flaherty’s comments are in line with a report by The Globe and Mail on Monday that the 2-per-cent target is expected to be renewed with a more forceful assertion of what the bank calls “flexible inflation targeting,” or the governor’s right to take longer than usual to bring inflation to the 2-per-cent target.

BIS has released a Consultative Document: Capitalisation of bank exposures to central counterparties:

CCPs can improve the safety and soundness of OTC derivatives markets through the multilateral netting of exposures, the enforcement of robust risk management standards, including mandatory posting of initial margin, and the mutualisation of losses should a clearing member fail.

Gee, mutualisation of losses is really working out well with respect to Greek debt in Europe, isn’t it? The banks have decided they’re in the business of making a profit:

The European Union’s plan for recapitalizing banks has “serious problems” that will hurt economic growth and make it harder for some nations to borrow, the Institute of International Finance said.

There is a “clear need” to restore confidence in Europe’s banks, IIF Managing Director Charles Dallara said today in a letter to the Group of 20 nations on the eve of a summit in Cannes, France. Yet the extra capital requirements at the center of the EU’s strategy will come with “considerable cost” because of a flawed scope and approach, he said.
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Banks are likely to decide that the costs of raising capital are “prohibitive,” Dallara said in his letter to the G-20. Rather than accept forced injections, banks are more likely to sell risky assets and cut back on lending, which will make it harder for countries on Europe’s periphery to access capital markets.

“The market value of the debt of the countries most under scrutiny is likely to decline further as banks unload sovereign bonds,” Dallara said. “This is contrary to the goal of stabilizing and underpinning the outlook for sovereign debt in Europe.”

If banks acted to meet the new requirements relying only on retained earnings and a reduction in credit supply, “overall credit exposure to the euro-area private sector would need to decline by at least 5 percent,” he said. “It is essential that the higher European capital requirements are a temporary measure as intended, not sustained over time and not seen as a new standard to be imposed more widely.”

The Europeans are furious with Papandreou:

Crisis talks were under way in the French resort of Cannes on the eve of a Group of 20 summit after Papandreou was summoned by European counterparts to explain his call for a referendum that risks delaying aid the country needs to avert default. In Athens, Greek lawmakers debated a confidence motion that could bring down his government.

The stewards of the euro “won’t accept” a break from last week’s agreement, Luxembourg Prime Minister Jean-Claude Juncker told reporters in Cannes. German Chancellor Angela Merkel said “we have to get to the point where we know exactly what comes next.”
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European Commission President Jose Barroso said the referendum may hold up Greece receiving 8 billion euros ($11 billion) of already delayed support. “In the European Union, we have agreed on far-reaching measures to support Greece,” he said in a statement. “But for those measures to be implemented it is critically important to have stability in the country.”

Europe’s woes are returning G-20 leaders to the crisis footing they adopted three years ago after the collapse of Lehman Brothers Holdings Inc. Australian Prime Minister Julia Gillard said in Cannes that Europe faces questions that “need to be answered and answered quickly,” while Chinese President Hu Jintao told Lagarde the crisis must be “prevented from spreading further.”

The European royalty is talking tough:

The euro declined, trading 0.7 percent from a three-week low against the dollar, as European leaders said Greece will hold a referendum next month to determine whether it will stay in the 17-nation currency.

The euro dropped against most of its 16 major counterparts as French President Nicolas Sarkozy said Greece won’t receive a “single cent” in aid without holding to its bailout agreement’s terms.
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Crisis talks ended in the French resort of Cannes with German Chancellor Angela Merkel and Sarkozy withholding 8 billion euros ($11 billion) of assistance to Greece and warning it will surrender all European aid if the nation votes against a bailout package agreed last week.

The hardball tactics open the door for the first time for a country to leave the 12-year-old currency bloc that its founders declared was “irrevocable.”

Remember all that leverage that was going to save the world?:

Market turmoil has got the best of Europe’s big bailout fund, forcing it to pull its latest bond issue.

On Wednesday the European Financial Stability Facility confirmed that its €3-billion ($4.12-billion U.S.) bond offering, intended to finance the next bailout loan to Ireland, has been postponed because of “market conditions,” according to the group’s spokesperson.

The earliest the deal could come back is next week, and the new timeline could cause trouble. Ireland has €4.4-billion worth of debt coming due on Nov. 11, according to FT Alphaville.

OSFI has released a letter regarding the Financial Stability Board Principles on Mortgage Lending. They note that they expect to see a LOT MORE paperwork and cover-your-ass bullshit in the future. My idea, that OSFI should surcharge risk-weightings for mortgage exposure – or any other kind of exposure, for that matter – when this exposure greatly exceeds historical norms (as it does, er, now) has not yet been mentioned. The FSB document is titled Consultation Paper: FSB Principles for Sound Residential Mortgage Underwriting Practices:

As the global crisis demonstrated, the consequences of weak residential mortgage underwriting practices in one country can be transferred globally through securitisation of mortgages underwritten to weak standards. As such, it is important to have sound underwriting practices at the point at which a mortgage loan is originally made.

In other words, caveat vendor. Gee, what a wonderful world it will be when we finally have enough rules, eh?

Regardless of whether or not there actually is money missing from segregated accounts at MF Global, their sloppy bookkeeping cost them a deal:

Corzine, 64, steered MF Global into bankruptcy proceedings on Oct. 31 after increasing risk-taking at the firm, including investments in European sovereign debt that roiled markets. Discrepancies over the missing funds that were used to back futures trades sent Interactive Brokers Group Inc. (IBKR) fleeing from a potential acquisition that may have averted the filing, according to a board member at the Greenwich, Connecticut, firm.

“The board certainly considered that purchase and stepped away from it at a point where it became clear there were lots of uncertainties about the accounts and segregated funds,” Hans Stoll, an Interactive Brokers director and a professor of finance at Vanderbilt University in Nashville, Tennessee, said yesterday in a telephone interview.

When your contemplating doing a big deal on 48 hours notice, the last thing you want is uncertainty over the bookkeeping! However, everything is highly unclear at the moment, at least to the public:

.MF Global Holdings Ltd. (MF) customers may have to wait years to get their money back if the futures broker is sued, according to Frederick Grede, the liquidation trustee overseeing the bankruptcy of Sentinel Management Group Inc.

“People should expect that the money on deposit with MF Global will be tied up for some time,” Grede said in a telephone interview today. Grede, a former chief executive officer of the Hong Kong Futures Exchange, has sought to recover about $600 million of customer money from Sentinel, the futures broker that filed for bankruptcy in 2007. “If litigation is involved it well could be years” for MF Global customers, he said.

The day it filed the eighth-largest U.S. bankruptcy on Oct. 31, New York-based MF Global disclosed a shortfall in customer accounts that people with knowledge of the matter said may be about $700 million. CME Group Inc., which has the authority to audit those accounts, said yesterday it didn’t know how much client money was missing.

Grede said it was likely that the client funds won’t be released until the bankruptcy court approves the decision. “To move the money out of MF Global, they have to get the trustee to agree, and I believe the trustee will want the court to agree as well,” he said.

Experience suggests to me that the actual players know very well what the answer to the segregated account mystery is, but are posturing for political purposes. However, the accusations are getting more specific:

MF Global Holdings Ltd. (MF) may have transferred customer money last week following an audit by CME Group Inc. (CME), which has regulatory authority over the futures broker.

The transfer “may have been designed to avoid detection in so far as MF Global did not disclose or report such transfers” to the Commodity Futures Trading Commission or CME Group, the Chicago-based exchange owner said today an e-mailed statement.
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All MF Global customer positions held at CME Group, and not third-party custodians such as banks, are accounted for, the company said in the statement. “MF Global’s customer positions on CME Group exchanges were and continue to be substantially over-collateralized,” CME Group said. The “apparent shortfall” was in accounts held by MF Global, CME Group said.

In other words, if you had an account with MF Global with $100,000 cash, and your contracts actually required $75,000 of exchange collateral, that part would have been posted OK, but – it is alleged – they were naughty with the remaining $25,000. Even more specific is the claim:

MF Global Inc.’s commodity customer funds have a shortfall of $633 million, or about 11.6 percent, out of a segregated fund requirement of about $5.4 billion, the Commodity Futures Trading Commission said.

At a hearing today in U.S. Bankruptcy Court in Manhattan, lawyers for the CFTC said the trustee for the bankrupt broker- dealer may recover the shortfall.
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“It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection,” as the transactions weren’t reported to regulators until Oct. 31, it said.

However, it’s still unclear to me just what has happened, or is claimed to have happened. The truth will out, but, as is always the case, the nature of that truth will only be reported after a few years have passed. The company is represented in court by the trustee – not by lawyers appointed by former management – and the trustee has an interest in painting as black a picture as possible in order to maximize his fee income.

I have noticed not just one, but two interesting juxtapositions in the press recently. The first is some weeping and wailing over smoking in hospitals, reflecting the usual arrogant mindset of the medical profession:

As an emerging standard for Canadian hospitals, smoke-free property is intended to reduce exposure to second-hand smoke, communicate denormalization messages about smoking and enhance tobacco cessation.

However, noncompliance and inadequate treatment for tobacco dependence appear to be the norm. Enhancing appropriate health care for patients who use tobacco to include consistent and effective treatment for the symptoms of withdrawal may improve this problem. Reframing tobacco use as an addiction may be an important root strategy to shift practise norms. People who smoke will have symptoms of withdrawal during a stay in a hospital with a smoke-free policy. With the advent of these policies, abstinence support with effective management of withdrawal symptoms for patients in hospital is imperative.

Harm reduction, as defended by the Supreme Court, is given short shrift in the study – mentioned, but very briefly and not in so many words.

The other juxtapositon involved great alarm over string attached to Chinese funding of US universities:

The Confucius Institute at North Carolina State University made its feelings known after the Dalai Lama accepted an invitation to speak in 2009 on the Raleigh campus. China’s military took over Tibet in 1959, exiling the spiritual leader considered a traitor in China for advocating Tibetan self-rule.

Confucius Institute director Bailian Li told North Carolina State provost Warwick Arden that a visit by the Lama could disrupt “some of the strong relationships we were developing with China,” Arden said. Besides the institute, joint programs include student exchanges, summer research and faculty collaboration.

And this was published on the same day as a piece about US de-funding of UNESCO:

A day after the Palestinians won full membership in the UN group with 107 votes in favor and 14 against, the U.S. cut off its funding, almost a quarter of the agency’s budget. Moreover, swing votes the Palestinians need to bolster their support on the Security Council for full UN membership have evaporated.

Today’s numbers are all provisional (although probably pretty good) as TMX DataLinx continues to experience networking problems.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts up 10bp, FixedResets winning 15bp and DeemedRetractibles gaining 14bp. There were only three issues in the Performance Highlights table, but all three were positive. Volume was a little light.

PerpetualDiscounts now yield 5.44%, equivalent to 7.07% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.95%, so the pre-tax interest equivalency spread (also called the Seniority Spread) is now about 210bp, a slight widening from the 205bp reported on October 26.

It’s still unclear, but MF Global may have been naughty as well as stupid:

MF Global Holdings Ltd. (MF), under investigation by U.S. regulators after filing for bankruptcy protection, violated requirements that it keep clients’ collateral separate from its own accounts, the head of the world’s largest futures exchange said.
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MF Global, the holding company for the futures broker run by former New Jersey Governor and ex-Goldman Sachs Group Inc. Co-Chairman Jon Corzine, is being investigated by regulators for hundreds of millions of dollars that may be missing from client accounts, according to two people with knowledge of the matter.
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The missing funds were reported yesterday by the New York Times. As much as $950 million was thought to be missing at first, and that figure fell to less than $700 million as the firm reviewed its accounting, the Times said today, citing people briefed on the matter. More funds may show up in coming days, the report said.

I’ll be cautious before condemning them. Regulators love to jump on accounting sloppiness and pump it up into something terrible, simply as a way of gaining a negotiating advantage. So we’ll just wait for more details to emerge.

I suspect that the whole thing was regulatory self-importance and hysteria:

“To the best knowledge of management, there is no shortfall,” [MF Global lawyer Kenneth] Ziman told U.S. Bankruptcy judge Martin Glenn in Manhattan, who inquired about whether a shortfall in customer accounts would affect the case, citing media reports that hundreds of millions of dollars were missing. Most of MF Global’s U.S. assets are held at its brokerage unit, Ziman said.

Europe’s new royalty are outraged that the Greek sans-culottes are being asked their opinion:

German Chancellor Angela Merkel and French President Nicolas Sarkozy held emergency talks on Greece today and called on Europe to implement the package of measures thrashed out in Brussels last week.

The plan, designed to aid Greece and stem the wider debt crisis, is “more necessary than ever today,” they said in a joint statement issued in Berlin and Paris. Germany and France “are convinced that this agreement allows Greece to return to lasting growth” and want to draw up a road map for locking in the second Greek bailout.

I don’t often agree with Lapdog Carney, but he got this one right:

Speaking to the House of Commons Finance Committee Tuesday morning, Mr. Carney notes that it is “imperative that there is widespread support” for tough decisions to implement major fiscal austerity measures, because they will unfold over a long period.

The referendum plan is being blamed for the equity hit today, but I don’t think the Greek government has a lot of real choice.

One way or another, Greeks have to get back to work – riots and national strikes don’t do any good for anybody. I suspect that the ability to vote on the deal will diminish the appeal of civil disobedience and, if the vote is affirmative, destroy the credibility of those who continue to push for it. And, of course, if the Greeks wish to cut their own throats and vote no, that’s their business.

So, presumably after discussing with aides the likely reaction of PrefBlog, Papandreou will press on.

A new charity scam has come to light:

A $22 billion disease-fighting fund backed by Microsoft Corp. (MSFT) founder Bill Gates found that money intended for people with life-threatening illnesses was used for home renovations in India and diverted to a person linked with money laundering and so-called blood diamonds in Nigeria.

The Global Fund to Fight AIDS, Tuberculosis and Malaria is seeking to recover as much as $19.2 million from grants in eight countries, the Geneva-based organization said in a set of reports today. As much as $1.3 million was misused by the head of a non-governmental AIDS organization in India to buy a car and renovate his apartment, one report said. In Nigeria, money was siphoned to a person arrested in 2003 for money-laundering and smuggling diamonds that are mined and sold to support war.

Golly, what a surprise!

It was an unevenly good day for the Canadian preferred share market, with PerpetualDiscounts winning 32bp, FixedResets gaining 12bp, and DeemedRetractibles up 3bp. Good volatility, with all issues on the Performance Highlights table being in the black. Volume was a shade on the light side of average.

The bailout doesn’t seem to be doing Italy and Spain much good:

Italian and Spanish bonds fell, while stocks retreated from an almost three-month high, on concern European leaders will struggle to raise funds to contain the region’s debt crisis. The yen sank from a post-World War II record against the dollar after Japan intervened in the market.

Italian five-year yields rose 19 basis points to 5.94 percent, the highest since 1997, at 9:32 a.m. in New York. German bunds and U.S. Treasuries advanced.
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China can’t play the role of “savior,” the official Xinhua news agency said yesterday after European leaders agreed last week to boost their bailout fund. U.S. equities rallied Oct. 26 amid speculation China might invest in the fund. Japanese Finance Minister Jun Azumi said today the government took unilateral steps to weaken the yen.

The Greek referendum will be fascinating:

The Greek government will hold a referendum on a new EU aid package, calling on voters to say whether they want to adopt it or not, Prime Minister George Papandreou said on Monday.

“We trust citizens, we believe in their judgment, we believe in their decision,” he told ruling socialist party law makers.

Nearly 60 per cent of Greeks view Thursday’s EU summit agreement on a new €130-billion ($180-billion) bailout package as negative or probably negative, a survey showed on Saturday.

The Bank of Japan has major losses:

The Bank of Japan has lost more than 22.4 billion yen ($281.7 million) purchasing exchange-traded funds as the Topix Index approaches a 27-year low.

The central bank’s stock holdings have fallen about 4 percent since buying began on Dec. 15, 2010, according to estimates calculated by Bloomberg using government filings. Losses climbed above 67.6 billion yen in September as equities plunged amid concern Europe’s debt crisis would trigger a global recession, the data show.

The purchases are part of a 20 trillion yen BOJ plan to stimulate economic growth and boost investor confidence by buying securities, such as government debt, commercial paper and real estate investment trusts. The central bank expanded the program last week by 5 trillion yen after the country’s currency reached a postwar record against the dollar, threatening the export-led economy.

It will be interesting to see how this is resolved, since we may assume the European Central Bank will be in the same boat in short order, for the same reaons. Ah, say the politicians, it’s all very well thought out: banks = central banks = piggy-banks.

TMX supports the Maple deal:

TMX Group Inc., the owner of the Toronto Stock Exchange, recommended shareholders accept a C$3.73 billion ($3.72 billion) bid from a group of Canadian banks and pension funds, turning an unsolicited offer into a friendly bid.

Maple plans to buy 70 percent to 80 percent of TMX shares at C$50 a share in cash, and the rest of the stock with Maple shares, according to a statement.
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Maple, which made an initial unsolicited bid for TMX on May 13, needs 70 percent of the shares of the Toronto-based exchange owner by the offer expiry Jan. 31 for the transaction to succeed. The statement noted that the offer could be extended until April 30 to gain regulatory approvals.

Today’s Interesting Fact concernsrelative returns of bonds and equities (emphasis added):

The biggest bond gains in almost a decade have pushed returns on Treasuries above stocks over the past 30 years, the first time that’s happened since before the Civil War.

Fixed-income investments advanced 6.25 percent this year, almost triple the 2.18 percent rise in the Standard & Poor’s 500 Index through last week, according to Bank of America Merrill Lynch indexes. Debt markets are on track to return 7.63 percent this year, the most since 2002, the data show. Long-term government bonds have gained 11.5 percent a year on average over the past three decades, beating the 10.8 percent increase in the S&P 500, said Jim Bianco, president of Bianco Research in Chicago.

The bolded sentence shows that that the reporter must have been getting his opinions from a stockbroker, since it appears to be a straight line extrapolation of bond YTD returns to the full year and only a stockbroker would be stupid enough to do that.

Speculation has done in MF Global:

MF Global Holdings Ltd., the holding company for the broker-dealer run by former New Jersey governor and Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for bankruptcy after making bets on European sovereign debt.
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MF Global’s board had met through the weekend in New York to consider options including a sale to avert failure, according to a person with direct knowledge of the situation. Following a record loss, MF Global was suspended today from doing new business with the New York Federal Reserve, according to a statement on the regulator’s website. Trading in MF Global’s stock was also halted.

MF Global declined 67 percent last week and its bonds started trading at distressed levels amid its disclosures of bets on European sovereign-debt. MF Global held talks with five potential buyers for all or parts of the company, including banks, private-equity firms and brokers, said the person, who asked not to be identified because the talks were private.

It doesn’t reflect well on Corzine – or the board who hired him (as republished in the G&M):

It was the kind of gutsy trade that helped make Mr. Corzine a star at Goldman in the 1990s. “If it was a good trade for $100, he wanted to make it $1,000 or $1-million”, a former colleague recalled

Too bad. He didn’t have too long until retirement anyway, and could have spent all his time talking about about how smart he was. Now we all know he was just another lucky clown, chanting that if one is good then two is better.

We can gasp and laugh about European debt ratios all we like – but here in North America, we have infrastructure debt:

The disrepair of U.S. surface-transportation systems cost businesses and households about $130 billion last year, according to the American Society of Civil Engineers, based in Reston, Virginia. Of that, $32 billion is related to travel delays, it said in a report issued in July.

The average U.S. bridge is 43 years old, while the average useful life is generally about 50 years, according to the highway agency. The agency said in 2006 that it would cost $140 billion to immediately repair every deficient bridge in the U.S. That’s more than three times what the U.S. government receives in taxes annually to pay for road, mass transit and bridge projects.

Trouble is, maintenance isn’t sexy, so no politician anywhere is going to advocate spending money on it until problems get critical. Infrastructure, to a politician, is simply a magic money-hole dicussed only when unemployment becomes an issue. I have no problem with accelerating spending during recessions, when more skilled works and specialized equipment becomes available, but a state of good repair must be maintained at all times.

But, mortgaging the future is good politics:

The elderly will likely be the most vulnerable Americans in Washington’s future budget fights. Right now, their grandchildren may be among the biggest casualties.

With Democrats and the 37 million-member AARP seniors’ lobby working to protect Medicare and Social Security, and Republicans opposing tax increases to curb the deficit, programs for young people may be disproportionate targets if negotiators can’t reach a budget deal and automatic spending cuts kick in.

That’s sparking concern that lawmakers are sacrificing the U.S.’s future investment in children, education, infrastructure and other programs.

Alberta Gas, proud issuer of ALA.PR.A, was confirmed at Pfd-3 by DBRS:

DBRS has today confirmed the ratings on the Medium-Term Notes (MTNs) and Preferred Shares – Cumulative of AltaGas Ltd. (AltaGas or the Company) at BBB and Pfd-3, respectively, both with Stable trends.

The rating actions follow the announcement today that AltaGas has offered to acquire all of the issued and outstanding shares of Pacific Northern Gas Ltd. (PNG; rated BBB (low) and Pfd-3 (low)) and that both parties have executed an Acquisition Agreement. The takeover offer of $36.75 per PNG share represents a 20% premium over the closing price of $30.50 per share on October 28, 2011. The proposed purchase price of approximately $230 million, including assumed debt of approximately $85 million and preferred shares of $5 million, represents approximately 1.2 times the regulated rate base of $174 million. The regulated assets earn an allowed rate of return of approximately 10.1% with a weighted average equity thickness of approximately 44%. The transaction value equates to approximately 9.6 times PNG’s EBITDA, which is reasonable. AltaGas expects the acquisition to be immediately accretive to earnings and cash flow. Closing is expected on or about December 16, 2011, subject to regulatory and PNG shareholder approvals.
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DBRS expects moderate deterioration in the Company’s credit metrics as a result of the acquisition funding through existing credit facilities (plus assumed PNG debt). DBRS estimates that the Company’s total debt-to-capital ratio would rise from 47% to 52% and its cash flow-to-debt ratio would fall from 20% to 17% pro forma the acquisition as at September 30, 2011. As noted previously (see the DBRS press release dated October 4, 2011), DBRS expects some deterioration in the Company’s key credit metrics during its 2011 to 2014 growth phase, with recovery toward the end of the period as expected cash shortfalls are to be primarily funded by debt.

Index figures are very approximate today since TMX Datalinx continues to have serious problems with the concept of providing quote data within five hours of the market close.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 20bp, FixedResets up 14bp and DeemedRetractibles gaining 8bp. Lots of good performers on the positive side of the Performance Highlights table. Volume was average.

Italy managed to sell some ten year paper:

Italy paid the most since joining the single currency to sell new 10-year debt on Friday in the first euro zone bond auction after European leaders agreed new steps to tackle the debt crisis.

The auction yield on Italy’s March 2022 BTP bond rose to 6.06 percent from 5.86 percent a month ago.

The Treasury managed to sell 7.94 bln euros of medium and long term paper, versus a target range of between 5.25 billion and 8.5 billion euros.

As Assiduous Reader prefhound points out, the big question going forward is: who buys European government debt going forward? I, personally, would be staying away from the peripheral countries and paying extra attention to credit fundamentals; the whole process has been intensely politicized and (in the case of CDS swaps) gamed.

There’s also the question of … who buys European bank paper? The Europeans seem to regard their banks as their personal piggy-banks and the fall-out from a 50% nudge-wink-voluntary write-down remains to be determined.

So is it a credit event?:

European leaders’ agreement on a 50 percent haircut on Greek bonds may create an event of default if investors accept it, Fitch Ratings said in a statement today.

“The 50 percent nominal haircut on the proposed bond exchange would be viewed by the agency as a default event under its Distressed Debt Exchange criteria,” the statement said. While the accord is “a necessary step to put the Greek sovereign’s public finances on a more sustainable footing,” Greece will face “significant challenges” including ratios of government debt to gross domestic product at “well over 100 percent even in a positive scenario.”
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“It’s highly likely that all three rating agencies will classify this restructuring as a technical default,” said Padhraic Garvey, head of developed debt-market strategy at ING Groep NV in Amsterdam. “Even if it’s voluntary, investors are left with a product that’s lower in value to what they originally agreed.”
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Fitch said in a separate report the Greek debt exchange “would likely result in a post-default rating in the ‘B’ category or lower depending on private creditor participation.”

The International Swaps and Derivatives Association, whose market decisions are binding, hasn’t said whether the $3.7 billion of credit-default swaps linked to Greek government bonds should pay out, though it has indicated the decision hinges on whether investors accept losses voluntarily.

A credit event can be caused by a reduction in principal or interest, postponement or deferral of payments or a change in the ranking or currency of obligations, according to the New York-based trade group’s rules.

ING’S Garvey said Fitch’s announcement probably won’t trigger insurance contracts linked to the debt. “The indications are that ISDA won’t class it as a credit event,” he said.

One can only imagine what kind of pressures are being brought to bear on ISDA!

Feeling victimized by preferred share credit rating cuts? Consider MF Global!:

Bonds of MF Global Holdings Ltd. (MF) declined to as low as 35 cents on the dollar after the futures broker run by Jon Corzine drew on its credit lines and Moody’s Investors Service and Fitch Ratings cut the firm’s ratings to junk.

The company’s $325 million of 6.25 percent bonds, issued at par in August, fell 11.9 cents to 50 cents on the dollar as of 5:17 p.m. in New York, for a yield of 25.2 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The daily reporting for today will be greatly delayed, as the TSX is having a Disaster Recovery exercise, which may last until Sunday morning. I’ll update this post when I have the data.

Update, 2011-10-28: It took them long enough to get themselves organized, but Datalinx finally had Friday’s prices available late on Monday. No sign of Monday’s prices, though!