PrefBlog

BAM levered up a little more:

Brookfield-family companies are hot commodities in new-issue markets.

After launching a bought deal late on Tuesday, Brookfield Infrastructure (BIP.UN-T25.63-0.22-0.85%) announced on Wednesday that its offering has been upsized to a total of $588-million. About 70 per cent of that comes from public investors, and the remainder comes from parent company Brookfield Asset Management Inc., which bought more shares to keep its 30 per interest in the subsidiary.

I’m not sure I’m too happy about this. More assets means more fees, but more investment means more leverage.

DBRS confirmed L.PR.A at Pfd-3:

DBRS has today confirmed Loblaw Companies Limited’s (Loblaw or the Company) Medium-Term Notes and Debentures ratings at BBB, its Cumulative Redeemable Second Preferred Shares, Series A rating at Pfd-3, and its Commercial Paper rating at R-2 (middle). All trends remain Stable. The ratings reflect Loblaw’s strong market position, large scale and national diversification, balanced by the mature nature of the core business.

The WN.PR.A, WN.PR.C, WN.PR.D & WN.PR.E issues of Weston were confirmed at Pfd-3 by DBRS:

DBRS has today confirmed the ratings of the Notes & Debentures of George Weston Limited (Weston or the Company) at BBB, the Preferred Shares at Pfd-3 and the Commercial Paper at R-2 (high), all with Stable trends. Weston’s business risk profile remains well placed in the BBB rating category based on the Company’s strong brands and above-average operating efficiency. The Stable trend reflects DBRS’s expectation that Weston will continue to achieve growth in EBITDA from further brand development, operational efficiency gains and new investments. Weston has been successful at maintaining its market position while passing on price increases, at least partially offsetting the effects of a rising input cost environment. The significant increase in the Company’s pro forma adjusted EBITDA in 2010 (approximately $280 million versus approximately $225 million in 2009) was primarily the result of improved operational efficiencies as well as acquisitions (e.g., Ace Bakery Ltd. and Keystone Bakery Holdings, LLC). Weston used approximately $300 million of its cash on hand to finance the acquisition of the aforementioned EBITDA generating businesses. In addition, the Company used $1 billion of cash to fund a special dividend to shareholders in January 2011.

The Assistant Croupier went to BMO:

The mystery of what happened to Mark White, who had been one of the top three individuals in command at Canada’s banking and insurance regulator, has been solved.

Bank of Montreal chief financial officer Tom Flynn sent a note to the bank’s employees Wednesday announcing that Mr. White is joining BMO effective Nov. 1 as senior vice-president of capital management and optimization. The rumour since this summer had been that Mr. White was going to BMO (BMO-T58.49-0.32-0.54%) , but all parties involved had remained mum.

After screwing up the preferred share market, now he can work on more general projects, as revolving door regulation continues to be the norm.

At Ivey School of Business, professors lie to students. For their own good, of course.

It was a quiet day for the Canadian preferred share market, with PerpetualDiscounts up 4bp, FixedResets gaining 6bp and DeemedRetractibles winning 7bp. Volatility was dominated by BAM and related issuers.

PerpetualDiscounts now yield 5.42%, equivalent to 7.05% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 5.0%, so the pre-tax interest-equivalent spread is now 205bp, unchanged from the number reported October 12.

Interesting article about the R&D Tax Credits:

Open Text Corp. chairman Tom Jenkins, who spent the past year investigating Canada’s R&D spending, said he was stunned at how little effort is spent figuring out what works, and what doesn’t.

That’s true of all government programmes – particularly securities regulation, I might say. If it sounds good, do it! is the slogan, and if you go back to something after five years and find out it’s done nothing – or made matters worse – in order to change the programme … well, that would look like you made a mistake, so don’t check.

Europe is having some success in gaining the ability to manipulate sovereign debt markets:

The European Union reached a deal as part of a short-selling law that will pave the way for an optional ban on naked credit-default swaps on sovereign debt.

Poland, which holds the rotating presidency of the EU, and lawmakers from the European Parliament, reached the accord at a meeting in Brussels, EU spokeswoman Chantal Hughes said.

Under today’s deal, traders may be prevented from buying CDS on government bonds unless they either own the sovereign debt or other assets whose price moves in tandem with it. Nations will have the right to opt out of the measure if they detect signs that it may affect their borrowing costs.
…
German Finance Minister Wolfgang Schaeuble and lawmakers in the European Parliament have called for a ban on naked CDS trades on government debt over concerns the practice fueled the euro zone’s debt crisis. Germany already has restrictions on using swaps to bet on sovereign defaults.

Some European governments have also criticized the use of short selling to bet against bank stocks, arguing that the practice has roiled markets. Volatility that sent European bank stocks to two-year lows led France, Spain, Belgium and Italy in August to impose temporary bans on short selling that remain in force.

I’m not sure that this will have any effect – buying protection naked is simply a convenient way to short bonds. Sovereigns are, as a rule, fairly easy to borrow and therefore also fairly easy to short. Forward and Futures contracts are also generally available.

Moody’s cut Spain two notches:

Spain’s credit rating was cut for the third time since June 2010 by Moody’s Investors Service as Europe’s sovereign-debt crisis threatens to engulf the nation.

Moody’s reduced its ranking to its fifth-highest investment grade, cutting it by two levels to A1 from Aa2, with the outlook remaining negative, the rating company said in a statement today. Standard & Poor’s downgraded Spain on Oct. 14 to its fourth-highest investment grade after Fitch Ratings cut it to the same level on Oct. 7, the day it also downgraded Italy.

Spain continues to be vulnerable to market stress and event risk while already moderate growth prospects for the nation have been scaled back further, Moody’s said in the statement.

Tomorrow’s report will be greatly delayed because I’m going to go see Chess again. Yes, I know that when I reviewed it on October 7 I said I didn’t like the production … but six months ago when I heard it was coming to town, I decided that if I was going to wait twenty-five years to see a show, I was damn well going to see it twice.

It was a negative day for the Canadian preferred share market, with PerpetualDiscounts losing 18bp, FixedResets down 11bp and DeemedRetractibles off 6bp. Volatility was mild. Volume was heavy.

Say what you like about the Occupy Wall Street crowd, there can be no doubt about their realism and effectiveness:

About 1,000 people gathered in the heart of Toronto’s financial district beginning at 10 a.m. local time to protest inequality and advocate higher taxes for the wealthy. About an hour later, organizers began moving the demonstration to nearby St. James Park.

“To see people take action like this is amazing,” said Neal Hamell, a student from London, Ontario, who traveled to Toronto today to join the protests. “I’d like to see change. If this doesn’t do anything, then something is wrong with the world.”

I understand that on Wednesday they’re going to bring peace to the Middle East, but have not yet decided what to do in the afternoon.

Sparks are flying over the Tobin Tax:

German Chancellor Angela Merkel criticized governments including President Barack Obama’s administration for refusing to make the financial sector pay for the global financial crisis, and vowed to push for a financial transaction tax until it applies at least in Europe.

“It’s not acceptable that especially those outside the euro region, who are time and again pushing us to take broad- based action to manage the debt crisis, are at the same time flatly refusing to impose a financial transactions tax,” Merkel said at a labor union congress in the city of Karlsruhe yesterday. “I think this is not okay. We want, and we have to make, financial market participants contribute to the costs of crisis management.”

SLF is forecasting a big loss for 11Q3:

Sun Life Financial Inc. (TSX: SLF) (NYSE: SLF) announced preliminary estimates for the third quarter of 2011. The Company expects to report a loss of $621 million for the quarter. On an operating basis, the loss is expected to be $572 million. Results for the third quarter include losses related to substantial declines in both equity markets and interest rate levels, which particularly impacted the individual life and variable annuity businesses in SLF U.S. The third quarter was a period of exceptional market volatility. North American equity markets dropped by 12% – 14%, while yields on fixed income securities fell amid economic uncertainty in the European Union and U.S. monetary policy actions aimed at lowering interest rates on long-term treasuries. In the U.S., treasury rates reached historic lows, with 30-year yields down 146 basis points to 2.91%. Under the Canadian insurance accounting model, the future impact of September 30, 2011, market conditions is reflected in our current period results.

Losses from equity market and interest rate movements were at the high end of the ranges previously disclosed in the Company’s Management’s Discussion and Analysis for the second quarter of 2011. Key drivers which resulted in market impacts at the high end of the estimated ranges included uneven movements across the yield curve and the impact of large, simultaneous movements in both interest rates and equity markets. Updates to the Company’s actuarial methods and assumptions, which generally take place in the third quarter of each year, contributed approximately $200 million to the loss. Sun Life Assurance Company of Canada remains well capitalized, with a Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio that is estimated to be approximately 210% as at September 30, 2011.

The Company currently expenses hedging costs for variable annuities and segregated funds in the period in which they are incurred. In the fourth quarter of 2011, the Company plans to make a method and assumption change related to the valuation of its variable annuity and segregated fund liabilities whereby it will provide for the estimated future lifetime hedging costs of these contracts in its liabilities. This change is expected to result in a higher level of future earnings from in-force contracts than would be the case using the current methodology. The impact of this change on the net income of the Company in the fourth quarter will depend on interest rates and other market conditions as at December 31, 2011, as well as further refinements to the valuation methodology. If this change was made under current market conditions the expected one-time reduction in fourth quarter net income is estimated to be approximately $500 million. The impact of this change on the MCCSR ratio of Sun Life Assurance is expected to be positive, as the increase in variable annuity and segregated fund liabilities will reduce the amount of regulatory required capital for these products.

How ’bout those Germans, eh? Refusing to write Europe a blank cheque!

.Germany said European Union leaders won’t provide the complete fix to the euro-area debt crisis that global policy makers are pushing for at an Oct. 23 summit.

German Chancellor Angela Merkel has made it clear that “dreams that are taking hold again now that with this package everything will be solved and everything will be over on Monday won’t be able to be fulfilled,” Steffen Seibert, Merkel’s chief spokesman, said at a briefing in Berlin today. The search for an end to the crisis “surely extends well into next year.”

Group of 20 finance ministers and central bankers concluded weekend talks in Paris endorsing parts of Europe’s emerging plan to avoid a Greek default, bolster banks and curb contagion. Providing a week to act, they set the Oct. 23 meeting of European leaders in Brussels as the deadline.

Lapdog Carney’s getting a lot of press, shilling for his political master.

Fortis Alberta issued 30-year paper at 4.54%.

It was a mixed day in the Canadian preferred share market, with PerpetualDiscounts winning 23bp, FixedResets up 2bp and DeemedRetractibles losing 13bp. Insurers figured prominently on the wrong side of the performance table, presumably due to Sun Life’s announcement. Volume was above average.