Index Construction / Reporting

HIMIPref™ Index Rebalancing: February 2009

HIMI Index Changes, February, 2009
Issue From To Because
BCE.PR.Y Ratchet Scraps Credit
FAL.PR.B Ratchet Scraps Volume
BCE.PR.A FixFloat Scraps Credit
BCE.PR.C FixFloat Scraps Credit
BCE.PR.F FixFloat Scraps Credit
BCE.PR.G FixFloat Scraps Credit
BCE.PR.I FixFloat Scraps Credit
BCE.PR.R FixFloat Scraps Credit
BCE.PR.Z FixFloat Scraps Credit
TRI.PR.B Floater Scraps Volume
ALB.PR.A SplitShare Scraps Credit
DF.PR.A SplitShare Scraps Credit
FBS.PR.B SplitShare Scraps Credit
FFN.PR.A SplitShare Scraps Credit
FTN.PR.A SplitShare Scraps Credit
LBS.PR.A SplitShare Scraps Credit
PPL.PR.A SplitShare Scraps Credit
SBC.PR.A SplitShare Scraps Credit
WFS.PR.A SplitShare Scraps Credit
FIG.PR.A InterestBearing Scraps Credit

Note that FAL.PR.B has been called for redemption and will be removed from the “Scraps” index effective March 2. This month’s change reverses the January change.

There were the following intra-month changes:

HIMI Index Changes during February 2009
Issue Action Index Because
CM.PR.L Add FixedReset New Issue
Banking Crisis 2008

Citigroup Suspends Preferred Dividend; Offers Exchange to Common

Citigroup has announced:

it will issue common stock in exchange for preferred securities, which will substantially increase its tangible common equity (TCE) without any additional U.S. government investment. The transaction is intended to build Citi’s TCE to a level that removes uncertainty and restores investor confidence in the company.

Citi will offer to exchange common stock for up to $27.5 billion of its existing preferred securities and trust preferred securities at a conversion price of $3.25 a share. The U.S. government will match this exchange up to a maximum of $25 billion face value of its preferred stock at the same conversion price.

This transaction could increase the TCE of the company from the fourth quarter level of $29.7 billion to as much as $81 billion, which assumes the exchange of $27.5 billion of preferred securities, the maximum eligible under this transaction. Citi’s Tier 1 capital ratio is 11.9 percent as of December 31, 2008, and is among the highest of major banks. This ratio is not impacted by this transaction.

Based on the maximum eligible conversion, the U.S. government would own approximately 36 percent of Citi’s outstanding common stock and existing shareholders would own approximately 26 percent of the outstanding shares. All investors’ new stakes will be determined following the exchange.

In connection with the transactions, Citi will suspend dividends on its preferred shares. As a result, the common stock dividend also will be suspended. The company will continue to pay the distribution on its Trust Preferred Securities and Enhanced Trust Preferred Securities at the current rates.

Issue Comments

Fitch Downgrades Manulife; Assigns Preferred Rating

Fitch Ratings has announced it:

has downgraded the ratings of Manulife Financial Corporation (MFC) and its operating subsidiaries. At the same time Fitch assigns an ‘A’ rating to MFC’s Non-cumulative Preferred Class A, Series 4. The Rating Outlook is Negative. (See complete list of ratings actions at the end of this release.)

The rating action reflects Fitch’s updated review of MFC’s exposure to the volatile global equity market conditions, which are having a negative impact on MFC’s earnings performance and capital levels. In Fitch’s view, MFC’s earnings and capital volatility are outside of Fitch’s rating rationale for the prior ratings. The key driver of this heightened volatility is the combination of MFC’s outsized, unhedged equity market exposure and the potential for further equity market declines in the next 12 to 18 months.

The total effect of the approximately 23% decline in global equity markets in fourth-quarter 2008 was estimated to account for $2.9 billion of MFC’s reported $1.9 billion net loss available to common shareholders. MFC’s high degree of sensitivity to the equity markets was driven primarily by significant increased actuarial reserving for guarantees on its $74 billion book of guaranteed segregated funds /variable annuities business. Additional drivers were declines in values of common equities in the investment portfolios of its operating entities, as well as its equity exposure to variable life reserves, and declining fee revenue.

Fitch notes that this equity market volatility is two-sided and that a significant advance in equity market levels could result in increases in reported earnings and capital for MFC due to declining reserving and capital requirements on the segregated fund/variable annuity guarantee business.

While Fitch views the capitalization of MFC’s operating companies as quite strong at year-end 2008 when measured by risked-based capital metrics, these levels are being challenged due to the recent equity market declines and anticipated increases in actuarial reserve and capital requirements related to the large block of unhedged variable annuity guarantees written before 2008. Fitch does not envision any near-term liquidity problems as the guarantees are not near-term cash claims.

Fitch believes MFC has good financial flexibility and the ability to raise capital to meet potential capital requirements and/or potential acquisition-related needs at the new rating levels through the issuance of debt or additional forms of equity through its recently increased Canadian and new U.S. shelf registrations.

Fitch rates Sun Life Financial Preferreds at “A”; Great-West Lifeco Preferreds at “A”; and National Bank Preferreds at “A”; inter alia.

Manulife has the following preferreds outstanding: MFC.PR.A (OpRet); MFC.PR.B (PerpetualDiscount); and MFC.PR.C (PerpetualDiscount). These issues were last mentioned on PrefBlog when S&P Downgraded to P-1(low) on February 24.

Issue Comments

FTU.PR.A: Preferred Dividend Suspended

US Financial 15 Split Corp. has announced:

that it has suspended its regular monthly dividends effectively immediately for Priority Equity (“Preferred”) shareholders in order to preserve cash and to assist in rebuilding the net asset value in an attempt to meet longer term objectives. Since the Preferred shares are cumulative, this suspended dividend (and all subsequent dividends not paid) will be accrued to the benefit of the Preferred shareholders and recorded as a liability in the Company’s net asset value. Also, there will not be a distribution paid to Class A Shares for February 27, 2009 as per the Prospectus which states no regular monthly dividends or other distributions will be paid on the Class A Shares in any month as long as the net asset value per unit is equal to or less than $15.00. The net asset value as of February 13, 2009 was $4.17 and has been adversely impacted by the significant declines in the US financial services companies held in the portfolio.

FTU.PR.A was last mentioned on PrefBlog in October when DBRS ceased coverage at the request of Quadra. Quadra has also suspended dividends on XMF.PR.A and XCM.PR.A, with considerably less provocation.

FTU.PR.A is tracked by HIMIPref™. It was moved from the SplitShares subIndex to “Scraps” in April 2008 on credit concerns.

Seminars

Seminar, March 26: SplitShares

Update, 2009-8-25: To gain access to the on-line video of this seminar and the ancillary written material, please visit PrefLetter.com

I am pleased to announce the next seminar in the series on the theory and practice of preferred share investing.

These seminars will be aimed at active and potential preferred share investors who wish to review relative valuation techniques in preferred share analysis.

All seminars will be presented by James Hymas, who has written extensively on the subject of preferred share investment and has been referred to as a "top expert" on the subject.

Questions are encouraged throughout the seminars, as well as in informal discussion at the end of the session.

Each seminar is two hours in length; coffee and tea will be served. The cost of attendance is $100, but a discount of $50 will be given to participants who have an annual subscription to PrefLetter with at least one issue remaining at the time of the seminar.

All seminars will be video-recorded for future distribution.

Thursday, March 26

SplitShares: Theory & Practice

"SplitShares" are popular with investors who:

  • wish to obtain tax-advantaged income
  • want an investment with a fixed-term

These issues are characterized by:

  • Fund owns portfolio of stocks (usually financials)
  • Fund finances portfolio with two classes of stock
    • Capital Units get increased expected returns at expense of safety
    • Preferred shares get increased safety at the expense of expected return
  • Cumulative Dividends
  • There is a set wind-up date for the fund

This seminar will review the theory of SplitShare Preferred evaluation, including:

  • Credit Quality
  • Embedded calls
  • Embedded puts
  • The importance of ex-Dividend dates
  • Investment characteristics relative to bonds

Examples of relative valuation in current markets will be supplied and discussed.

Attendence is limited; a reservation will avoid disappointment.

Location: Days Hotel & Conference Center, (at Carlton & College, downtown Toronto) Yorkville Room (see map).

Time: March 26, 2009, 6pm-8pm.

Reservations: Please visit the PrefLetter Seminar Page.

Update, 2009-8-24: The seminar and its ancillary material have been accredited for four hours of IDA Professional Development Continuing Education.

Update, 2009-8-24: ◦This program is eligible for four CE credit hours, as granted by CFA Institute. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.

 
 

Issue Comments

A.M.Best Downgrades SLF Preferreds to bbb+

A. M. Best has announced:

has downgraded the financial strength rating (FSR) to A+ (Superior) from A++ (Superior) and issuer credit ratings (ICR) to “aa” from “aa+” for the core life insurance subsidiaries of Sun Life Financial Inc. (SLF) (Toronto Canada), which consist of Sun Life Assurance Company of Canada (Sun Life) (Toronto, Canada), Sun Life Assurance Company of Canada (U.S.) (Wilmington, DE) and Sun Life Insurance and Annuity Company of New York (New York, NY). Concurrently, A.M. Best has downgraded the ICR to “a” from “aa-” of SLF as well as the existing debt ratings of the enterprise. The downgrading of the debt ratings reflects a revision to standard notching for the group in accordance with A.M. Best’s published debt rating methodology. The outlook for all ratings is stable. (See link below for a detailed listing of the companies and ratings.)

The downgrades reflect the challenges SLF faces due to stresses in the global macroeconomic environment, especially in its U.S. operations. The prolonged weakness in the equity markets has negatively impacted both SLF’s insurance operations—through higher reserve and capital charges and lower fee income—and its asset management operation, MFS, which has recorded lower assets under management. SLF’s U.S. insurance operations recorded a loss in 2008 due to the impact of equity market declines, credit related losses, as well as, the unfavorable impact of changes in currency exchange rates as well as credit impairment losses. While risk-adjusted capital levels at the group remain strong, the U.S. operations have required capital contributions, reducing financial flexibility for the group. Despite this additional funding, A.M. Best believes its targeted U.S. risk-based capital levels will remain modest relative to its peers.

While its U.S. segment reported the weakest results in 2008, SLF also recorded declines in earnings in its Canadian and Asian operations. A.M. Best believes that earnings will remain under pressure for the group, resulting in lower fixed coverage, due to continued equity market weakness and higher asset impairments. SLF retains exposure to real estate-linked assets through its investments in commercial mortgage loans, direct real estate and residential and commercial mortgage-backed securities. A.M. Best notes that a large portion of SLF’s real estate portfolio is underwritten in Canada, which is expected to continue to perform better than similar investments in the United States.

The stable outlook is based on SLF’s diversified revenue stream from multiple regions, profitable operations in Canada, favorable risk-adjusted capitalization and well developed and fully integrated risk management framework. The year-end regulatory capital ratio in Canada is considered strong. SLF is a Canadian-based holding company with a top three market position in the Canadian insurance market. SLF also maintains an expanding wealth management and life insurance operation in Asia.

There is a complete list of ratings available.

This announcement follows a Credit Watch Negative by S&P and a downgrade to Baa2 by Moody’s.

Recently, A.M. Best has

Sun Life Financial has the following issues outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D & SLF.PR.E. All are tracked by HIMIPref™ and are incorporated in the PerpetualDiscounts subIndex.

Market Action

February 27, 2009

PerpetualDiscounts closed the month on a sour note, losing nearly 80bp to close yielding 7.29%, equivalent to 10.21% interest at the standard equivalency factor of 1.4x. Long Corporates now yield about 7.5%, so the pre-tax interest-equivalent spread now stands at 271bp – another updraft!

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 5.33 % 3.62 % 23,573 18.12 2 0.0523 % 841.1
FixedFloater 7.50 % 7.05 % 77,582 13.86 7 -1.5204 % 1,338.5
Floater 5.07 % 4.15 % 25,585 17.14 4 -1.3816 % 1,035.5
OpRet 5.26 % 4.82 % 149,440 3.95 15 0.0921 % 2,047.3
SplitShare 6.83 % 12.16 % 71,682 3.97 15 -1.2929 % 1,644.0
Interest-Bearing 7.33 % 8.74 % 38,157 0.80 2 -1.1827 % 1,929.7
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 -0.7911 % 1,500.5
Perpetual-Discount 7.19 % 7.29 % 173,471 12.20 71 -0.7911 % 1,382.0
FixedReset 6.15 % 5.72 % 534,526 13.90 27 -0.2135 % 1,790.5
Performance Highlights
Issue Index Change Notes
FIG.PR.A Interest-Bearing -4.20 % Asset coverage of 1.0+:1 as of February 20, based on Capital units at $0.39 and 0.53 Capital Units per preferred.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-31
Maturity Price : 10.00
Evaluated at bid price : 6.85
Bid-YTW : 14.89 %
ALB.PR.A SplitShare -3.77 % Asset coverage of 1.1-:1 as of February 26 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2011-02-28
Maturity Price : 25.00
Evaluated at bid price : 18.91
Bid-YTW : 19.67 %
LFE.PR.A SplitShare -3.66 % Asset coverage of 1.2+:1 as of February 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Evaluated at bid price : 7.37
Bid-YTW : 14.70 %
BAM.PR.B Floater -3.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 7.50
Evaluated at bid price : 7.50
Bid-YTW : 7.14 %
LBS.PR.A SplitShare -3.59 % Asset coverage of 1.2+:1 as of February 26 according to Brompton.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2013-11-29
Maturity Price : 10.00
Evaluated at bid price : 7.52
Bid-YTW : 12.61 %
BNS.PR.L Perpetual-Discount -3.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 17.21
Evaluated at bid price : 17.21
Bid-YTW : 6.63 %
TD.PR.P Perpetual-Discount -3.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 18.86
Evaluated at bid price : 18.86
Bid-YTW : 7.06 %
BCE.PR.G FixedFloater -3.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 25.00
Evaluated at bid price : 14.55
Bid-YTW : 7.15 %
PWF.PR.I Perpetual-Discount -2.93 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 20.21
Evaluated at bid price : 20.21
Bid-YTW : 7.54 %
RY.PR.I FixedReset -2.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 22.21
Evaluated at bid price : 22.25
Bid-YTW : 4.67 %
BCE.PR.C FixedFloater -2.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 25.00
Evaluated at bid price : 15.17
Bid-YTW : 7.05 %
TD.PR.R Perpetual-Discount -2.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 19.65
Evaluated at bid price : 19.65
Bid-YTW : 7.23 %
BMO.PR.K Perpetual-Discount -2.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 17.82
Evaluated at bid price : 17.82
Bid-YTW : 7.44 %
BNA.PR.A SplitShare -2.52 % Asset coverage of 1.9-:1 as of January 31 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2010-09-30
Maturity Price : 25.00
Evaluated at bid price : 23.20
Bid-YTW : 11.31 %
BNS.PR.M Perpetual-Discount -2.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 16.72
Evaluated at bid price : 16.72
Bid-YTW : 6.83 %
CM.PR.D Perpetual-Discount -2.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 19.51
Evaluated at bid price : 19.51
Bid-YTW : 7.49 %
RY.PR.H Perpetual-Discount -2.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 20.19
Evaluated at bid price : 20.19
Bid-YTW : 7.07 %
SLF.PR.A Perpetual-Discount -2.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 15.30
Evaluated at bid price : 15.30
Bid-YTW : 7.78 %
FBS.PR.B SplitShare -2.14 % Asset coverage of 1.0+:1 as of February 26 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2011-12-15
Maturity Price : 10.00
Evaluated at bid price : 6.41
Bid-YTW : 22.85 %
BNA.PR.C SplitShare -2.13 % Asset coverage of 1.9-:1 as of January 31 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 11.01
Bid-YTW : 15.79 %
RY.PR.L FixedReset -2.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 22.96
Evaluated at bid price : 23.00
Bid-YTW : 5.31 %
CU.PR.B Perpetual-Discount -2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 21.99
Evaluated at bid price : 22.37
Bid-YTW : 6.74 %
PWF.PR.G Perpetual-Discount -2.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 19.19
Evaluated at bid price : 19.19
Bid-YTW : 7.81 %
PWF.PR.E Perpetual-Discount -2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 18.76
Evaluated at bid price : 18.76
Bid-YTW : 7.44 %
BMO.PR.H Perpetual-Discount -2.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 19.75
Evaluated at bid price : 19.75
Bid-YTW : 6.77 %
PPL.PR.A SplitShare -1.98 % Asset coverage of 1.3+:1 as of February 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Evaluated at bid price : 8.40
Bid-YTW : 10.22 %
CM.PR.E Perpetual-Discount -1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 18.45
Evaluated at bid price : 18.45
Bid-YTW : 7.72 %
PWF.PR.A Floater -1.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 12.75
Evaluated at bid price : 12.75
Bid-YTW : 4.15 %
TD.PR.Q Perpetual-Discount -1.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 19.68
Evaluated at bid price : 19.68
Bid-YTW : 7.22 %
RY.PR.F Perpetual-Discount -1.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 7.02 %
WFS.PR.A SplitShare -1.81 % Asset coverage of 1.0+:1 as of February 19 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2011-06-30
Maturity Price : 10.00
Evaluated at bid price : 7.61
Bid-YTW : 18.97 %
W.PR.H Perpetual-Discount -1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 19.21
Evaluated at bid price : 19.21
Bid-YTW : 7.29 %
BCE.PR.F FixedFloater -1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 25.00
Evaluated at bid price : 14.25
Bid-YTW : 7.19 %
POW.PR.D Perpetual-Discount -1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 16.57
Evaluated at bid price : 16.57
Bid-YTW : 7.69 %
PWF.PR.L Perpetual-Discount -1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 16.58
Evaluated at bid price : 16.58
Bid-YTW : 7.82 %
CU.PR.A Perpetual-Discount -1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 21.90
Evaluated at bid price : 21.90
Bid-YTW : 6.67 %
CM.PR.J Perpetual-Discount -1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 15.05
Evaluated at bid price : 15.05
Bid-YTW : 7.60 %
NA.PR.M Perpetual-Discount -1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 20.35
Evaluated at bid price : 20.35
Bid-YTW : 7.46 %
BNS.PR.J Perpetual-Discount -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 6.83 %
BNS.PR.K Perpetual-Discount -1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 17.77
Evaluated at bid price : 17.77
Bid-YTW : 6.85 %
TD.PR.C FixedReset -1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 23.36
Evaluated at bid price : 23.40
Bid-YTW : 5.29 %
BCE.PR.A FixedFloater -1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 25.00
Evaluated at bid price : 16.31
Bid-YTW : 6.54 %
RY.PR.D Perpetual-Discount -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 16.16
Evaluated at bid price : 16.16
Bid-YTW : 7.03 %
GWO.PR.G Perpetual-Discount -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 17.09
Evaluated at bid price : 17.09
Bid-YTW : 7.62 %
DF.PR.A SplitShare -1.34 % Asset coverage of 1.3+:1 as of February 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 8.11
Bid-YTW : 9.67 %
FFN.PR.A SplitShare -1.33 % Asset coverage of 1.0+:1 as of February 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 5.95
Bid-YTW : 16.56 %
BMO.PR.J Perpetual-Discount -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 15.90
Evaluated at bid price : 15.90
Bid-YTW : 7.14 %
TD.PR.O Perpetual-Discount -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 18.23
Evaluated at bid price : 18.23
Bid-YTW : 6.75 %
NA.PR.K Perpetual-Discount -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 20.26
Evaluated at bid price : 20.26
Bid-YTW : 7.31 %
RY.PR.E Perpetual-Discount -1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 16.30
Evaluated at bid price : 16.30
Bid-YTW : 6.97 %
BCE.PR.Z FixedFloater -1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 25.00
Evaluated at bid price : 14.75
Bid-YTW : 7.13 %
CM.PR.I Perpetual-Discount -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 15.85
Evaluated at bid price : 15.85
Bid-YTW : 7.54 %
CM.PR.P Perpetual-Discount -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 18.17
Evaluated at bid price : 18.17
Bid-YTW : 7.69 %
TD.PR.Y FixedReset -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 4.76 %
CM.PR.G Perpetual-Discount -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 18.15
Evaluated at bid price : 18.15
Bid-YTW : 7.56 %
IGM.PR.A OpRet -1.02 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2013-06-29
Maturity Price : 25.00
Evaluated at bid price : 25.21
Bid-YTW : 5.81 %
ENB.PR.A Perpetual-Discount -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 23.10
Evaluated at bid price : 23.36
Bid-YTW : 5.91 %
GWO.PR.J FixedReset -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 24.45
Evaluated at bid price : 24.50
Bid-YTW : 5.49 %
STW.PR.A Interest-Bearing 1.02 % Asset coverage of 1.5+:1 based on Capital Unit NAV of 2.48 and 2.12 Capital Units per preferred.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2009-12-31
Maturity Price : 10.00
Evaluated at bid price : 9.86
Bid-YTW : 8.74 %
NA.PR.N FixedReset 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 22.19
Evaluated at bid price : 22.25
Bid-YTW : 4.85 %
POW.PR.C Perpetual-Discount 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 19.46
Evaluated at bid price : 19.46
Bid-YTW : 7.60 %
GWO.PR.F Perpetual-Discount 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 7.21 %
BNS.PR.P FixedReset 1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 22.81
Evaluated at bid price : 22.90
Bid-YTW : 4.60 %
BAM.PR.H OpRet 1.69 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2012-03-30
Maturity Price : 25.00
Evaluated at bid price : 23.40
Bid-YTW : 8.56 %
POW.PR.B Perpetual-Discount 1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 18.14
Evaluated at bid price : 18.14
Bid-YTW : 7.52 %
CL.PR.B Perpetual-Discount 2.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 7.37 %
MFC.PR.B Perpetual-Discount 2.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 7.08 %
MFC.PR.C Perpetual-Discount 3.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 16.01
Evaluated at bid price : 16.01
Bid-YTW : 7.06 %
SBN.PR.A SplitShare 4.59 % Asset coverage of 1.5-:1 as of February 19 according to Mulvihill.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 8.65
Bid-YTW : 8.34 %
Volume Highlights
Issue Index Shares
Traded
Notes
GWO.PR.X OpRet 125,983 RBC crossed 120,000 at 25.10.
YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2013-09-29
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 4.67 %
RY.PR.I FixedReset 44,835 RBC bought 10,000 from Scotia at 22.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 22.21
Evaluated at bid price : 22.25
Bid-YTW : 4.67 %
RY.PR.R FixedReset 37,644 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 6.18 %
BNS.PR.X FixedReset 32,837 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 6.27 %
BMO.PR.H Perpetual-Discount 30,916 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-27
Maturity Price : 19.75
Evaluated at bid price : 19.75
Bid-YTW : 6.77 %
TD.PR.G FixedReset 29,930 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 6.30 %
There were 33 other index-included issues trading in excess of 10,000 shares.
Issue Comments

ES.PR.B Revises Capital Unit Dividend Policy

Energy Split Corp. has announced:

that it has revised its Capital Yield Share distribution policy and starting with the next distribution date on June 16, 2009, has determined that it will not pay a distribution on the Capital Yield Shares if the Net Asset Value at the time of declaration, after giving effect to the distribution, would be less than or equal to the original issue price of the Class B Preferred Shares. In such circumstances, any excess distributions received on the royalty trust portfolio minus the distributions payable on the Class B Preferred Shares and all administrative and operating expenses will be reinvested in short-term debt securities or used to purchase Class B Preferred Shares in the market for cancellation under a normal course issuer bid. However, as long as Net Asset Value at the date of declaration exceeds the original issue price of the Class B Preferred Shares, the Company intends to pay a distribution on the Capital Yield Shares equal to the excess of the distributions received on the royalty trust portfolio minus the Class B Preferred Share distributions and all administrative and operating expenses.

The previous policy was:

to declare and pay quarterly distributions in an amount equal to the distributions paid by the royalty trusts comprising the Royalty Trust Portfolio minus the distributions payable on the ROC Preferred Shares and all administrative and operating expenses of the Company and Royalty Fund.

ES.PR.B is currently underwater, with the preferred share redemption price of $21.00 “covered” by NAV of $18.27 as of February 26.

The last mention of ES.PR.B was when it was downgraded to Pfd-4(low) by DBRS. ES.PR.B is not tracked by HIMIPref™.

Issue Comments

NSI.PR.C to be Redeemed

Nova Scotia Power has announced:

that effective April 1, 2009 (the “redemption date”) the Company will redeem all of its outstanding Cumulative Redeemable First Preferred Shares, Series C (the “Series C shares”) for a redemption price of $25.00 per share.

The Notice of Redemption and associated documents are being sent to Registered holders of these shares today. Beneficial holders of the Series C 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.

After the redemption date, holders of the Series C shares will cease to be entitled to dividends or to exercise any rights of shareholders.

NSI.PR.C was last mentioned on PrefBlog when it was added to the TXPR index at the January rebalancing.

NSI.PR.C is tracked by HIMIPref™; it is included in the “Scraps” sub-index due to volume concerns.

Regulatory Capital

NA Capitalization: 1Q09

NA has released its First Quarter 2009 Report and Supplementary Package, so it’s time to recalculate how much room they have to issue new preferred shares – assuming they want to!

Step One is to analyze their Tier 1 Capital, reproducing the prior format:

NA Capital Structure
October, 2008
& January 2009
  4Q08 1Q09
Total Tier 1 Capital 5,480 5,709
Common Shareholders’ Equity 86.2% 80.9%
Preferred Shares 14.1% 19.1%
Innovative Tier 1 Capital Instruments 15.1% 15.4%
Non-Controlling Interests in Subsidiaries 0.3% 0.3%
Goodwill -13.5% -13.0%
Miscellaneous -2.3% -2.8%
Shareholders’ equity includes ‘Foreign Currency Translation Adjustment’
‘Miscellaneous’ includes ‘unrealized gain of available for sale equity securities’ and ‘securitization related deductions’

Next, the issuance capacity (from Part 3 of the introductory series):

NA
Tier 1 Issuance Capacity
October 2008
& January 2009
  4Q08 1Q09
Equity Capital (A) 3,878 3,740
Non-Equity Tier 1 Limit B=0.666*A 2,585 2,491
Innovative Tier 1 Capital (C) 828 880
Preferred Limit (D=B-C) 1,757 1,611
Preferred Actual (E) 774 1,089
New Issuance Capacity (F=D-E) 983 522
Items A, C & E are taken from the table
“Risk Adjusted Capital Ratiosl”
of the supplementary information;
Note that Item A includes everything except preferred shares and innovative capital instruments


Item B is as per OSFI Guidelines; the limit was recently increased.
Items D & F are my calculations

and the all important Risk-Weighted Asset Ratios!

NA
Risk-Weighted Asset Ratios
October 2008
& January 2009
  Note 4Q08 1Q09
Equity Capital A 3,878 3,740
Risk-Weighted Assets B 58,069 57,312
Equity/RWA C=A/B 6.67% 6.53%
Tier 1 Ratio D 9.4% 10.0%
Capital Ratio E 13.2% 14.0%
Assets to Capital Multiple F 16.7x 17.0x
A is taken from the table “Issuance Capacity”, above
B, D & E are taken from RY’s Supplementary Report
C is my calculation
F is not yet available from OSFI for 4Q08; is not disclosed by the bank on a timely basis; and is not required to be disclosed by OSFI on a timely basis. Pondering the question of which of these three faults is most disgraceful provides me with many happy hours of rumination. The 4Q08 figure is approximated by subtracting goodwill of 740 from total assets of 129,332 to obtain adjusted assets of 128,592 and dividing by 7,679 total capital. The 1Q09 figure is approximated by subtracting goodwill of 741 from total assets of 136,989 to obtain adjusted assets of 136,248 and dividing by 8,034 of total capital

Prior Reports to Shareholders have included statements such as:

In addition to regulatory capital ratios, banks are expected to meet an assets-to-capital multiple test. The assets-to-capital multiple is calculated by dividing a bank’s total assets, including specified off-balance sheet items, by its total capital. Under this test, total assets should not be greater than 23 times the total capital. The Bank met the assets-to-capital multiple test in the third quarter of 2008.

… but they can no longer be bothered to note that they can’t be bothered to disclose this critical figure.

Earnings in the quarter were affected by a charge due to ABCP:

National Bank reported net income of $69 million for the first quarter of fiscal 2009, compared to net income of $255 million in the first quarter of 2008. Diluted earnings per share stood at $0.36, as against diluted earnings per share of $1.58 for the corresponding quarter of 2008. The results for the quarter included charges attributable to the impact of asset backed commercial paper (ABCP). These charges comprise the after-tax cost of holding ABCP of $98 million, which consisted of a net loss on available for sale securities related to ABCP of $129 million, financing costs, professional fees and the cost of economic hedge transactions totalling $10 million and interest income on ABCP further to the restructuring of $41 million. In addition, an after-tax loss related to commitments to extend credit to clients holding ABCP of $86 million was recorded in the first quarter of 2009. In the first quarter of 2008, the Bank had recorded after-tax charges related
to holding ABCP of $14 million, as well as a gain of $32 million on the sale of its subsidiary in Nassau.

Readers will remember that National Bank had an ownership interest in ABCP packagers, and their branded Money Market Fund was a major investor in these assets.