Bob Eisenbeis, Chief Monetary Economist at Cumberland Advisors, has posted a good commentary on Contingent Capital.
It was a mixed day for preferred shares, with PerpetualDiscounts down 10bp and FixedResets up 11bp – which took the weighted median yield-to-worst of the latter class down to 3.75%. How low can it go? The five lowest yields recorded on the FixedReset index have been observed on the last five trading days. Volume returned to normal levels.
HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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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 | 0.1538 % | 1,504.4 |
FixedFloater | 6.04 % | 4.16 % | 37,390 | 18.59 | 1 | 0.1669 % | 2,578.8 |
Floater | 2.59 % | 3.04 % | 97,849 | 19.55 | 3 | 0.1538 % | 1,879.5 |
OpRet | 4.87 % | -3.81 % | 140,288 | 0.08 | 15 | -0.1555 % | 2,306.9 |
SplitShare | 6.37 % | -6.89 % | 271,118 | 0.08 | 2 | -0.3067 % | 2,108.3 |
Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1555 % | 2,109.4 |
Perpetual-Premium | 5.88 % | 5.83 % | 60,931 | 6.00 | 7 | -0.3065 % | 1,874.6 |
Perpetual-Discount | 5.81 % | 5.88 % | 184,910 | 14.03 | 67 | -0.1012 % | 1,788.1 |
FixedReset | 5.42 % | 3.75 % | 366,983 | 3.90 | 41 | 0.1056 % | 2,155.6 |
Performance Highlights | |||
Issue | Index | Change | Notes |
BMO.PR.H | Perpetual-Discount | -1.68 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-12-07 Maturity Price : 22.61 Evaluated at bid price : 23.36 Bid-YTW : 5.68 % |
BAM.PR.J | OpRet | -1.46 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Evaluated at bid price : 26.41 Bid-YTW : 4.75 % |
MFC.PR.B | Perpetual-Discount | -1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-12-07 Maturity Price : 19.40 Evaluated at bid price : 19.40 Bid-YTW : 6.02 % |
CM.PR.R | OpRet | -1.37 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2010-01-06 Maturity Price : 25.60 Evaluated at bid price : 25.94 Bid-YTW : -5.24 % |
GWO.PR.I | Perpetual-Discount | -1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-12-07 Maturity Price : 18.98 Evaluated at bid price : 18.98 Bid-YTW : 5.94 % |
BMO.PR.K | Perpetual-Discount | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-12-07 Maturity Price : 23.33 Evaluated at bid price : 23.51 Bid-YTW : 5.62 % |
PWF.PR.K | Perpetual-Discount | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-12-07 Maturity Price : 21.07 Evaluated at bid price : 21.07 Bid-YTW : 5.96 % |
HSB.PR.D | Perpetual-Discount | 1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-12-07 Maturity Price : 22.21 Evaluated at bid price : 22.35 Bid-YTW : 5.70 % |
Volume Highlights | |||
Issue | Index | Shares Traded |
Notes |
PWF.PR.M | FixedReset | 212,750 | National Bank crossed two blocks at 27.25, of 200,000 and 10,000 shares. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-02 Maturity Price : 25.00 Evaluated at bid price : 27.18 Bid-YTW : 3.90 % |
SLF.PR.B | Perpetual-Discount | 79,596 | RBC crossed 60,000 at 20.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-12-07 Maturity Price : 20.02 Evaluated at bid price : 20.02 Bid-YTW : 6.01 % |
TRI.PR.B | Floater | 75,000 | RBC crossed two blocks at 19.75, of 50,000 and 25,000 shares. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-12-07 Maturity Price : 19.75 Evaluated at bid price : 19.75 Bid-YTW : 2.01 % |
TRP.PR.A | FixedReset | 73,585 | Scotia crossed 50,000 at 25.85. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-01-30 Maturity Price : 25.00 Evaluated at bid price : 25.86 Bid-YTW : 3.80 % |
SLF.PR.D | Perpetual-Discount | 62,748 | RBC crossed 60,000 at 18.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-12-07 Maturity Price : 18.71 Evaluated at bid price : 18.71 Bid-YTW : 5.96 % |
BAM.PR.B | Floater | 56,648 | RBC crossed 50,000 at 13.06. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-12-07 Maturity Price : 13.06 Evaluated at bid price : 13.06 Bid-YTW : 3.04 % |
There were 36 other index-included issues trading in excess of 10,000 shares. |
RPB.PR.A: Reorg Information Circular Released
December 4th, 2009ROC Pref Corp. III has released the Management Information Circular for the meeting regarding its potential dissolution. It includes some cheery statements:
The fixed recovery rate sounded like a good idea at the time – and, I understand, was preferred by the ratings agencies – but hurt a lot with Fannie and Freddie. CIT Group recovery, too, will be well in excess of the benchmark.
But to my mind, the most interesting part is:
Later on, they note that the Method of Valuation is described in the Annual Information Form, incorporated by reference. Oddly, Connor Clark & Lunn’s website publishes the 2008 AIF, but the 2009 AIF is available only on SEDAR. The 2008 version states:
The 2009 version states:
All in all, I don’t get it. Why is TD Bank willing to pay $1 more than NAV? This question is not addressed in the supplied FAQs.
My best guess at an answer is that it has to do with the power of substitution – the following is taken from the 2009 AIF:
It may be that the value – however it’s calculated – of the note is $3.50 per preferred, but with an infusion of – say – $2.00 new capital, substitutions could be effected to bring it to $10.00. Under this scenario, the ROC Pref III Corp. is scuppered because it has run out of money and has no reasonable way of getting more (and therefore cannot effect substitutions; also, even if they could get some money, they might not be permitted to put it into the CLN), but TD will be very happy to pay $3.50 NAV + $1.00 Premium + $2.00 recapitalization to get a $10.00 value.
I will make haste to note, however, that the above paragraph represents uninformed speculation on my part; I have always loathed structured products (whenever you want to sell, there’s exactly one buyer, at the ready with a large vise); I have no experience in the valuation of this sort of note; and acquiring such expertise would take me considerable time. Trying to understand preferred shares and more normal fixed income instruments is more my style.
Still … if I held RPB.PR.A, I’d be asking Connor Clark: “Before I vote, please tell me why TD is paying $1 over NAV.” They will almost certainly blandly direct inquiries of this nature to TD, so the follow-up question is: “Why aren’t you effecting substitutions out of the riskier elements of the portfolio?”
RPB.PR.A was last mentioned on PrefBlog when they announced their intention to hold the vote. RPB.PR.A is not tracked by HIMIPref™.
Update: The 2009 Annual Information Form is now available via CCL group.
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