Issue Comments

May's Worst Performers

Well, I wanted to do a little attribution analysis for my own purposes and now find that I have the same viewpoint as a publish-or-perish academic: publish everything! If you have a good laundry list, publish that!

The worst performers of May (of the issues included in the HIMIPref™ Universe) were:

Ticker Sector Return Probable Cause
AR.PR.B Scraps -29.08% Who cares?
WN.PR.E PerpetualDiscount (begin)
Scraps (end)		 -7.70% Credit
BCE.PR.I FixFloat -7.69% Credit
BCE.PR.R FixFloat -7.50% Credit
CM.PR.J PerpetualDiscount -6.96% Rationalization
GWO.PR.I PerpetualDiscount -6.63% Rationalization

As of May 31, CM.PR.J was quoted at 22.85-90 with a curvePrice of 23.06; GWO.PR.I was quoted at 22.83-85, curvePrice 22.86. These issues are very similar, having the same annual coupon and the same credit rating. It is because these issues now appear reasonably fairly priced that I have characterized the probable cause as “Rationalization”. However, I could just as easily – and perhaps better – characterized the probable cause as simply “Vanishing Liquidity Premium”.

Let’s have a closer look at those curve Prices:

CM.PR.J Monthly Curve Price Comparison
Component May 31 April 30 Change
Price due to base-rate 22.03  22.36  -0.33
Price due to short-term -0.49  -0.21  -0.28
Price due to long-term 1.78  1.32  +0.46
Price due to Interest Income 0.00  0.00  0.00
Price to to Cumulative Dividends 0.00  0.00  0.00
Price due to SplitShareCorp 0.00  0.00  0.00
Price due to Retractibility 0.00  0.00  0.00
Price due to Credit Spread (2) 0.00  0.00  0.00
Price due to Liquidity 0.39  1.47  -1.08
Price due to Floating Rate 0.00  0.00  0.00
Price due to Credit Spread (3) 0.00  0.00  0.00
Price due to error 0.08  0.02  +0.06
Price due to Credit Spread (High) 0.00  0.00  0.00
Price due to Credit Spread (Low) -0.74  -0.61  -0.13
Curve Price 23.06  24.35  -1.29
Quote 22.85-90  24.56-71  -1.71 – -1.81

…and…

GWO.PR.I Monthly Curve Price Comparison
Component May 31 April 30 Change
Price due to base-rate 21.83  22.34  -0.51
Price due to short-term -0.49  -0.21  -0.28
Price due to long-term 1.78  1.32  +0.46
Price due to Interest Income 0.00  0.00  0.00
Price to to Cumulative Dividends 0.00  0.00  0.00
Price due to SplitShareCorp 0.00  0.00  0.00
Price due to Retractibility 0.00  0.00  0.00
Price due to Credit Spread (2) 0.00  0.00  0.00
Price due to Liquidity 0.39  1.48  -1.09
Price due to Floating Rate 0.00  0.00  0.00
Price due to Credit Spread (3) 0.00  0.00  0.00
Price due to error 0.08  0.02  +0.06
Price due to Credit Spread (High) 0.00  0.00  0.00
Price due to Credit Spread (Low) -0.74  -0.62  -0.12
Curve Price 22.86  24.34  -1.48
Quote 22.83-85  24.75-79  -1.92 – -1.94

I discussed the yield curve and the collapse of the liquidity premium in the post HIMI Index Performance, May 2007:

One very interesting thing that happened this month is that a lot of the yieldCurvePremiumLiquidity disappeared, as shown in this graph. I interpret the change in the premium as reflecting a desire by some holders, at least, to get out of the sector in size and quickly; such holders might simply sell their most liquid holdings to adjust portfolio exposures; this will affect the prices of these issues; hence, liquidity will become a lot less expensive. The PerpetualDiscount index is the most liquid of all the sub-indices – it’s dominated by recent issues, apart from anything else – and thus a portion of the decline in this index might be attributed to this factor rather than the intrinsic characteristics of the investment.

Such a hypothesis gains some support from examination of the changes in the yield curve, which I found a little surprising. The long-end hasn’t moved by nearly as much as one might have expected. Note that this graph is of the TAXABLE curve and refers to SPOT YIELDS … therefore, the x-axis shows the yield one might expect on a “stripped dividend”, after tax.

Hopefully, the tables above will make my meaning a bit more clear. However, I should advise explicitly that the huge importance of liquidity in the above tables is probably over-stated. It comes out of the math, all right, and I have no problems with the mechanical correctness of the math … but as I’ve re-stated above, liquidity is not distributed homogeneously across the HIMIPref™ universe – it is highly concentrated in the PerpetualDiscount segment and this can lead to a confounding of the analysis.

MAPF

MAPF Performance, May 2007

Malachite Aggressive Preferred Fund has been valued for May, 2007, month-end. The unit value is $9.3259. Returns over various periods are:

MAPF Returns to May 31, 2007
One Month -0.88%
Three Months -1.73%
One Year +5.18%
Two Years (annualized) +5.21%
Three Years (annualized) +6.84%
Four Years (annualized) +10.29%
Five Years (annualized) +9.52%
Six Years (annualized) +10.64%

Returns assume reinvestment of dividends, and are shown after expenses but before fees. Past performance is not  a guarantee of future performance. You can lose money investing in Malachite Aggressive Preferred Fund or any other fund. For more information, see the fund’s main page.

Well, this month’s returns remind me of the story about the broken-down old gambler, heading to the racetrack with the milk money and telling his buddy “I hope I break even today – I need the money!”.

The total return before fees was -0.88% and I certainly don’t want too many more months in a row of that stuff! However, when it is compared with the various HIMI indices, one realizes that it could have been a lot worse.

When one examines the returns of the passive funds in that last link, one realizes that for most people, it was indeed a lot worse: the Net Asset Value Per Share of CPD was down 2.36% on the month and DPS.UN probably did worse.

The markets will fluctuate. An investor who does not indulge a penchant for market-timing will simply select an appropriate asset allocation and try to outperform within each asset class … and, when looked at from the perspective of such an investor, losing less money in a bad month is just as good as making more money in an up month. I’m very pleased that the fund was fully invested throughout May and yet still managed to lose so little money.

The fund did a fair amount of trading during the month and a fair amount of investment was shifted from the SplitShare sector into the PerpetualPremium sector, as retail scrambled to sell anything with the word “Perpetual” in its description. I have already posted the sectoral characteristics at month-end.

I anticipate a heavy trading volume in June, when the non-engaged segment of retail gets a look at their statements and as the fundcos attempt to beautify their portfolio statements for their semiannual reports. But who knows? Stay tuned!

Update, 2007-6-15: Sentry Select has posted the historical returns for DPS.UN:

DPS.UN Returns to 2007-5-31
“Average Annual Compound Returns” 
3 Month -10.5%
6 Month -10.2%
1 Year -4.3%
3 Year +1.1%
Issue Comments

LFE.PR.A: Yield-to-Worst, Curve Price & Valuation (sort of)

In the comments to the June 1 Market Action Report, assiduous reader tobyone posted:

RE: 5.25% LFE.PR.A bid @10.26 indicates yield of over 5% according to Globeinvestor and TDW yield calculators vs. your table. I hope this is an error because I hold this one but don’t want it @4.73%

Well, Globeinvestor and TDW are enormous companies, with an excellent record of sticking their brand name on various things, but I’ll see what I can do.

I stand by my calculation of 4.73%. First, the details, in all their glory, from the HIMIPref™ cashFlowDiscountingAnalysisBox:

A3555025 0138
2007-07-10        DIVIDEND   0.04   0.995022   0.04
2007-08-10        DIVIDEND   0.04   0.991082   0.04
2007-09-10        DIVIDEND   0.04   0.987158   0.04
2007-10-10        DIVIDEND   0.04   0.983376   0.04
2007-11-10        DIVIDEND   0.04   0.979482   0.04
2007-12-10        DIVIDEND   0.04   0.975729   0.04
2008-01-10        DIVIDEND   0.04   0.971866   0.04
2008-02-10        DIVIDEND   0.04   0.968018   0.04
2008-03-10        DIVIDEND   0.04   0.964433   0.04
2008-04-10        DIVIDEND   0.04   0.960614   0.04
2008-05-10        DIVIDEND   0.04   0.956933   0.04
2008-06-10        DIVIDEND   0.04   0.953145   0.04
2008-07-10        DIVIDEND   0.04   0.949493   0.04
2008-08-10        DIVIDEND   0.04   0.945733   0.04
2008-09-10        DIVIDEND   0.04   0.941989   0.04
2008-10-10        DIVIDEND   0.04   0.938380   0.04
2008-11-10        DIVIDEND   0.04   0.934664   0.04
2008-12-10        DIVIDEND   0.04   0.931083   0.04
2009-01-10        DIVIDEND   0.04   0.927397   0.04
2009-02-10        DIVIDEND   0.04   0.923725   0.04
2009-03-10        DIVIDEND   0.04   0.920421   0.04
2009-04-10        DIVIDEND   0.04   0.916777   0.04
2009-05-10        DIVIDEND   0.04   0.913264   0.04
2009-06-10        DIVIDEND   0.04   0.909648   0.04
2009-07-10        DIVIDEND   0.04   0.906163   0.04
2009-08-10        DIVIDEND   0.04   0.902575   0.04
2009-09-10        DIVIDEND   0.04   0.899002   0.04
2009-10-10        DIVIDEND   0.04   0.895557   0.04
2009-11-10        DIVIDEND   0.04   0.892011   0.04
2009-12-10        DIVIDEND   0.04   0.888593   0.04
2010-01-10        DIVIDEND   0.04   0.885075   0.04
2010-02-10        DIVIDEND   0.04   0.881571   0.04
2010-03-10        DIVIDEND   0.04   0.878418   0.04
2010-04-10        DIVIDEND   0.04   0.874940   0.04
2010-05-10        DIVIDEND   0.04   0.871587   0.04
2010-06-10        DIVIDEND   0.04   0.868137   0.04
2010-07-10        DIVIDEND   0.04   0.864810   0.04
2010-08-10        DIVIDEND   0.04   0.861386   0.04
2010-09-10        DIVIDEND   0.04   0.857976   0.04
2010-10-10        DIVIDEND   0.04   0.854688   0.04
2010-11-10        DIVIDEND   0.04   0.851304   0.04
2010-12-10        DIVIDEND   0.04   0.848043   0.04
2011-01-10        DIVIDEND   0.04   0.844685   0.04
2011-02-10        DIVIDEND   0.04   0.841341   0.04
2011-03-10        DIVIDEND   0.04   0.838331   0.04
2011-04-10        DIVIDEND   0.04   0.835012   0.04
2011-05-10        DIVIDEND   0.04   0.831813   0.04
2011-06-10        DIVIDEND   0.04   0.828520   0.04
2011-07-10        DIVIDEND   0.04   0.825345   0.04
2011-08-10        DIVIDEND   0.04   0.822077   0.04
2011-09-10        DIVIDEND   0.04   0.818822   0.04
2011-10-10        DIVIDEND   0.04   0.815685   0.04
2011-11-10        DIVIDEND   0.04   0.812455   0.04
2011-12-10        DIVIDEND   0.04   0.809342   0.04
2012-01-10        DIVIDEND   0.04   0.806138   0.04
2012-02-10        DIVIDEND   0.04   0.802946   0.04
2012-03-10        DIVIDEND   0.04   0.799972   0.03
2012-04-10        DIVIDEND   0.04   0.796805   0.03
2012-05-10        DIVIDEND   0.04   0.793752   0.03
2012-06-10        DIVIDEND   0.04   0.790609   0.03
2012-07-10        DIVIDEND   0.04   0.787580   0.03
2012-08-10        DIVIDEND   0.04   0.784461   0.03
2012-09-10        DIVIDEND   0.04   0.781356   0.03
2012-10-10        DIVIDEND   0.04   0.778362   0.03
2012-11-10        DIVIDEND   0.04   0.775280   0.03
2012-12-01  FINAL DIVIDEND   0.03   0.773199   0.02
2012-12-01        MATURITY  10.00   0.773199   7.73
Total Cash Flows    12.8739
Total Present Value    10.2597
Discounting Rate 4.7291 % (Annual rate compounded semi-annually)

More simply, I’ll say: OK, this thing pays $0.525 p.a. At a price of $10.26, it will give rise to a $0.26 capital loss on its maturity 2012-12-1. That’s 5.5 years away so call the annual capital loss $0.05 (for the sake of an argument). Therefore, of the $0.525 dividends received every year, $0.475 is income and $0.05 is return of capital. Over the period, my average capital invested is (10.26 + 10.00) / 2 = 10.13. Therefore, my (very roughly calculated) yield is $0.475/$10.13, or 4.69%, which is close enough to my precisely calculated yield of 4.73% that I’m not going to panic.

I’m not familiar with the GlobeInvestor or TDW yield calculators – if you will send me a link, I’ll take a look at them. The most common errors with such things are:

  • Are they calculating current yield = $0.525 / $10.26 = 5.12%? This is wrong, since it ignores the capital loss on maturity.
  • Are all the dividends incorporated? Ex-dates can be a little tricky.
  • Monthly dividends can be a little tricky to jam in to some calculators. Has this been done properly?

I recommend Keith Betty’s Yield Calculator.

Now I have another question … you indicated that you didn’t want to own this thing at 4.73%, but you didn’t indicate precisely why. Now, I’m not going to take a public position on the merits of LFE.PR.A as an investment at the current price (and please, don’t spend hours parsing everything I write from here on in trying to decide what I really think!), but the comment makes me suspect that you think a sale at a 4.73% yield is a slam-dunk … and whatever the verdict is, I don’t think it’s a slam-dunk-sell.

In your comment, you mentioned CM.PR.J as a possible buying opportunity, given its closing pre-tax bid-YTW of 5.03%. Now, this is more than LFE.PR.A, but CM.PR.J is a perpetual and there are other differences besides. In terms of the riskAttributes examined by HIMIPref™, the major differences are:

  • Credit Quality: CM.PR.J is better.
  • Retractible:LFE.PR.A is better.
  • SplitShare: CM.PR.J is better
  • Various Duration & Convexity Measures: Well, they’re different!
  • Cumulative Dividends: LFE.PR.A is better.
  • Liquidity: (not a formal risk measure, but it is important) CM.PR.J is better

Anything you can tell me about how you value LFE.PR.A will, at the very least, give me some ideas regarding what to write about!

 

MAPF

MAPF : Portfolio Characteristics as of 2007-5-31

There have been a fair number of changes in portfolio composition since the April 30 analysis. With the huge volatility in the market, trading opportunities have been numerous!

MAPF Sectoral Analysis 2007-5-31
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 29.9% 4.60% 6.43
Interest Rearing 0% N/A N/A
PerpetualPremium 60.8% 4.98% 4.59
PerpetualDiscount 3.0% 4.92% 15.63
Scraps 1.0% 4.09% 5.83
Cash 5.4% 0.00% 0.00
Total 100% 4.59% 5.23

Sharp-eyed readers will observe that the “total” reflects the un-leveraged total portfolio (i.e., cash is included in the portfolio calculations and is deemed to have a duration and yield of 0.00.), and may make their own adjustments to reflect interest. The average YTW on the securities-only portion of the portfolio, for instance, is 4.85%. MAPF will often have relatively large cash balances to facilitate trading.

These sharp-eyed readers will also note, with a certain amount of glee, that the percentages do not add up to exactly 100% in the above or the following tables. This is due to rounding. You know something? Sharp-eyed readers really bug me.

Credit distribution is:

MAPF Credit Analysis 2007-5.31
DBRS Rating Weighting
Pfd-1 18.5%
Pfd-1(low) 46.3%
Pfd-2 27.7%
Pfd-2(low) 2.2%
Cash 5.4%

Liquidity Distribution is:

MAPF Liquidity Analysis 2007-5-31
Average Daily Trading Weighting
<$50,000 1%
$50,000 – $100,000 28.7%
$100,000 – $200,000 26.7%
$200,000 – $300,000 14.7%
>$300,000 23.6%
Cash 5.4%

Update: I forgot the ad! MAPF is, of course, Malachite Aggressive Preferred Fund, a “unit trust” managed by Hymas Investment Management Inc. Further information and links to performance, audited financials and subscription information are available on the fund’s web page. A “unit trust” is like a regular mutual fund, but is sold by offering memorandum rather than prospectus. This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission) and those who subscribe for $150,000+. Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.

Market Action

June 1, 2007

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 5.36% 5.43% 35,195 14.96 2 +0.2894% 954.9
Fixed-Floater 5.59% 5.50% 141,295 15.01 7 +0.0191% 898.7
Floater 4.78% -3.64% 85,719 5.9 3 +0.1602% 1,050.9
Op. Retract 4.80% 3.85% 82,948 2.97 17 -0.1688% 1,022.7
Split-Share 5.03% 4.55% 187,553 4.05 15 -0.2839% 1,040.6
Interest Bearing 6.60% 6.54% 85,139 6.14 4 +0.1248% 1,045.1
Perpetual-Premium 5.36% 4.79% 132,692 5.88 34 -0.0909% 1,027.1
Perpetual-Discount 4.90% 4.94% 564,256 15.62 29 -0.4319% 993.3
Major Price Changes
Issue Index Change Notes
ELF.PR.G PerpetualDiscount -3.0872% Now with a pre-tax bid-YTW of 5.18% based on a bid of 23.23 and a limitMaturity.
LFE.PR.A SplitShares -2.0992% A recent addition to the SplitShare index, following its April addition to the HIMIPref™ universe. Now with a pre-tax bid-YTW of 4.73% based on a bid of 10.26 and a hardMaturity 2012-12-1.
GWO.PR.E OpRet -1.9985% Now with a pre-tax bid-YTW of 4.07% based on a bid of 25.50 and a call 2011-4-30 at 25.00. There is some uncertainty regarding GWO’s capital market plans.
MFC.PR.A OpRet -1.7301% Now with a pre-tax bid-YTW of 3.78% based on a bid of 25.56 and a softMaturity 2015-12-18 at 25.00.
SLF.PR.C PerpetualDiscount -1.2719% Now with a pre-tax bid-YTW of 4.94% based on a bid of 22.51 and a limitMaturity.
SLF.PR.D PerpetualDiscount -1.1038% Now with a pre-tax bid-YTW of 4.97% based on a bid of 22.40 and a limitMaturity.
BCE.PR.G FixFloat -1.0732% Exchange/Reset date is 2011-5-1 (exchanges with BCE.PR.H); until then, pays 4.35% of par. Closed at 20.28-92, 5×7 (new low of 20.25 hit today); the Hs closed at 22.75-94, 20×5.
CM.PR.J PerpetualDiscount -1.0066% Now with a pre-tax bid-YTW of 5.03% based on a bid of 22.62 and a limitMaturity.
BAM.PR.G FixFloat +1.4894% Exchange/Reset date is 2011-10-31 (exchanges with BAM.PR.E); until then, pays 4.35% of par. Closed at 23.85-00, 5×5; the Es closed at 24.85-00, 13×12. The Es are currently paying $0.09125 monthly = $1.095 p.a = 4.38% of par.
PWF.PR.H PerpetualPremium +1.5288% Now with a pre-tax bid-YTW of 5.02% based on a bid of 25.90 and a call 2012-1-9 at 25.00.
Volume Highlights
Issue Index Volume Notes
TD.PR.O PerpetualPremium 70,000 Now with a pre-tax bid-YTW of 4.79% based on a bid of 25.24 and a call 2014-11-30 at 25.00.
MFC.PR.B PerpetualDiscount 62,290 Now with a pre-tax bid-YTW of 4.71% based on a bid of 24.70 and a limitMaturity.
RY.PR.G PerpetualDiscount 57,236 Now with a pre-tax bid-YTW of 4.92% based on a bid of 23.10 and a limitMaturity.
CM.PR.I PerpetualDiscount 56,035 Now with a pre-tax bid-YTW of 4.90% based on a bid of 24.20 and a limitMaturity.
BNS.PR.M PerpetualDiscount 48,100 Now with a pre-tax bid-YTW of 4.89% based on a bid of 23.35 and a limitMaturity.

There were twenty-four other $25-equivalent index-included issues trading over 10,000 shares today.

Index Construction / Reporting

HIMI Index Performance, May 2007

Performance of the HIMI Indices for May was:

Total Return, May 2007
Index Performance
Ratchet -2.05%
FixFloat -4.70%
Floater -1.20%
OpRet -0.78%
SplitShare -0.09%
Interest -0.39%
PerpetualPremium -2.20%
PerpetualDiscount -5.36%

The Claymore Preferred ETF may be viewed, with caution, as a proxy for the S&P/TSX Preferred Share Index. Caution is required due to tracking error – the ETF will deliver performance according to what it actually holds and how well it is able to do things like reinvest its dividends, which is not the same thing as an index return. I suspect that tracking error this month will be larger than it will be in the future, since it has issued a great many units. Additionally, the fund’s NAV will be reported after MER of 0.45% p.a.

Be that as it may, the NAV on 5/31 was $19.44; the NAV on 4/30 was $19.91. Therefore, NAV Performance for May 2007 for CPD was -2.36%, net of MER (which will be just under 0.04% monthly).

Diversified Preferred Share Trust, DPS.UN is the main competitor of CPD. It doesn’t publish month-end NAVs, but the May 30 NAV was $22.55, while the May 2 NAV was $23.11, so its performance for this four-week period was -2.42%, net of its MER of about 0.04% for the period. The corresponding figures for CPD are $19.48, $19.90, -2.11%. Ouch! I presume that DPS.UN underperformed due to its greater weight in BCE issues, but that’s merely speculation.

It should also be noted that the HIMI Indices are prepared using the closing bids, which can be a very different thing from the closing price. When averaged over a lot of issues the difference should be minimal, but you can’t tell until you rip apart the data.

Caution should also be used in interpreting the differences between the various HIMI Indices. I will suggest that the lousy performance in Ratchet and FixFloat have a lot more to do with nervousness about BCE’s credit than the intrinsic performance of those investment classes – both of those subindices held entirely BCE for the period.

One very interesting thing that happened this month is that a lot of the yieldCurvePremiumLiquidity disappeared, as shown in this graph. I interpret the change in the premium as reflecting a desire by some holders, at least, to get out of the sector in size and quickly; such holders might simply sell their most liquid holdings to adjust portfolio exposures; this will affect the prices of these issues; hence, liquidity will become a lot less expensive. The PerpetualDiscount index is the most liquid of all the sub-indices – it’s dominated by recent issues, apart from anything else – and thus a portion of the decline in this index might be attributed to this factor rather than the intrinsic characteristics of the investment.

Such a hypothesis gains some support from examination of the changes in the yield curve, which I found a little surprising. The long-end hasn’t moved by nearly as much as one might have expected. Note that this graph is of the TAXABLE curve and refers to SPOT YIELDS … therefore, the x-axis shows the yield one might expect on a “stripped dividend”, after tax.

Attribution analysis is tricky and very implementation dependent. I might return to this topic on the weekend.

Index Construction / Reporting

HIMI Index Rebalancing: May 31, 2007

There was a lot of activity this month: a huge migration from PerpetualPremium to PerpetualDiscount; a transfer of all the Weston issues to Scraps due to credit concerns; and a transfer of several issues from Scraps due to increased volume.

The changes are:

HIMI Index Rebalancing, May 31, 2007
Ticker From To Because
WN.PR.C PerpetualPremium Scraps Credit
SLF.PR.B PerpetualPremium PerpetualDiscount  Price 
MFC.PR.B PerpetualPremium PerpetualDiscount Price 
POW.PR.D PerpetualPremium PerpetualDiscount Price
CM.PR.H PerpetualPremium PerpetualDiscount Price
WN.PR.A PerpetualPremium Scraps Credit
PWF.PR.D Scraps OpRet Volume
LFE.PR.A Scraps SplitShare Volume
FTU.PR.A Scraps SplitShare Volume
BAM.PR.G Scraps FixFloat Volume
WN.PR.B OpRet Scraps Credit
MST.PR.A Interest Scraps Volume
BMO.PR.J PerpetualPremium PerpetualDiscount Price
ELF.PR.G PerpetualPremium PerpetualDiscount Price
RY.PR.B PerpetualPremium PerpetualDiscount Price
CM.PR.I PerpetualPremium PerpetualDiscount Price
WN.PR.D PerpetualPremium Scraps Credit
GWO.PR.H PerpetualPremium PerpetualDiscount Price
PWF.PR.K PerpetualPremium PerpetualDiscount Price
SLF.PR.A PerpetualPremium PerpetualDiscount Price
WN.PR.E PerpetualDiscount Scraps Credit
Market Action

May 31, 2007

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 5.35% 5.42% 36,715 14.98 2 +1.7006% 952.1
Fixed-Floater 5.76% 5.51% 162,487 14.96 6 -0.2911% 898.5
Floater 4.79% -2.81% 88,032 11.14 3 +0.2836% 1,049.2
Op. Retract 4.79% 3.80% 85,906 2.93 17 -0.2482% 1,024.4
Split-Share 5.01% 4.41% 215,947 3.94 13 -0.2466% 1,043.5
Interest Bearing 6.55% 6.44% 72,642 5.33 5 -0.2872% 1,043.8
Perpetual-Premium 5.26% 4.85% 197,455 8.17 48 -0.1731% 1,028.0
Perpetual-Discount 4.89% 4.93% 642,053 15.64 19 -0.0997% 997.6
Major Price Changes
Issue Index Change Notes
PWF.PR.K PerpetualPremium (pre-rebalancing) -1.6064% Now with a pre-tax bid-YTW of 5.10% based on a bid of 24.50 and a limitMaturity.
POW.PR.C PerpetualPremium -1.5757% Now with a pre-tax bid-YTW of 5.41% based on a bid of 25.61 and a call 2012-1-5 at 25.00
LBS.PR.A SplitShare -1.5209% Now with a pre-tax bid-YTW of 4.75% based on a bid of 10.36 and a hardMaturity 2013-11-29 at 10.00.
BAM.PR.J OpRet -1.4599% Now with a pre-tax bid-YTW of 4.59% based on a bid of 27.00 and a softMaturity 2018-3-30 at 25.00.
IGM.PR.A OpRet -1.4105% Now with a pre-tax bid-YTW of 4.28% based on a bid of 26.56 and a call 2009-7-30 at 26.00.
BSD.PR.A InterestBearing -1.4000% Now with a pre-tax bid-YTW of 6.24% (as interest) based on a bid of 9.86 and hardMaturity 2015-3-31 at 10.00.
BAM.PR.M PerpetualDiscount -1.2848% Now with a pre-tax bid-YTW of 5.23% based on a bid of 23.05 and a limitMaturity.
ELF.PR.G PerpetualPremium (pre-rebalancing) -1.1546% Now with a pre-tax bid-YTW of 5.01% based on a bid of 23.97 and a limitMaturity.
WN.PR.E PerpetualDiscount (pre-rebalancing) -1.0865% Now with a pre-tax bid-YTW of 5.30% based on a bid of 22.76 and a limitMaturity.
RY.PR.B PerpetualPremium (pre-rebalancing) -1.0673% Now with a pre-tax bid-YTW of 4.90% based on a bid of 24.10 and a limitMaturity.
AL.PR.E Floater +1.0359%  
WN.PR.C PerpetualPremium (pre-rebalancing) +1.5327% Now with a pre-tax bid-YTW of 5.39% based on a bid of 24.51 and a limitMaturity.
BCE.PR.S Ratchet +3.4803%  
Volume Highlights
Issue Index Volume Notes
BCE.PR.C FixFloat 412,955  
BCE.PR.A FixFloat 333,000 Nesbitt crossed 325,500 at 22.90 for Cash.
BCE.PR.R FixFloat 210,750  
CM.PR.I PerpetualPremium (pre-rebalancing) 129,720 Now with a pre-tax bid-YTW of 4.89% based on a bid of 24.25 and a limitMaturity.
TD.PR.O PerpetualPremium 80,600 Nesbitt crossed 70,000 at 25.40. Now with a pre-tax bid-YTW of 4.69% based on a bid of 25.40 and a call 2014-11-30 at 25.00.

There were thirty-nine other $25-equivalent index-included issues trading over 10,000 shares today.

New Issues

New Issue : GlobalBanc Advantaged 8, 4.5%, 5.5-Year Retractibles

This is an interesting one.

GlobalBanc Advantaged 8 Split Corp. announced today (via CCN Matthews) that:

it has filed and has received a receipt dated May 30, 2007 from the securities regulators of all the Canadian provinces and territories for the final prospectus for its offering of Preferred Shares and Class A Shares, for a total maximum offering size of up to $150 million. The Preferred Securities have been provisionally rated Pfd-2 by DBRS Limited. The offering is scheduled to close on or about June 26, 2007.  The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the shares, subject to fulfillment by the Company of the requirements of the TSX (Class A Shares – GBA; and Preferred Shares – GBA.PR.A).

….
The investment objectives with respect to the Preferred Shares are: (i) to provide holders with fixed cumulative preferential quarterly cash distributions that are expected to consist of non-taxable returns of capital and capital gains in the amount of $0.1125 per Preferred Share, representing a yield on the issue price of the Preferred Shares of 4.5% per annum; and (ii) to return $10.00 per Preferred Share at the time of redemption of such Preferred Shares on December 15, 2012. The Preferred Shares have been provisionally rated Pfd-2 by DBRS Limited.

I have not yet decided whether this issue will be included in the HIMIPref™ universe.

Update, 2007-08-12: This issue will not be tracked by HIMIPref™. The TSX reports that there are only 2.7-million shares outstanding, for a total par value of $27-million.

Issue Comments

PAY.PR.A to Purchase & Retire 10.8% of Issue

This is something both interesting and complicated – it would have to happen at month-end! PAY.PR.A announced today:

the final results of its modified Dutch auction-type substantial issuer bid to repurchase (the “Offer”) up to 300,000 of its preferred shares (TSX: “PAY.PR.A”) which expired at 5:00 p.m. (EST) on May 30, 2007

    Based on the final report provided by the depositary for the Offer, 224,644 preferred shares have been deposited and not withdrawn. Pursuant to the terms of the Offer, HIPAYS determined the purchase price to be $25.90 per preferred share (the “Purchase Price”) to put it in a position to take up the maximum number of preferred shares deposited to the Offer for an aggregate purchase amount of $5,818,279.60.
    All preferred shares properly deposited to the Offer at auction tender prices below the Purchase Price will be purchased at the Purchase Price. Payment to holders of preferred shares tendered and accepted for purchase will be made as soon as practicable, but otherwise in compliance with the Offer.
    The purchased preferred shares represent approximately 10.8% of the preferred shares outstanding as of May 30, 2007. After the purchase, approximately 1,860,752 preferred shares will remain outstanding.

According to the press release that announced the offer:

On July 31, 2008 (the “Termination Date”) the preferred shares will be redeemed for $25.00 and the remaining 15 distributions from the expiry of the Offer to the Termination Date will amount to $1.719. Accordingly, the yield to maturity of a preferred share at $25.50 to the Termination Date is 3.86% and the yield to maturity of a preferred share at $25.90 to the Termination Date is 2.57%.

Now, at first glance, this doesn’t seem to make much sense. Why would the company purchase its own prefs at a premium to par and at a lousy yield-to-maturity? 

I suspect the key may be found in my last comment on this issue:

As far as I can make out from the prospectus, the “Preferred Repayment Portfolio” will be delivered in its entirety to CIBC on the termination date in exchange for the amount due on maturity of the prefs. This is a bit of bad new for the Capital Unit Holders (because it means the current excess value of $3,901,000 will be lost), but the pref holders don’t care!

So I suspect that this is worthwhile for the Capital Unit Holders because they will now capture the excess value … or, at least, a fraction of it! I’m not sure about this, though, so confirmation or denial of this hypothesis is left as an exercise for the student.