Issue Comments

S&P Downgrades Loblaw, Weston

S&P has announced:

it lowered its long-term corporate credit and senior unsecured debt ratings on Toronto-based Loblaw Companies Ltd. by one notch, to ‘BBB+’ from ‘A-‘. Standard & Poor’s also lowered its long-term corporate credit and senior unsecured debt ratings on parent company George Weston Ltd. by one notch, to ‘BBB’ from ‘BBB+’. In addition, the Canadian scale CP rating on George Weston was lowered to ‘A-2’ from ‘A-1(Low)’, and the preferred stock rating on George Weston was lowered to ‘P-3(High)’ from ‘P-2(Low)’. At the same time, the ratings on both companies were removed from CreditWatch with negative implications, where they were placed Feb. 8, 2007, following Loblaw’s much weaker-than-expected earnings in the fourth quarter (ended Dec. 30, 2006). The outlook on both companies is stable.

This follows the earlier downgrade of Loblaw by DBRS, who have not yet announced a decision regarding Weston, and the Credit Watch Negative announcement by S&P.

Weston has the following preferred issues outstanding: WN.PR.A WN.PR.B WN.PR.C WN.PR.D & WN.PR.E

Market Action

May 2, 2007

The index rebalancing for April month-end has been completed, but updating the index values will have to wait until tomorrow. However, I do have the other two tables!

Major Price Changes
Issue Index Change Notes
GWO.PR.G PerpetualPremium -1.1069% Nothing particularly exciting happened in the trading – it looks like the bids just dried up. Now with a pre-tax bid-YTW of 4.67% based on a bid of 25.91 and a call 2014-1-30 at 25.00.
BCE.PR.Z FixFloat +1.0208% Exchange/Reset date is 2007-12-1 (Exchange with BCE.PR.Y); until then, pay 5.319% of par. Closed at 23.75-95, 20×2; the Ys closed at 23.03-74, 2×2.
BCE.PR.G FixedFloater +1.7800% Exchange/Reset date is 2011-5-1 (Exchange with BCE.PR.H); until then, pay 4.35% of par. Closed at 22.30-40, 2×11; the Hs closed at 23.41-03, 13×5.
BCE.PR.I FixFloat +2.2411% Exchange/Reset date is 2011-8-1 (Exchange with series ‘AJ’, not issued); until then, pay 4.65% of par. Closed at 22.81-09, 1×1.
BCE.PR.R FixFloat +3.0137% Exchange/Reset date is 2010-12-01 (Exchange with series ‘Q’, not issued); until then, pay 4.54% of par. Closed at 22.56-64, 2×3.
Volume Highlights
Issue Index Volume Notes
BCE.PR.C FixedFloater 256,250 Nesbitt crossed 100,000 at 24.00, then another 150,000 at the same price. Exchange/Reset date is 2008-03-01 (exchange with series ‘AD’, not issued); until then pay 5.54% of par.
RY.PR.G PerpetualDiscount 87,900 Recent new issue. Now with a pre-tax bid-YTW of 4.61% based on a bid of 24.51 and a limitMaturity.
BNS.PR.M PerpetualDiscount 65,825 Scotia crossed 40,000 at 24.86, then another 10,000 at the same price. Now with a pre-tax bid-YTW of 4.56% based on a bid of 24.85 and a limitMaturity.
TD.PR.N OpRet 50,800 TD crossed 41,800 at 26.93. Now with a pre-tax bid-YTW of 2.89% based on a bid of 26.81 and a call 2009-5-30 at 26.00 … The buyer is obviously hoping they last longer, preferably until their softMaturity 2014-1-30 at $25.00, which will yield 3.41%. Well … hope is a fine thing!
TD.PR.M OpRet 50,600 Scotia crossed 50,000 at 26.90. A somewhat more careful buyer for this one! Now with a pre-tax bid-YTW of 3.12% based on a bid of 26.74 and a call 2009-5-30 at 26.00 … the softMaturity at 25.00 on 2013-10-30 implies a yield of 3.52%.

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

Update, 2007-05-03

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 4.60% 4.61% 42,886 16.26 2 -0.3010% 974.2
Fixed-Floater 5.36% 4.45% 128,173 16.56 6 +1.3299% 964.3
Floater 4.71% -19.85% 73,776 11.00 3 -0.1016% 1,066.1
Op. Retract 4.73% 3.07% 83,864 2.30 17 +0.1552% 1,034.0
Split-Share 4.96% 4.19% 180,610 3.89 12 +0.1361% 1,045.4
Interest Bearing 6.50% 4.69% 61,881 2.25 5 -0.0078% 1,048.6
Perpetual-Premium 5.13% 4.50% 171,637 4.90 48 +0.0075% 1,050.8
Perpetual-Discount 4.60% 4.62% 808,321 16.17 18 -0.0085% 1,055.6

Index Construction / Reporting

HIMI Preferred Indices : April 30, 2007 Rebalancing

A fair amount of movement this month – mainly from PerpetualPremium to PerpetualDiscount.

2007-04-30 Index Rebalancing
Ticker From To Because
LFE.PR.E – Scraps Add
ALB.PR.A – SplitShares Add
PAY.PR.A Scraps SplitShare Volume
RY.PR.D PerpetualPremium PerpetualDiscount Price
RY.PR.E PerpetualPremium PerpetualDiscount Price
BAM.PR.M PerpetualPremium PerpetualDiscount Price
CIU.PR.A PerpetualPremium PerpetualDiscount Price
RY.PR.C PerpetualPremium PerpetualDiscount Price
IAG.PR.A PerpetualPremium PerpetualDiscount Price
MUH.PR.A SplitShare Scraps Volume
ASC.PR.A SplitShare Scraps Volume
PWF.PR.A Floater Scraps Volume
Issue Comments

BAM to Spin-Off Assets – What will the Agencies Say?

Brookfield Asset Management has announced:

Brookfield intends to distribute to its Class A shareholders a direct interest in its infrastructure operations through a newly created publicly traded partnership to be named Brookfield Infrastructure Partners L.P. (“Brookfield Infrastructure”). … Subject to receipt of the various required approvals, Brookfield will implement the spin-off by way of a special dividend currently estimated to be approximately US$1.00 per Brookfield Class A Share, taking into account the pending three-for-two stock split, or approximately $600 million in aggregate.

Based on their March 31, 2007, Balance Sheet, $600-million is about 10% of common equity. This is not good news for debt-holders or preferred share holders – whether it is sufficiently bad to warrant a downgrade awaits a detailed analysis by more specialized practitioners than I.

BAM currently has the following preferred share issues outstanding : BAM.PR.B BAM.PR.C BAM.PR.E BAM.PR.G BAM.PR.H BAM.PR.I BAM.PR.J BAM.PR.K BAM.PR.L BAM.PR.M BAM.PR.T and there is a new perpetual coming out soon.

Update: One source of uncertainty in the meaning of this is the book-value vs. the market-value of the assets spun out. BAM has a P/B ratio of 4.13:1. If the assets spun out have a market value of $1 and a book value of $0.25, then this will be a relatively minor change to the balance sheet.

Index Construction / Reporting

Index Performance : April 2007

All over the map this month!

Index Performance, April 2007
Ratchet -7.65%
FixFloat -9.13%
Floater +0.61%
OpRet -0.14%
SplitShare -0.79%
InterestBearing +0.18%
PerpetualPremium -0.82%
PerpetualDiscount -1.19%

Both the FixFloat and the RatchetRate indices are comprised entirely of BCE issues; BCE has no issues included in any of the other indices. 

The S&P/TSX preferred share index was (before the collapse) 7-8% BCE (which is proxied by FixFloat); the BMO-NB 50 is a little higher, about 10%. Diversified Preferred Fund (DPS.UN) lists its 25 largest positions as of Year-end, which include 6 BCE/Bell issues totalling 9.95% of the portfolio at that time, while the Claymore ETF currently lists 2 of these issues in its holdings, currently comprising 6.86% of the portfolio. MAPF hasn’t held any of these issues for a long time … I can’t even remember holding them, but I’m sure I have at some point or other.

By cracky, you young whippersnappers don’t know nuthin’. I can remember when Bell Canada / BCE was a decent credit!

 

 

Market Action

May 1, 2007

The index rebalancing for April month-end has not yet been completed, so I’ll have to update the index values at another time. However, I do have the other two tables!

Major Price Changes
Issue Index Change Notes
BCE.PR.Z FixFloat +1.0748% Exchange/Reset date is 2007-12-1 (Exchange with BCE.PR.Y); until then, pay 5.319% of par. Closed at 23.51-89, 3×10; the Ys closed at 23.11-49, 2×2.
BCE.PR.H Ratchet +1.0753% Exchange/Reset date is 2011-5-1 (Exchange with BCE.PR.G, which currently pays 4.35% of par). Closed at 23.50-75, 20×2; the Gs closed at 21.91-37, 5×1.
BCE.PR.C FixFloat +1.0975% Exchange/Reset date is 2008-3-1 (Exchange with series ‘AD’, not issued); until then, pay 5.55% of par. Closed at 23.95-24, 1×2.
AL.PR.E Floater +1.6231%  
BCE.PR.A FixFloat +2.1496% Exchange/Reset date is 2007-09-01 (Exchange with series ‘AB’, not issued); until then, pay 5.03% of par. Closed at 23.76-00, 5×59.
Volume Highlights
Issue Index Volume Notes
RY.PR.G PerpetualDiscount 238,964 Recent new issue. Now with a pre-tax bid-YTW of 4.61% based on a bid of 24.51 and a limitMaturity.
NA.PR.K PerpetualPremium 201,300 Desjardins crossed two tranches of 100,000 shares at 26.80. Now with a pre-tax bid-YTW of 2.91% based on a bid of 26.72 and a call 2008-6-14 at 26.00 – pretty skimpy! You can buy Canada bonds of that term to yield more than that, interest equivalent … the buyers must be hoping the issue will last longer.
MFC.PR.B PerpetualPremium 112,844 Scotia crossed 100,000 at 25.30. Now with a pre-tax bid-YTW of 4.57% based on a bid of 25.29 and a call 2014-4-18 at 25.00.
MFC.PR.C PerpetualDiscount 110,329 Scotia crossed 100,000 at 24.69. Now with a pre-tax bid-YTW of 4.61% based on a bid of 24.65 and a limitMaturity.
WN.PR.D PerpetualPremium 108,020 Scotia crossed 25,000 at 25.25, then 75,000 at the same price. Now with a pre-tax bid-YTW of 5.17% based on a bid of 25.21 and a call 2014-10-31 at 25.00. Remember that Weston is still on Credit Wath Negative.

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

Update, 2007-05-03

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 4.56% 4.57% 42,607 16.34 2 +0.5219% 977.1
Fixed-Floater 5.43% 4.50% 124,066 16.51 6 +0.9393% 951.6
Floater 4.71% -22.29% 73,448 5.53 3 +0.4919% 1,067.2
Op. Retract 4.73% 3.22% 82,957 2.59 17 -0.0152% 1,032.4
Split-Share 4.97% 4.29% 182,937 3.89 12 -0.0492% 1,044.0
Interest Bearing 6.50% 4.60% 61,951 2.25 5 +0.0830% 1,048.7
Perpetual-Premium 5.13% 4.50% 172,210 5.06 48 -0.0378% 1,050.8
Perpetual-Discount 4.60% 4.62% 821,913 16.17 18 +0.1478% 1,055.7
MAPF

MAPF : Results for April 2007

Malachite Aggressive Preferred Fund has been valued for March, 2007, month-end. The unit value is $9.4083. Returns over various periods are:

MAPF Returns to April 30, 2007
One Month -1.27%
Three Months -0.19%
One Year +6.67%
Two Years (annualized) +6.53%
Three Years (annualized) +7.59%
Four Years (annualized) +11.77%
Five Years (annualized) +9.71%
Six Years (annualized) +10.77%

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.

Rather a dispiriting month! A few trades popped up, but it seemed that every trade I made was to catch a falling knife – sometimes trends are like that! The fund’s asset allocation is very heavily tilted towards Split-Share corporations, with additional exposure to very-high-dividend perpetuals, so it’s quite defensive. I will emphasize that the defensiveness of this position is not due to any market call on my part, it’s simply the math filtering through … one way to think of this process is to observe that, in situations such as now, with the ongoing BCE rout causing panic & confusion, issues in the marketplace have dropped in price indiscriminately. Which is to say, they’ve all dropped by the same amount, regardless of safety. Which is to say, the defensive issues have dropped more on a risk-adjusted basis than the more aggressive issues and hence have increased in relative attractiveness.

The above, please remember, is an over-simplification for visualization purposes, not a claim of any specific price movements by any issue or a recommendation of any particular class of preferred share for investment purposes.

Market Action

April 30, 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 4.56% 4.61% 42,404 16.40 2 -0.6230% 972.0
Fixed-Floater 5.48% 4.52% 122,596 16.47 6 +0.1112% 942.8
Floater 4.56% -19.27% 60,029 4.18 4 -0.0196% 1,062.0
Op. Retract 4.74% 3.12% 83,261 2.59 17 -0.0409% 1,032.5
Split-Share 5.04% 4.34% 177,507 4.01 12 -0.1518% 1,044.5
Interest Bearing 6.50% 4.87% 61,407 2.25 5 -0.2148% 1,047.8
Perpetual-Premium 5.07% 4.53% 219,572 6.15 54 -0.0271% 1,051.2
Perpetual-Discount 4.58% 4.61% 936,660 16.20 12 -0.2193% 1,054.1
Major Price Changes
Issue Index Change Notes
CM.PR.R OpRet Hit a 52-week low of 25.52 on volume of 500 – count ’em, 500 – shares, closing at 25.75-00, 2×6. Geez, this market is getting sloppy! Now with a pre-tax bid-YTW of 4.50% based on a bid of 25.75 and a softMaturity 2013-4-29 at 25.00.
Volume Highlights
Issue Index Volume Notes
RY.PR.G PerpetualDiscount 839,800 Recent new issue. Now with a pre-tax bid-YTW of 4.62% based on a bid of 24.46 and a limitMaturity.
BNS.PR.L PerpetualDiscount 133,900 Now with a pre-tax bid-YTW of 4.53% based on a bid of 24.90 and a limitMaturity.
GWO.PR.I PerpetualDiscount 57,558 Now with a pre-tax bid-YTW of 4.58% based on a bid of 24.75 and a limitMaturity.
BMO.PR.J PerpetualPremium 26,920 Now with a pre-tax bid-YTW of 4.59% based on a bid of 25.00 and a limitMaturity. Goes ex-Dividend 5/2
BAM.PR.B Floater 22,211 Pays 70% of Canadian Prime on par value. Closed at 24.80-89.

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

Data Changes

New Issue : S Split Corp 5.25% Retractibles

I had a look at the prospectus, as promised, and have added this issue to the HIMIPref™ Universe.

Maturity is 2014-12-1. There are no intervening redemptions.

Dividend is 5.25% p.a., payable monthly, par value $10.00. There will be no distributions to the Capital Unitholders if this would result in asset coverage for the prefs falling below 1.65:1.

Underlying security is shares of BNS. The manager is covering the cost of issue – in exchange, the manager gets a fee (payable by the retracting shareholder) if units are retracted prior to maturity. Hence, asset coverage will initially be (very close to) 2.5:1. Since BNS yields approximately 3.12% p.a., income coverage at issue will be in excess of 1:1.  

Downside is: DBRS rating of Pfd-2(low). I suspect that the issue lost a notch due to a very high concentration risk on BNS, but that’s for DBRS to say and for the rest of us to guess. Additionally, the maximum issue size is only $100-million. If they can get that high, it will be a respectable size as far as split-shares go, but trading may be expected to require patience.

A nice little issue, worthy of consideration as part of a DIVERSIFIED portfolio. Did I mention that a portfolio containing this issue should be DIVERSIFIED? Don’t come running to me if you have to sell 1,000 shares in two years and the price moves a buck. Or if BNS finds out they’ve made a little arithmetic error on their commodities trading and there won’t be any dividends for the next few years. Or whatever.

And while the preferred will be offered separately, there is no guarantee that they will be offered to YOU separately. The prefs are quite attractive enough that they should trade at a premium to par immediately upon issue.

The preIssue securityCode for this issue is P71400.