Issue Comments

RY.PR.O to be Redeemed

The Royal Bank announced today that RY.PR.O will be redeemed at a price of $25.50 on November 24, 2006.

This is an interesting decision on their part. As noted in my previous post on this topic, the issue pays $1.375 and the premium was declining by $0.25 annually – implying a net cost to Royal of $1.125 annually for the $25 capital, which is quite competitive.

I can only assume that they have a desired capital structure that includes some preferreds … and that the issue of RY.PR.B was an opportunistic move with the proceeds earmarked for this redemption.

RY.PR.O was quoted at the close yesterday, 2006-10-18, at $25.96-23, and had a pre-Tax YTW of -6.48% based on a call 2006-11-17 at $25.50 (OK, so the calculation was one week off! It’s still quite bad enough!). Had the issue survived until called  2008-09-23, the pre-tax YTM realized would have been 3.89 % – still pretty skimpy.

So there’s an objective lesson for all readers! It’s all very well to make elegant arguments that something won’t be called based on net cost to issuer, and there may often be a great deal of validity to these arguments. But plain old YTW remains a very powerful tool for avoiding mistakes and decisions made on any single element of valuation will often be in error.

Market Action

October 18, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.15% 4.06% 47,795 10.64 2 0.0000% 1,019.9
Fixed-Floater 4.97% 3.88% 180,376 8.70 7 0.0007% 1,024.8
Floater 4.53% -15.97% 77,748 6.50 5 0.0081% 1,018.5
Op. Retract 4.68% 2.02% 88,293 2.40 17 0.0466% 1,018.2
Split-Share 4.93% 3.68% 159,407 3.29 11 0.0441% 1,022.7
Interest Bearing 6.91% 5.19% 55,968 2.01 7 -0.1142% 1,019.9
Perpetual-Premium 5.09% 3.55% 220,936 4.31 47 0.1062% 1,035.6
Perpetual-Discount 4.58% 4.61% 560,158 16.19 7 0.0235% 1,035.1
Major Price Changes
Issue Index Change Notes
There were no index-included issues with major price changes today.
Volume Highlights
Issue Index Volume Notes
LBS.PR.A SplitShare 295,275 Recent new issue. Despite its leap to a hefty premium above par, this still looks attractive, with a YTW of 4.28% based on a bid of 10.59 and a maturity at $10.00 in November 2013.
PWF.PR.H PerpetualPremium 276,340 RBC crossed 270,000 @ 26.45. At the closing bid of 26.43, this has a pre-tax YTW of 3.99%, paying $1.4375 until the YTW call 2008-1-9. If it lasts until 2012-1-9, it will have returned 4.50% … if it does, in fact, last that long!
W.PR.J PerpetualPremium 129,360 Scotia crossed 50,000 @ 25.45, and followed up with another of 69,200 shares at the same price. This is an attractive issue … pre-tax YTW of 4.74% based on a call 2008-8-14 and a bid of $25.40.
WN.PR.A PerpetualPremium 95,720 Scotia crossed 50,000 @ $26.20 and then did another tranche of 42,000 at the same price. Another attractive, Pfd-2(low) [DBRS] issue, with a YTW of 4.81% based on a call 2011-1-14.
GWO.PR.H PerpetualPremium 56,340 Scotia (again!) crossed 50,000 @ 25.55. A nice issue, this, even if simply fairly priced – good credit, good daily volume, and a pre-tax YTW of 4.67% based on a call 2014-10-30. It pays $1.2125. Now, compare this issue with the PWF.PR.H mentioned above, and explain to me how the prices may be reconciled!

There were nineteen other index-included issues trading over 10,000 shares today.

HIMI Preferred Indices

HIMI Preferred Indices : March, 1994

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1994-3-31
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,084.7 1 0 0 0 0 0
FixedFloater 1,084.7 0 0 0 0 0 0
Floater 1,084.7 7 1.54 4.79% 15.8 244M 5.31%
OpRet 956.4 20 1.34 6.91% 5.7 123M 7.36%
SplitShare 956.4 0 0 0 0 0 0
Interest-Bearing 956.4 0 0 0 0 0 0
Perpetual-Premium 993.0 7 1.14 6.92% 4.41 91M 8.03%
Perpetual-Discount 996.4 0 0 0 0 0 0

Index Constitution, 1994-03-31, Pre-Rebalancing
Index Constitution, 1994-03-31, Post-Rebalancing

Market Action

October 17, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.16% 4.07% 49,056 10.63 2 -0.0596% 1,019.9
Fixed-Floater 4.97% 3.88% 186,066 6.49 7 -0.0333% 1,024.8
Floater 4.53% -15.89% 78,474 6.51 5 0.0637% 1,018.4
Op. Retract 4.68% 2.20% 88,687 2.40 17 0.0442% 1,017.8
Split-Share 4.94% 3.68% 155,218 3.29 11 0.6266% 1,022.2
Interest Bearing 6.90% 5.13% 56,361 2.01 7 -0.0251% 1,021.0
Perpetual-Premium 5.09% 3.54% 220,336 4.35 47 0.0344% 1,034.5
Perpetual-Discount 4.58% 4.61% 568,307 16.19 7 0.1045% 1,034.8
Major Price Changes
Issue Index Change Notes
PIC.PR.A SplitShare +1.1136% Closed at 16.07-35 on volume of 9,711 shares … a few shares traded at the offering price.
Volume Highlights
Issue Index Volume Notes
LBS.PR.A SplitShare 1,671,290 Opening Day!
PWF.PR.I PerpetualPremium 303,300 Nesbitt crossed 200,000 @ 27.00, then 100,000 at the same price. The Pre-tax YTW is 3.19% at this price, based on a May, 2008 call. Since it pays $1.50, the chance of a call is relatively high … but maybe it will hang on until May, 2012, after delivering 4.36%.
ELF.PR.G PerpetualPremium 135,325 Opening Day!  
BAM.PR.G FixedFloater 107,650 This thing continues to trade heavily – see yesterday’s comments.
NA.PR.K PerpetualPremium 102,092 Desjardins crossed 98,100 @ 27.10. At the closing bid of $27.17, these things have a pre-tax YTW of only 2.59% based on a call in June 2008. Somebody obviously thinks they’ll hang on until June 2012, having yielded 4.06% … but since it pays $1.4625, it’s not a bet I’d make, seeing as I don’t have to!

There were thirty-one other index-included issues trading over 10,000 shares today.

Data Changes

ELF.PR.G Holds its Own!

Somewhat to my surprise, the E-L Financial new issue was able to show some strength on its opening day, closing at 25.15-22 on volume of 135,325 shares.

Curve Price Analysis of ELF.PR.G
Component Taxable Curve Non-taxable Curve
Base-Rate 23.87 23.71
Short-Term 0.10 0.92
Long-Term 0.54 0.02
Credit Spread (2) -0.52 -0.68
Credit Spread (Low) -0.52 -0.68
Error 0.06 0.08
Intrinsic Price 23.53 23.37
Liquidity 1.51 1.50
Total Curve Price 25.04 24.87

This one looks fully priced – and that’s fully priced at best, because there’s a big chunk of liquidity value in the analysis. I suspect that as liquidity goes away, the market value of the shares will decrease, as the market comes to realize that a Pfd-2(low) [DBRS] issue should not be trading a mere 7bp yield higher than, for example, POW.PR.D.

This issue has been added to the HIMIPref™ database with a security code of A43087, replacing the Pre-Issue code of P25002. It has also been added to the PerpetualPremium Index.

Data Changes

Strong Opening for LBS.PR.A

As readers of my earlier post may have expected, LBS.PR.A had a very strong opening day, with 1,671,290 shares trading and closing at 10.55-59.

There may be more to come, as the following HIMIPref™ analysis indicates:

Curve Price Analysis of LBS.PR.A
Component Taxable Curve Non-taxable Curve
Base-Rate 10.35 10.26
Short-Term 0.13 0.56
Long-Term 0.33 0.01
Split-Share -0.26 -0.32
Retractible 0.34 0.44
Credit Spread (2) -0.08 -0.11
Error -0.01 0.00
Intrinsic Price 10.80 10.84
Liquidity 0.23 0.25
Total Curve Price 11.03 11.09

The estimate for the liquidity value is, as with all new issues, a little dicey – especially for a split-share issue, there is no guarantee that a huge liquidity premium will be sustained in the long run … in fact, there is a strong possibility of the opposite! But with an intrinsic value in the neighborhood of $10.80, it would appear there’s still some value left in the issue.

For those interested in more traditional measures, the pre-tax YTW of this issue is 4.34%, with a modified duration of 5.97, both measurements based on a maturity on 2013-11-29.

The issue has been added to the HIMIPref™ database with a security code of A47800, replacing the pre-issue code of P50004. It has also been added to the SplitShare Index.

HIMI Preferred Indices

HIMI Preferred Indices : February 1994

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1994-2-28
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,038.0 0 0 0 0 0 0
FixedFloater 1,038.0 0 0 0 0 0 0
Floater 1,038.0 7 1.53 4.34% 16.7 192M 4.85%
OpRet 1,000.5 18 1.32 6.01% 5.8 117M 7.08%
SplitShare 1,000.5 0 0 0 0 0 0
Interest-Bearing 1,000.5 0 0 0 0 0 0
Perpetual-Premium 1,000.6 7 1.14 6.32% 3.59 101M 7.90%
Perpetual-Discount 1,004.0 0 0 0 0 0 0

Index Constitution, 1994-02-28, Pre-Rebalancing

Index Constitution, 1994-02-28, Post-Rebalancing

Market Action

October 16, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.17% 4.05% 50,012 10.61 2 0.0000% 1,020.6
Fixed-Floater 4.97% 3.89% 190,079 8.87 7 -0.0612% 1,025.1
Floater 4.53% -17.58% 77,718 6.51 5 0.0080% 1,017.8
Op. Retract 4.68% 2.13% 88,707 2.40 17 0.0355% 1,017.3
Split-Share 4.94% 3.66% 61,368 3.02 10 0.0380% 1,015.8
Interest Bearing 6.90% 5.00% 55,802 2.01 7 0.1025% 1,021.3
Perpetual-Premium 5.10% 3.58% 171,688 4.30 46 0.1066% 1,034.2
Perpetual-Discount 4.59% 4.61% 578,748 16.18 7 0.0294% 1,033.7
Major Price Changes
Issue Index Change Notes
There were no index-included issues with major gains or losses today.
Volume Highlights
Issue Index Volume Notes
SLF.PR.B PerpetualPremium 82,330  
PWF.PR.D Scraps 71,000 Desjardins bought 70,000 @27.10 on a Delayed Delivery basis from Polar. A few more active days like this and this issue won’t be in ‘Scraps’ any more!
BAM.PR.G FixedFloater 40,069 The only issue in the FixedFloater index that isn’t swept up in the possible BCE-unit-trust-offer! Not only that, but the rate announcement and soon-expiring exchange offer will have caused a lot of portfolio tweaking.
CM.PR.A OpRet 27,700 Scotia crossed 24,200 @ 26.75. This issue has a pre-tax YTW of 1.69% based on a call in November, 2007 … but 3.73% if it survives until just before retractibility becomes an issue, July 2011. It pays $1.325 … CIBC can finance a perpetual cheaper than that, never mind a retractible!
MFC.PR.C PerpetualDiscount 26,749  

There were fourteen other index-included issues trading over 10,000 shares today.

HIMI Preferred Indices

HIMI Preferred Indices : January 1994

All indices were assigned a value of 1000.0 as of December 31, 1993.

 

HIMI Index Values 1994-1-31
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,008.1 0 0 0 0 0 0
FixedFloater 1,008.1 0 0 0 0 0 0
Floater 1,008.1 6 1.44 4.36% 16.7 297M 5.10%
OpRet 1,023.4 15 1.19 5.34% 5.90 94M 6.81%
SplitShare 1,023.4 0 0 0 0 0 0
Interest-Bearing 1,023.4 0 0 0 0 0 0
Perpetual-Premium 1,012.3 6 1.16 5.58% 3.67 92M 7.75%
Perpetual-Discount 1,025.0 1 2.0 5.98 13.91 32M 5.90

 

Index Constitution, 1993-12-31

Index Constitution, 1994-1-31, Pre-Rebalancing

Index Constitution, 1994-1-31, Post-Rebalancing

Data Changes

BAM.PR.G Reset Rate Announced

Brookfield has announced that the rate to be paid from Nov. 1, 2006 to October 31, 2011 on BAM.PR.G will be 4.35%, or $1.0875 per share per annum … something of a haircut from the 5.63% they’ve been paying for the last five years!

As previously noted, this issue is exchangeable into BAM.PR.E. The deadline for converting is Wednesday October 18.

BAM.PR.E closed 10/13 at 25.05-45; BAM.PR.G closed 10/13 at 25.00-15.