Issue Comments

RF.PR.A Raising Capital

C.A.Bancorp has announced:

that a preliminary prospectus had been filed with, and a receipt therefor issued by, the securities regulatory authorities in each of the provinces and territories of Canada.

The Corporation is offering (the “Offering”) units (the “Units”) at a price of $10.00 per Unit. Each Unit consists of one Class A Share and one warrant (a “Warrant”) to purchase one Series 1, Preferred Share (the “Preferred Shares”). Prospective purchasers may purchase Units by (i) cash payment, or (ii) an exchange (the “Exchange Option”) of eligible securities of certain issuers (“Issuers”) at the applicable exchange ratio. The Offering is for a minimum of 2,000,000 Units ($20,000,000) and a maximum of 10,000,000 Units ($100,000,000).
…
C.A. Bancorp Ltd. (the “Manager”) views the Preferred Shares as a form of financial leverage to the Class A Shares as the Preferred Shares have a fixed term, fixed cash distributions and fixed maturity value.

The Manager uses the maturity value of the Preferred Shares issued and outstanding and compares that to the tangible net book value of the Class A Shares issued and outstanding as a measure of debt (the Preferred Shares) to equity (the Class A Shares) ratio of the Corporation (the “Leverage Ratio”). As at June 30, 2008, the Leverage Ratio was 8.8 to 1.
…
Each Warrant will entitle the holder to purchase one Preferred Share at a subscription price of $24.50 at any time on or before 4:00 p.m. (Toronto time) on September 30, 2011.

Assiduous Readers will recall I hated this issue on announcement. At issue, the Leverage Ratio was about 8:1, so it would appear that so far in their short history, they’ve lost money … but this is just a guess, since their investment update, while lauding many attractive features of the fund, does not go so far as to provide even an estimated mark-to-market of the fund’s value. Fortunately, however, there is a prospectus for this capital raise on SEDAR (search the last six months for “Bancorp”):

EARNINGS COVERAGE RATIOS

The Preferred Shares’ distribution (interest) requirements, after giving effect of the issuance of Preferred Shares through the exercise of the maximum number of Warrants offered under this Offering would have been $19,473,273 per annum. The Corporation had a loss before interest of $1,870,240 (annualized from $666,113 for the 130 days ended June 30, 2008). An increase of $24,573,439 per annum in earnings would be necessary to produce an earnings coverage ratio of one to one for the annualized period ended June 30, 2008 which would have required a yield of 7.32% on any net proceeds received on a maximum Offering of Class A Shares and full exercise of all Warrants distributed under the Offering.

Well, it’s all very interesting, but I won’t be looking at this further. It’s a wonderful idea for a company, but I have great difficulty envisaging the preferred shares as investment grade. Mind you, RF.PR.A is currently quoted at 20.51-50, 4×1, so those with an appetite for junk might be interested.

Issue Comments

DBRS Places FTN.PR.A Under "Review-Developing"

Following the shareholder approval of the term extension, DBRS:

has today placed the rating of the Preferred Shares issued by Financial 15 Split Corp. (the Company) Under Review with Developing Implications.

An initial rating of Pfd-2 was assigned to the Preferred Shares in November 2003. The Preferred Shares had a scheduled final maturity date of December 1, 2008. On June 3, 2008, Quadravest Capital Management (the Manager) announced a proposal would be made to the Company’s shareholders to extend the mandatory termination date for the Company from December 1, 2008 to December 1, 2015.

On July 23, the Manager announced that the resolution to extend the final maturity was approved by the required percentage of Preferred Shareholders and Class A Shareholders. As a result of such developments, DBRS has placed the rating of the Preferred Shares Under Review with Developing Implications.

FTN.PR.A had an asset coverage of just under 1.7:1 as of July 15, according to the company, with the note:

As at the close on July 17, 2008, there have been material upward movements in the net asset values ranging from 10% to 25%.

Shall we guess? Based on the downgrade of WFS.PR.A and the downgrade of FFN.PR.A, I’d call it 50-50 between a rating of Pfd-2(low) and Pfd-3(high) once the review has been completed.

Miscellaneous News

FDIC Approves Covered Bonds

The US Federal Deposit Insurance Corporation has issued a press release announcing their formal approval of covered bonds:

On April 23, 2008, the FDIC published an Interim Final Covered Bond Policy Statement and requested public comment. The FDIC received approximately 130 comment letters, including comments from national banks, federal home loan banks, industry groups, and individuals. Most commenters supported the FDIC’s adoption of the Policy Statement to clarify how the FDIC would treat covered bonds in the case of a conservatorship or receivership and, thereby, facilitate the development of the U.S. covered bond market. After reviewing the comments, FDIC staff recommended Board approval of the final Policy Statement.

The full statement reviews the comment letters. It’s a very different release altogether from the terse OSFI statement.

Primers

Basel II in the United States : CRS Report RL33278

This background report has been written by the Congressional Research Service.

Good background, an excellent primer. Of particular interest was:

The third pillar of the Basel II framework is public disclosure. Pillar three is a set of public information disclosures that a bank must make about itself. These disclosures are to make it easier for creditors and investors in financial markets to assess a bank’s risk posture more accurately and adjust borrowing and capital costs accordingly. The idea behind this requirement is to bring market discipline to bear to give bank management a cost incentive to adopt strong safety and soundness practices. The disclosure requirements will also make it easier for depositors, investors, and regulators to make comparisons across banking institutions. This knowledge, in turn, is expected to affect the willingness of investors to invest in banks and their related businesses. Without pillar three, financial institutions could become more opaque and more difficult to understand as the institutions develop new products and complex risk-hedging strategies that are difficult to evaluate. It could also make it more difficult to understand the risk profile of the firm creating and selling these products as well as the firms buying and using them.

Stirring principals certainly; I’m not sure how well it works in practice, but I do find American disclosure far superior to Canadian disclosure. OSFI, for instance, will not reveal why they have given Royal Bank an increased Assets to Capital multiple cap for the last five-odd years.

Market Action

July 23, 2008

PerpetualDiscounts had a wonderful day today, up nearly a point and closing just short of their value on July 10. They are now down a mere 4.66% on the month, with a weighted-mean-average pre-tax bid-Yield-to-Worst of 6.40% (up 37bp on the month), interest-equivalent to 8.96%, which is a spread of +276bp to long corporates.

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 N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 4.68% 4.40% 68,855 16.31 6 -0.0675% 1,084.2
Floater 4.17% 4.20% 56,240 17.01 3 -1.1328% 883.8
Op. Retract 4.99% 4.44% 140,946 3.42 17 +0.1973% 1,041.0
Split-Share 5.37% 6.11% 62,575 4.50 14 +0.1881% 1,028.6
Interest Bearing 6.13% 5.93% 40,969 3.69 3 +0.3373% 1,122.9
Perpetual-Premium 6.17% 6.18% 72,676 10.62 4 +0.4087% 977.0
Perpetual-Discount 6.35% 6.40% 232,414 13.36 67 +0.9457% 836.4
Major Price Changes
Issue Index Change Notes
BAM.PR.K Floater -2.2553%  
SLF.PR.D PerpetualDiscount -1.6571% Now with a pre-tax bid-YTW of 6.55% based on a bid of 17.21 and a limitMaturity.
BAM.PR.B Floater -1.3326%  
BNA.PR.B SplitShare -1.3107% Asset coverage of 3.2+:1 as of June 30, according to the company. Now with a pre-tax bid-YTW of 8.48% based on a bid of 20.33 and a hardMaturity 2016-3-25 at 25.00. Compare with BNA.PR.A (6.15% to 2010-9-30) and BNA.PR.C (8.94% to 2019-1-10).
BAM.PR.O OpRet +1.0208% Now with a pre-tax bid-YTW of 6.33% based on a bid of 23.75 and optionCertainty 2013-6-30 at 25.00. Compare with BAM.PR.H (6.46% to 2012-3-30), BAM.PR.I (6.05% to 2013-12-30) and BAM.PR.J (7.02% to 2018-3-30).
BAM.PR.I OpRet +1.0309% See BAM.PR.O, above.
RY.PR.G PerpetualDiscount +1.0603% Now with a pre-tax bid-YTW of 6.22% based on a bid of 18.11 and a limitMaturity.
PWF.PR.H PerpetualDiscount +1.1161% Now with a pre-tax bid-YTW of 6.38% based on a bid of 22.65 and a limitMaturity.
FFN.PR.A SplitShare +1.2461% Asset coverage of just under 1.6:1 as of July 15, according to the company … “As at the close on July 17, 2008, there have been material upward movements in the net asset values ranging from 10% to 25%.” Now with a pre-tax bid-YTW of 5.82% based on a bid of 9.75 and a hardMaturity 2014-12-1 at 10.00.
RY.PR.H PerpetualDiscount +1.2605% Now with a pre-tax bid-YTW of 5.86% based on a bid of 24.10 and a limitMaturity.
CM.PR.P PerpetualDiscount +1.3678% Now with a pre-tax bid-YTW of 6.92% based on a bid of 20.01 and a limitMaturity.
POW.PR.C PerpetualDiscount +1.3806% Now with a pre-tax bid-YTW of 6.63% based on a bid of 22.03 and a limitMaturity.
RY.PR.D PerpetualDiscount +1.3920% Now with a pre-tax bid-YTW of 6.19% based on a bid of 18.21 and a limitMaturity.
BNS.PR.L PerpetualDiscount +1.3959% Now with a pre-tax bid-YTW of 6.23% based on a bid of 18.16 and a limitMaturity.
RY.PR.W PerpetualDiscount +1.4344% Now with a pre-tax bid-YTW of 6.20% based on a bid of 19.80 and a limitMaturity.
SLF.PR.B PerpetualDiscount +1.5500% Now with a pre-tax bid-YTW of 6.40% based on a bid of 19.00 and a limitMaturity.
ELF.PR.G PerpetualDiscount +1.6585% Now with a pre-tax bid-YTW of 7.25% based on a bid of 16.55 and a limitMaturity.
PWF.PR.F PerpetualDiscount +1.6618% Now with a pre-tax bid-YTW of 6.35% based on a bid of 20.80 and a limitMaturity.
TD.PR.P PerpetualDiscount +1.7082% Now with a pre-tax bid-YTW of 5.99% based on a bid of 22.03 and a limitMaturity.
GWO.PR.I PerpetualDiscount +1.7624% Now with a pre-tax bid-YTW of 6.36% based on a bid of 17.90 and a limitMaturity.
PWF.PR.L PerpetualDiscount +1.8267% Now with a pre-tax bid-YTW of 6.58% based on a bid of 19.51 and a limitMaturity.
PWF.PR.K PerpetualDiscount +1.9200% Now with a pre-tax bid-YTW of 6.52% based on a bid of 19.11 and a limitMaturity.
FBS.PR.B SplitShare +1.9792% Asset coverage of 1.5+:1 as of July 17, 2008, according to TD Securities. Now with a pre-tax bid-YTW of 5.64% based on a bid of 9.79 and a hardMaturity 2011-12-15 at 10.00.
POW.PR.B PerpetualDiscount +1.9903% Now with a pre-tax bid-YTW of 6.43% based on a bid of 21.01 and a limitMaturity.
POW.PR.A PerpetualDiscount +2.1127% Now with a pre-tax bid-YTW of 6.49% based on a bid of 21.75 and a limitMaturity.
CM.PR.D PerpetualDiscount +2.1144% Now with a pre-tax bid-YTW of 6.81% based on a bid of 21.25 and a limitMaturity.
RY.PR.B PerpetualDiscount +2.1277% Now with a pre-tax bid-YTW of 6.13% based on a bid of 19.20 and a limitMaturity.
CM.PR.G PerpetualDiscount +2.1388% Now with a pre-tax bid-YTW of 6.95% based on a bid of 19.58 and a limitMaturity.
GWO.PR.H PerpetualDiscount +2.1693% Now with a pre-tax bid-YTW of 6.36% based on a bid of 19.31 and a limitMaturity.
BMO.PR.H PerpetualDiscount +2.2395% Now with a pre-tax bid-YTW of 6.43% based on a bid of 21.00 and a limitMaturity.
CM.PR.E PerpetualDiscount +2.2920% Now with a pre-tax bid-YTW of 6.87% based on a bid of 20.53 and a limitMaturity.
PWF.PR.I PerpetualDiscount +2.5195% Now with a pre-tax bid-YTW of 6.38% based on a bid of 23.60 and a limitMaturity.
GWO.PR.G PerpetualDiscount +3.7313% Now with a pre-tax bid-YTW of 6.31% based on a bid of 20.85 and a limitMaturity.
PWF.PR.E PerpetualDiscount +4.2213% Now with a pre-tax bid-YTW of 6.44% based on a bid of 21.48 and a limitMaturity.
Volume Highlights
Issue Index Volume Notes
BNS.PR.L PerpetualDiscount 543,211 Nesbitt crossed 500,000 at 18.00, then another 25,000 at the same price. Now with a pre-tax bid-YTW of 6.23% based on a bid of 18.16 and a limitMaturity.
BNS.PR.M PerpetualDiscount 524,912 Nesbitt crossed 500,000 at 18.00. Now with a pre-tax bid-YTW of 6.24% based on a bid of 18.15 and a limitMaturity.
CM.PR.I PerpetualDiscount 523,950 Nesbitt crossed 500,000 at 17.00. Now with a pre-tax bid-YTW of 6.82% based on a bid of 17.36 and a limitMaturity.
PWF.PR.I PerpetualDiscount 254,030 Nesbitt crossed 250,000 at 23.25. Now with a pre-tax bid-YTW of 6.38% based on a bid of 23.60 and a limitMaturity.
BNS.PR.J PerpetualDiscount 226,575 Two trades, four anonymouses. Two blocks of 100,000 at 21.25. Now with a pre-tax bid-YTW of 6.21% based on a bid of 21.28 and a limitMaturity.
BPO.PR.J Scraps (Would be OpRet, but there are credit concerns) 123,950 TD crossed 100,000 at 20.50, then bought 16,200 from Nesbitt at the same price. Now with a pre-tax bid-YTW of 8.98% based on a bid of 20.36 and a softMaturity 2014-12-30 at 25.00.

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

Issue Comments

HLG.PR.B to be Delisted

The Toronto Stock Exchange has announced:

Pursuant to an Order issued on July 21, 2008 by the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act, the Company and its monitor in those proceedings, Ernst & Young Inc., have been authorized to consent to the delisting of Hollinger Inc’s Retractable Common Shares (Symbol: HLG.C) and Exchangeable Non-Voting Preference Shares Series II (Symbol: HLG.PR.B) (collectively the “Securities”). Accordingly, TSX will delist the Securities at the close of market on August 22, 2008 for failure to meet the continued listing requirements of TSX. The Securities of the Company are currently halted due to the imposition of a Cease Trade Order by the Ontario Securities Commission. In addition, the Securities have been suspended from trading by TSX effective immediately.

The same press release had further details regarding the Argus delisting previously discussed.

HLG.PR.B has not been tracked by HIMIPref™.

Update, 2008-8-22: The delisting has become effective:

Hollinger Inc. (the “Company”)(TSX:HLG.C)(TSX:HLG.PR.B) announced today that the Company’s common shares and Series II preference shares (collectively, the “Shares”) were delisted from the Toronto Stock Exchange (the “TSX”) effective as of the close of business today.

The Shares have been suspended from trading since the issuance of a cease trade order by the Ontario Securities Commission on July 23, 2008. The cease trade order was issued as a result of the Company’s determination, in the interests of reducing its costs for the benefit of its stakeholders, not to prepare and file annual audited financial statements and other annual disclosure documents in respect of the Company’s financial year ended March 31, 2008. Consequently, following June 30, 2008, the Company has been in default of its continuous disclosure filing requirements under Canadian securities laws.

On July 21, 2008, the Ontario Superior Court of Justice (the “Court”) issued an order authorizing the Company and Ernst & Young Inc., the Company’s court-appointed Monitor (the “Monitor”), to consent to the issuance of the cease trade order and the delisting of the Shares. The Company and the Monitor have provided such consent.

Pursuant to proceedings under the Companies’ Creditors Arrangement Act (Canada), the Company is conducting a claims process for the Company and its subsidiaries, Sugra Ltd. and 4322525 Canada Inc. (the “Applicants”), and will also do so for its non-Applicant subsidiaries as part of their winding-up. Retired justice John D. Ground has been appointed as Litigation Trustee to administer the Company’s litigation assets, assisted by an Advisory Committee and under the supervision of the Monitor and the Court.

Preliminary estimates prepared by the Company, in conjunction with the Monitor, indicate that there is a significant risk that there will not be adequate recoveries from the Company’s assets for there to be any residual value for the Series II preference or common shareholders of the Company.

Interesting External Papers

Target Capitalization of Big US Banks

How Do Large Banking Organizations Manage Their Capital Ratios?, a research paper from the Kansas City Fed.

The authors “find strong evidence that target capital ratios decrease with BHC [Bank Holding Company] size and increase with the volatility of BHC earnings (risk). The relationships between capital targets and BHC market value, growth strategy, and business mix are less systematic and statistically weaker.”

I note that by comparing Table 3, Panel A (regressions on leverage ratio) with Table 3, Panel B (regressions on Tier 1 Ratio) it appears that an asset size of greater than $50-billion (comprising 5.4% of the sample) had a statistically significant influence on the calculation of the targetted Tier 1 ratio, but was insignificant when calculating the targetted Leverage Ratio.

Note a 2003 Comment Letter from the State of New York Banking Department stated:

Capital ratios as well as business plans tend to be different at LCBOs [Large Complex Banking Organizations] and smaller banks. Compared to community and regional banks, LCBOs tend to have capital ratios that are closer to the well-capitalized minimums (see Table 1). All five of the New York State banks with assets over $45 billion have leverage ratios between 5.4% and 6.2%, while the range for all banks is from 5.3% to 52%.[1] (The leverage ratio is more constraining than the risk-based capital ratios.) Thus, bifurcation seems to address the concern of LCBOs to manage their capital ratios, while acknowledging that most community and regional banks are comfortable with much higher than required capital ratios.

However, the situation for large regional banks may be somewhat different: the12 New York banks with assets between $5 billion and $45 billion tend to have higher capital ratios than the largest banks, but may be feeling market pressure to manage these ratios. For these institutions, opting in to the A-IRB approach could make it possible to maintain the same risk-based capital ratios while lowering their leverage ratio close to 5%. As IRB systems and software become more developed, opting in may make more sense for these banks, especially since sophisticated credit risk modeling systems also allow more risk-sensitive pricing.

Issue Comments

FTN.PR.A Term Extension Approved

Financial 15 Split Corp. has announced:

A special meeting of the shareholders of Financial 15 Split Corp. (“Financial 15”) was held on July 23, 2008.

Shareholders were asked to consider and, if thought advisable, to approve a special resolution to amend the articles of Financial 15 to extend the termination date of Financial 15 to December 1, 2015 and to provide holders of the Preferred Shares and the Class A Shares of Financial 15 with the Special Retraction Right as described in the Management Information Circular dated June 16, 2008.

Preferred Shareholders voted 79% in favour of the resolution and Class A Shareholders voted 97% in favour of the resolution, and therefore the resolution to extend the termination date to December 1, 2015 and to provide holders with the Special Retraction Right was approved at the meeting held earlier today.

The Term Extension has been previously discussed on PrefBlog.

FTN.PR.A is incorporated in the HIMIPref™ SplitShare Index. There are currently 10.175-million shares outstanding, according to the TSX, with a par value of $10.00 – so it’s a nice size and would be good to keep on the board.

Market Action

July 22, 2008

Wachovia and Thornberg prefs were mentioned yesterday and as it happens both are in the news today.

Wachovia announced horrible results:

reported a record quarterly loss of $8.9 billion, slashed the dividend and announced 6,350 job cuts. The stock slumped as much as 10 percent in New York trading.
…
The stock fell $1.18, or 9 percent, to $12 at 9:55 a.m. The cost of protecting the bank’s debt rose 10 basis points to 315, according to broker Phoenix Partners Group. Fitch Ratings cut Wachovia one level to A+ from AA-, citing its mortgage business, and Moody’s downgraded the bank to A1 from Aa3.

Wachovia, whose job cuts amount to about 5 percent of the bank’s workforce, lowered the dividend to 5 cents a share from 37.5 cents and will leave 4,440 positions open, according to a presentation to analysts today.

As of noon, the prefs at issue (WBPRC – NYSE) were actually up over 5%, to $16.49. Their dividend didn’t get cut!

And there is an offer for the Thornburg prefs:

Preferred shareholders will receive $5 in cash and 3.5 common shares if two-thirds of holders tender their stakes by Sept. 30. Were the deal to close today, holders would receive cash and stock totaling $6.09 for each preferred share, which closed yesterday between $4.46 and $4.62.
…
In the question-and-answer session that followed, investors expressed their dismay. Those who bought preferred shares at $25 and expected a dividend must sell for $5 in cash plus stock that today is worth $1.09.

“I don’t ever think I have ever seen in my years on the Street, a $25 par being called in at $5,” said Shelley Bergman, of New York-based Morgan Stanley, who said he owned shares for himself and clients.

WaMu has announced horrible results:

Washington Mutual Inc., the biggest U.S. savings and loan, reported a $3.3 billion second-quarter loss as tumbling home prices left a record number of borrowers unable to keep up with mortgage payments. The shares surged 10 percent as the company announced it would cut costs.

The loss of $6.58 a share compared with net income of $830 million, or 92 cents a share, a year earlier, the Seattle-based company said today in a statement. The cost of uncollectible loans jumped 58 percent to $2.2 billion from the first quarter.

… and their earnings release notes:

On July 15, WaMu’s Board of Directors declared a cash dividend of $0.01 per share on the company’s common stock. Dividends on the common stock are payable on Aug. 15, 2008 to shareholders of record as of Jul. 31, 2008. In addition to declaring a dividend on the company’s common stock, the company will pay a dividend of $0.2528 per depository share of Series K Preferred Stock to be payable on Sept. 15, 2008 to holders of record on Sept. 1, 2008, a dividend of $19.8056 per share of Series R Preferred Stock to be payable on Sept. 15, 2008 to holders of record on Sept. 1, 2008.

So … as mentioned yesterday, Accrued Interest propounded the “worst of both worlds” argument … as these events show, it is also possible to propound the “best of both worlds” argument (although Thornburg pref holders might quibble at the use of the word “best”, at least they’re getting some pickings off the carcass).

Prefs are oval pegs; no attempt should be made to fit them neatly into either square or circular holes. Investors should look at prefs for what they are, and not overweight any particular scenario for future developments.

Catching up on a little miscellaneous banking system stuff … Charles Wyplosz reviews the bank-bailout question on VoxEU; not much substance, frankly, but he did point out:

Bagehot principles can be applied when one or two banks fail, but when the whole system is under threat, this is no longer an option.

Also, it looks like the HBOS rights issue has flopped:

HBOS was facing a further period of uncertainty last night, with underwriters holding more than 60 per cent of the bank’s rights issue shares and the City waiting anxiously for the bank’s interim results next week.
As a result of the banking giant’s £4 billion rights issue flop, underwriters Morgan Stanley and Dresdner Kleinwort are likely to have the stake – worth more than £2.4bn – after this evening’s 4:30pm deadline for them to sell the shares on.

That gives them a substantial share in the Edinburgh-based company which has an estimated overall stock market value after the rights issue of about £15bn.

Accrued Interest points out that negative convexity on Agency paper is more negative than usual:

There is a large number of homeowners currently underwater on their mortgage, and an even larger number with less than 20% equity. Given that getting a mortgage with less than 20% down payment is difficult and very expensive right now, homeowners who currently have less than 20% equity would have to come up with a lot of cash in order to move to another home.

So the housing turnover element of mortgage principal payments is set to plummet. In addition, the same factors will prevent many refinancings. A borrower underwater on his current mortgage will not be able to refinance his loan just because rates fall 50bps.

This means that the average life of a mortgage is longer than is currently being assumed.
…
As investors come to terms with the extending average lives, prices are likely to fall rather than yield spreads contract. Holding the 271bps yield spread constant but extending the average life to 9 years causes the price to drop by over 3%.

The OSC is attempting to ensure that self-regulatory-organizations have jurisdiction over individuals’ conduct within the industry even after they have quit:

On July 15, 2008, the Ontario Superior Court of Justice, Divisional Court, allowed an appeal by Stephen Taub on the basis that the Securities Act does not authorize self-regulatory organizations (SROs) that have been recognized by the OSC to discipline former members. The Commission’s recognition of an SRO is designed to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets.

“The Commission is concerned that investor protection would be weakened if a registered representative could avoid the consequences of breaching SRO rules by resigning from his or her SRO member firm,” said OSC Executive Director Peggy Dowdall-Logie. “An SRO’s ability to take disciplinary action against former members, and former representatives of its member firms, is fundamental to effective investor protection and the functioning of an effective SRO.”

This has implications for the David Berry saga … RS ruled that it has jurisdiction over him (and could therefore judge whether he violated UMIR) – this ruling was, presumably, jeopardized by the Taub ruling.

Another good strong day for PerpetualDiscounts, but volume was light. Have all the sportin’ gents placed their bets? Despite the gains, the index has not yet recovered to where it was July 11 … we’re still trying to recover from the awful, awful July 14, as Louis XVI used to say. The PerpetualDiscount weighted-mean-average pre-tax yield-to-worst is now 6.46%, or 9.04% pre-tax interest-equivalent at the standard 1.4x equivalency factor. Long Corporates now yield 6.20%, so the PTIE spread now stands at 284bp, still way through the old, recently smashed, record of 250bp.

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 4.35% 3.97% 35,024 0.08 1 +0.0000% 1,122.4
Fixed-Floater 4.68% 4.40% 69,930 16.32 6 +0.0619% 1,085.0
Floater 4.13% 4.15% 54,331 17.11 3 +0.8501% 894.0
Op. Retract 5.00% 4.71% 141,390 3.42 17 +0.0191% 1,038.9
Split-Share 5.39% 6.36% 62,923 3.94 14 +0.6225% 1,026.7
Interest Bearing 6.15% 6.10% 41,267 3.69 3 +0.0676% 1,119.2
Perpetual-Premium 6.20% 6.20% 70,585 10.58 4 -0.4451% 973.1
Perpetual-Discount 6.40% 6.46% 232,385 13.29 67 +0.4124% 828.5
Major Price Changes
Issue Index Change Notes
RY.PR.W PerpetualDiscount -2.5258% Now with a pre-tax bid-YTW of 6.28% based on a bid of 19.52 and a limitMaturity.
BAM.PR.H OpRet -2.1912% Now with a pre-tax bid-YTW of 6.46% based on a bid of 24.55 and a softMaturity 2012-3-30 at 25.00. Compare with BAM.PR.I (6.27% to 2013-12-30), BAM.PR.J (7.02% to 2018-3-30) and BAM.PR.O (6.56% to 2013-6-30).
PWF.PR.I PerpetualDiscount -2.0426% Now with a pre-tax bid-YTW of 6.55% based on a bid of 23.02 and a limitMaturity.
CU.PR.B PerpetualDiscount -1.3821% Now with a pre-tax bid-YTW of 6.28% based on a bid of 24.26 and a limitMaturity.
ELF.PR.G PerpetualDiscount -1.3333% Now with a pre-tax bid-YTW of 7.37% based on a bid of 16.28 and a limitMaturity.
BNS.PR.J PerpetualDiscount -1.2605% Now with a pre-tax bid-YTW of 6.24% based on a bid of 21.15 and a limitMaturity.
ALB.PR.A SplitShare +1.0309% Asset coverage of just under 1.6:1 as of July 17, according to Scotia Managed Companies. Now with a pre-tax bid-YTW of 5.36% based on a bid of 24.50 and a hardMaturity 2011-2-28 at 25.00.
GWO.PR.I PerpetualDiscount +1.0339% Now with a pre-tax bid-YTW of 6.48% based on a bid of 17.59 and a limitMaturity.
GWO.PR.H PerpetualDiscount +1.0695% Now with a pre-tax bid-YTW of 6.50% based on a bid of 18.90 and a limitMaturity.
TCA.PR.X PerpetualDiscount +1.1492% Now with a pre-tax bid-YTW of 6.12% based on a bid of 45.77 and a limitMaturity.
BNA.PR.A SplitShare +1.1503% Asset coverage of 3.2+:1 as of June 30, according to the company. Now with a pre-tax bid-YTW of 5.34% based on a bid of 25.50 and a call 2008-10-31 at 25.25. Compare with BNA.PR.B (8.25% to 2016-3-25) and BNA.PR.C (8.91% to 2019-1-10).
BNA.PR.B SplitShare +1.3780% See BNA.PR.A, above.
IGM.PR.A OpRet +1.3834% Now with a pre-tax bid-YTW of 5.26% based on a bid of 25.65 and a softMaturity 2013-6-29 at 25.00.
CM.PR.H PerpetualDiscount +1.3905% Now with a pre-tax bid-YTW of 6.91% based on a bid of 17.50 and a limitMaturity.
SLF.PR.D PerpetualDiscount +1.3905% Now with a pre-tax bid-YTW of 6.44% based on a bid of 17.50 and a limitMaturity.
CM.PR.D PerpetualDiscount +1.4627% Now with a pre-tax bid-YTW of 6.96% based on a bid of 20.81 and a limitMaturity.
GWO.PR.G PerpetualDiscount +1.4639% Now with a pre-tax bid-YTW of 6.55% based on a bid of 20.10 and a limitMaturity.
SLF.PR.C PerpetualDiscount +1.4663% Now with a pre-tax bid-YTW of 6.51% based on a bid of 17.30 and a limitMaturity.
NA.PR.L PerpetualDiscount +1.6465% Now with a pre-tax bid-YTW of 6.57% based on a bid of 18.52 and a limitMaturity.
POW.PR.B PerpetualDiscount +1.6782% Now with a pre-tax bid-YTW of 6.55% based on a bid of 20.60 and a limitMaturity.
PWF.PR.F PerpetualDiscount +1.7910% Now with a pre-tax bid-YTW of 6.45% based on a bid of 20.46 and a limitMaturity.
MFC.PR.C PerpetualDiscount +1.9597% Now with a pre-tax bid-YTW of 6.27% based on a bid of 18.21 and a limitMaturity.
CM.PR.J PerpetualDiscount +2.0073% Now with a pre-tax bid-YTW of 6.76% based on a bid of 16.77 and a limitMaturity.
BMO.PR.H PerpetualDiscount +2.1382% Now with a pre-tax bid-YTW of 6.58% based on a bid of 20.54 and a limitMaturity.
FFN.PR.A SplitShare +2.5559% Asset coverage of just under 1.6:1 as of July 15, according to the company … with a note: “As at the close on July 17, 2008, there have been material upward movements in the net asset values ranging from 10% to 25%.” Now with a pre-tax bid-YTW of 6.06% based on a bid of 9.63 and a hardMaturity 2014-12-01 at 10.00.
CM.PR.I PerpetualDiscount +2.5565% Now with a pre-tax bid-YTW of 6.86% based on a bid of 17.25 and a limitMaturity.
BAM.PR.B Floater +2.7382%  
POW.PR.D PerpetualDiscount +3.1568% Now with a pre-tax bid-YTW of 6.55% based on a bid of 19.28 and a limitMaturity.
Volume Highlights
Issue Index Volume Notes
NA.PR.L PerpetualDiscount 21,290 National Bank crossed 10,000 at 18.53. Now with a pre-tax bid-YTW of 6.57% based on a bid of 18.52 and a limitMaturity.
BAM.PR.O OpRet 17,500 Now with a pre-tax bid-YTW of 6.56% based on a bid of 23.51 and optionCertainty 2013-6-30 at 25.00.
BNS.PR.L PerpetualDiscount 17,220 Now with a pre-tax bid-YTW of 6.32% based on a bid of 17.91 and a limitMaturity.
CM.PR.I PerpetualDiscount 16,825 Now with a pre-tax bid-YTW of 6.86% based on a bid of 17.25 and a limitMaturity.
RY.PR.H PerpetualDiscount 16,500 Now with a pre-tax bid-YTW of 5.93% based on a bid of 23.80 and a limitMaturity.

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

Issue Comments

AR.PR.A / AR.PR.D / AR.PR.B to be cease-traded, delisted

RSM Richter has announced:

that the Ontario Superior Court of Justice (Commercial List) ( the “Court”) issued an order authorizing the Receiver, on behalf of Argus, to consent to a cease trade order (the “Argus CTO”) to be issued by the Ontario Securities Commission (the “OSC”). The date upon which the Argus CTO will be issued has not yet been determined.

The Argus CTO will apply to all securities of the Company but will contain carve-outs to permit trades in the Company’s securities that are made: (i) in connection with the Company’s Companies’ Creditors Arrangement Act (Canada) proceedings or receivership proceedings and as approved by the Court; (ii) for nominal consideration for the purpose of permitting a holder to crystallize a tax loss; or (iii) by or to an entity that qualifies as an “accredited investor” as that term is defined under applicable Canadian securities laws. Provided that with respect to (ii) and (iii) a copy of the Argus CTO is provided and the seller receives an acknowledgment that the Argus securities remain subject to the Argus CTO.

The Receiver is to maintain a transfer registry for exempt trades until January 31, 2010, which is to be funded from the Argus estate account maintained by the Receiver.

The Company has also been advised by the Toronto Stock Exchange (the “TSX”) that, provided the Argus CTO is granted, the TSX will initiate a process that will lead to the delisting of the Company’s Class A Preference Shares Series $2.50, Class A Preference Shares Series $2.60 and Cumulative Class B Preference Shares Series 1962 from the TSX following the issuance of the Argus CTO.

The Argus CTO is being issued as a result of the Company’s failure to (i) file audited annual financial statements, and other financial information for years ended December 31, 2005, 2006, and 2007; (ii) interim financial statements for the fiscal periods ended March 31 and June 30, 2008; and (iii) comply with other regulatory requirements. The Receiver also announced that in the interests of reducing costs for the benefit of its stakeholders, it would be discontinuing the preparation and filing on a bi-weekly basis the status reports required under the terms of the Management Cease Trade Order issued on June 1, 2004 by the OSC.

AR.PR.B was tracked by HIMIPref™ until the low price caused mechanical problems. AR.PR.A and AR.PR.D have not been tracked by HIMIPref™.

Update, 2008-7-23: The TSX has announced:

Pursuant to an Order issued on July 21, 2008 by the Ontario Superior Court of Justice (Commercial List) (the “Court”) the Company, by its receiver and manager, interim receiver and monitor, RSM Richter Inc., has been authorized by the Court to consent to the delisting of Argus Corporation Limited’s Class A Preference Shares Series $2.50 (Symbol: AR.PR.A), Class A Preference Shares Series $2.60 (Symbol: AR.PR.D) and Cumulative Class B Preference Shares Series 1962 (Symbol: AR.PR.B) (collectively the “Securities”). Accordingly, TSX will delist the Securities at the close of market on August 22, 2008 for failure to meet the continued listing requirements of TSX. The Securities of the Company are currently halted due to the imposition of a Cease Trade Order by the Ontario Securities Commission. In addition, the Securities have been suspended from trading by TSX effective immediately.