Issue Comments

SXT.PR.A : Partial Call for Redemption

Sixty-Split Corporation has announced:

it has called 181,733 Preferred Shares for cash redemption on March 14, 2008 (in accordance with the Company’s Articles) representing approximately 20.257% of the outstanding Preferred Shares as a result of the special annual retraction of 363,490 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on March 13, 2008 will have approximately 20.257% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $25.00 per share.

Holders of Preferred Shares that are on record for dividends but have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to but not including March 14, 2008.

Payment of the amount due to holders of Preferred Shares will be made by the Company on March 14, 2008. From and after March 14, 2008 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

SXT.PR.A is tracked by HIMIPref™ but is not currently included in the HIMIPref™ Indices due to low averageTradingValue. It was last moved to “Scraps” on the March 30, 2007 Rebalancing. 

Index Construction / Reporting

Index Performance: February 2008

Performance of the HIMIPref™ Indices for February, 2008, was:

Total Return
Index Performance
February 2008		 Three Months
to
February 29, 2008
Ratchet +2.32% +2.97%
FixFloat +2.27% -0.22%
Floater +3.25% -11.54%
OpRet +0.37% +1.60%
SplitShare +1.70% +3.12%
Interest +1.61% +2.31%
PerpetualPremium +1.25% +2.51%
PerpetualDiscount +3.03% +6.17%
Funds (see below for calculations)
CPD +2.17% +3.33%
DPS.UN +2.04% +3.00%
Index
BMO-CM 50 +1.68% +3.24%

Claymore has published NAV data for its exchange traded fund (CPD) and I have derived the following table:

CPD Return, 1- & 3-month, to February 29, 2008
Date NAV Distribution Return for Sub-Period Monthly Return
November 30 17.97      
December 24 17.75 0.2219 +0.01% +1.14%
December 31, 2007 17.95   +1.13%
January 31, 2008 17.95   0.00% 0.00%
February 29, 2008 18.34   +2.17%  +2.17% 
Quarterly Return +3.33%

The DPS.UN NAV for February 27 has been published so we may calculate the February returns (approximately!) for this closed end fund:

DPS.UN NAV Return, February-ish 2008
Date NAV Distribution Return for period
January 30, 2008 $21.02    
February 27, 2008 $21.47 $0.00 +2.14%
Adjustment for January stub-period +0.06%
Adjustment for February stub-period -0.16%
Estimated February Return +2.04%
CPD had a NAV of $17.96 on January 30 and $17.95 on January 31. The estimated January end-of-month stub period return for CPD was therefore -0.06%, which is subtracted from the DPS.UN total return when estimating the return for February.
CPD had a NAV of $18.37 on February 27 and $18.34 on February 29. The estimated February end-of-month stub period return for CPD was therefore -0.16%, which is added to the DPS.UN total return when estimating the return for February.

Now, to see the DPS.UN quarterly NAV approximate return, we refer to the calculations for December and January:

DPS.UN NAV Returns, three-month-ish to end-February-ish, 2008
December-ish +1.93%
January-ish -0.97%
February-ish +2.04%
Three-months-ish +3.00%

 

MAPF

MAPF Portfolio Composition: February 29, 2008

There was a good level of trading in February, most of it intra-sector – but capped with a long-awaited inter-sectoral trade.

MAPF Sectoral Analysis 2008-2-29
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 10.5% (-15.3) 4.95% 2.76
Interest Rearing 0% N/A N/A
PerpetualPremium 0.3% (-12.5) 1.97% 0.08
PerpetualDiscount 96.4% (+35.0) 5.61% 14.50
Scraps 0% N/A N/A
Cash -7.2% (-7.2) 0.00% 0.00
Total 100% 5.93% 14.26
Totals and changes will not add precisely due to rounding.
Bracketted figures represent change from January month-end.

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.). MAPF will often have relatively large cash balances, both credit and debit, to facilitate trading. Figures presented in the table have been rounded to the indicated precision.

Credit distribution is:

MAPF Credit Analysis 2008-2-29
DBRS Rating Weighting
Pfd-1 53.5% (-7.7)
Pfd-1(low) 7.2% (+6.9)
Pfd-2(high) 11.7% (-1.7)
Pfd-2 9.8% (-2.8)
Pfd-2(low) 25.0% (+11.4)
Cash -7.2% (-7.1)
Totals will not add precisely due to rounding.
Bracketted figures represent change from January month-end.

The fund does not set any targets for overall credit quality; trades are executed one by one. Variances in overall credit will be constant as opportunistic trades are executed.

Liquidity Distribution is:

MAPF Liquidity Analysis 2008-2-29
Average Daily Trading Weighting
<$50,000 1.0% (+0.4)
$50,000 – $100,000 22.9% (+9.2)
$100,000 – $200,000 0.0% (-27.8)
$200,000 – $300,000 21.5% (+4.5)
>$300,000 61.8% (+20.8)
Cash -7.2% (-7.1)
Totals will not add precisely due to rounding.
Bracketted figures represent change from January month-end.

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 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.

The major reason for the decrease in split-share weight and corresponding increase in PerpetualDiscount weight is a February switch from BNA.PR.C to BAM.PR.N. Readers will remember that the former issue is backed by BAM.A shares, making the underlying credit essentially equivalent for risk control purposes. This switch is of particular interest since it reverses switches performed in October and November of 2007 … let’s do a post-mortem!

BNA.PR.C / BAM.PR.N Post-Mortem
Month BNA.PR.C
Activity		 BAM.PR.N
Activity
October 2007 Bought 1900 at 21.72 Sold 1300 at 19.75
November 2007 Bought 4500 at 18.38
Booked Dividend of $0.27		 Sold 4500 at 17.95
December 2007   Missed dividend of $0.30
February 2008 Sold 5300 at 20.64
Booked Dividend of $0.27		 Bought 2800 at 19.07
Net Result Capital Gain of $1.27 per share
plus dividends of $0.54		 Missed capital gain of $0.72 per share
Missed dividend of $0.30 
Net Net Result Improvement of $0.79 per share, about 4%
Not all activity is recorded here, but the figures shown are representative and include commissions. Details of 2007 trades will be published via the MAPF webpage in the near future; 2008 trades will be published … eventually

Well … if I can keep doing that … then results will be pretty good over time! 

Performance of the fund and of the indices will be discussed in other posts. 

Update, 2008-3-4: Index Performance, February 2008

New Issues

New Issue: TD 5.60% Perps

TD has announced:

that it has entered into an agreement with a group of underwriters led by TD Securities Inc. for an issue of 8 million Non-cumulative Class A First Preferred Shares, Series R (the “Series R Shares”), carrying a face value of $25.00 per share, to raise gross proceeds of $200 million. TD intends to file in Canada a prospectus supplement to its January 11, 2007 base shelf prospectus in respect of this issue.
    TD has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series R Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing. The maximum gross proceeds raised under the offering will be $250 million should this option be exercised in full.
    The Series R Shares will yield 5.60% per cent annually and are redeemable by TD for cash, subject to regulatory consent, at a declining premium after approximately five years.
    The issue is anticipated to qualify as Tier 1 capital for TD and the expected closing date is March 12, 2008.

Name of issue: Toronto-Dominion Bank (The) Non-cumulative Class A First Preferred Shares, Series R

Size: 8-million shares @ $25; greenshoe option for another 2-million shares

Ratings: DBRS Pfd-1; S&P P-1(low); Moody’s Aa2

Dividend: $1.40 p.a., long first dividend of $0.54082 payable July 31 (assuming March 12 Closing)

Redemption: Redeemable at $26.00 commencing April 30, 2013; Redemption price declines by $0.25 every April 30 until April 30, 2017; redeemable at $25.00 on and after April 30, 2017.

Underwriting terms: bought deal, subject to syndication, “disaster out”, “regulatory out”, “rating change out” and “material adverse change out”.

Closes: 2008-3-12

 

You don’t need to look far for a comparable! The issue is virtually identical to the recent TD.PR.Q issue, which differs only in a three month shift in the redemption schedule. TD.PR.Q closed 2008-2-29 at 25.59-65.

Update: Using the closing yield curve on 2008-3-3 for taxable accounts, HIMIPref™ calculates a fair value (“curvePrice“) of $25.48 for the new issue, compared with $25.57 for TD.PR.Q.

To my great pleasure, the fitting error of the yield curve has jumped considerably today – more fitting error means more mispricing means more trading opportunities!

Update, 2008-03-04: TD has announced:

that a group of underwriters led by TD Securities Inc. has exercised the option to purchase an additional 2 million Non-cumulative Class A First Preferred Shares, Series R (the “Series R Shares”) carrying a face value of $25.00 per share. This brings the total issue announced on March 3, 2008, and expected to close March 12, 2008, to 10 million shares and gross proceeds raised under the offering to $250 million.

Update 2008-3-4: Using the closing taxable curve, fair value $25.37.

Update 2008-3-7: Closing taxable curve, fair value $25.24.

Update 2008-3-11: Fair value $25.24 when marked to the closing taxable curve. The symbol when it starts trading tomorrow morning will be TD.PR.R. The fair value of the comparable, TD.PR.Q, is 25.29; it closed at 25.10-15.

Issue Comments

Best and Worst Performers: February 2008

These are total returns, with dividends presumed to have been reinvested at the bid price on the ex-date. The list has been restricted to issues in the HIMIPref™ indices.

Issue Index DBRS Rating Monthly Performance Notes (“Now” means “February 29”)
PWF.PR.J OpRet Pfd-1(low) -1.66% Now with a pre-tax bid-YTW of 3.87% based on a bid of 26.01 and a call 2010-5-30 at 25.50.
FBS.PR.B SplitShare Pfd-2 -1.31% Asset coverage of 1.6+:1 as of February 28 according to TD Securities. Now with a pre-tax bid-YTW of 5.47% based on a bid of 9.75 and a hardMaturity 2011-12-15 at 10.00.
FTU.PR.A SplitShare Pfd-2 -1.30% Easy come, easy go! Performed well in January. Asset coverage of just under 1.6:1 as of February 15 according to the company. Now with a pre-tax bid-YTW of 6.42% based on a bid of 9.54 and a hardMaturity 2012-12-1 at 10.00.
WFS.PR.A SplitShare Pfd-2 -1.07% Asset coverage of just under 1.8:1 as of February 21 according to Mulvihill. Now with a pre-tax bid-YTW of 5.07% based on a bid of 10.15 and a hardMaturity 2011-6-30 at 10.00.
TOC.PR.B Floater Pfd-2(low) -0.87%  
… … … … …
SLF.PR.C PerpetualDiscount Pfd-1(low) +6.10% All the SLF issues did really well in February, but this one was the best. Now with a pre-tax bid-YTW of 5.08% based on a bid of 21.90 and a limitMaturity.
ELF.PR.F PerpetualDiscount Pfd-2(low) +5.97% Now with a pre-tax bid-YTW of 5.97% based on a bid of 22.53 and a limitMaturity.
HSB.PR.C PerpetualDiscount Pfd-1 +7.55% Bouncing back from horrible performance in January. Now with a pre-tax bid-YTW of 5.31% based on a bid of 24.36 and a limitMaturity.
BAM.PR.G FixFloat Pfd-2(low) +8.5%  
BNA.PR.C SplitShare Pfd-2(low) +10.44% Nice to see this issue finally catch a break! Asset coverage of 3.3+:1 as of January 31, according to the company. Now with a pre-tax bid-YTW of 6.62% based on a bid of 20.70 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (4.25% to a call 2008-3-30 at 25.50) and BNA.PR.B (7.20% to hardMaturity 2016-3-25).
Regulation

Cost of Regulation : Maple Bonds

Maple Bonds are wonderful things! Portfolios can be diversified and, given current conditions, institutional investors can take advantage of some of the greatly elevated yields on US Financials without taking on currency risk.

This post, however, is due to a paragraph in an IIAC review of the Maple market:

Costs still need to come down

Having to possibly deal with legislation and regulation in 13 different jurisdictions can dissuade distribution in some provinces and territories and disadvantage investors. Regulatory fees range from $0 in Prince Edward Island to flat fees of up to $500 in Ontario to fees of three basis points of face value in British Columbia. For example, $100 million in Maple bonds distributed to B.C. residents adds $30,000 to all-in costs; distribution of $100 million to Quebec or Alberta investors adds a further $25,000 per province to issuer expenses for little or no work by the regulators. Market-watchers are concerned that the differences in registration fees could distort efficient distribution of the securities or – worse – make it uneconomical for issuers to issue in parts of Canada at all.

The IIAC has written to the Canadian Securities Administrators (CSA) asking them to extend the passport framework as part of Passport 2 to exempt market instruments, including Maple bonds. For exempt issuances, the IIAC asked the CSA to allow a simple single form filing with a lead regulator and payment of a single low flat, rather than ad valorem, fee to promote national distribution. This would also help CSA members meet their common goal of fostering fair, efficient and transparent capital markets for investors.

What would be really nice would be if the materials relevant to each issue were centrally published via a SEDAR-like facility. There is, for example, a Lehman Brothers issue in which I am interested, but the lead manager is of the view that showing the offering documents to anybody other than a primary purchaser is illegal, since it’s a private placement. The details are on Bloomberg, right? And due-diligence consists of looking at Bloomberg, right? Idiots.

Interesting External Papers

IIAC 3Q07 Issuance Report

The Investestment Industry Association of Canada announced its Review of Equity New Issues and Trading for the third quarter of 2007, noting:

Preferred share issuance down 97 per cent quarter-over-quarter

Issuance in the first three quarters of 2007 totalled $4.2-billion, compared with $28.5-billion common, $6.4-billion Income Trusts, $1.6-billion Limited Partnerships and $0.3-billion Capital Trusts. Presumably, the two new issues announced in September for October settlement will be incorporated into the 4Q07 figures.

Market Action

February 29, 2008

Won’t be much today, folks! Besides month-end stuff, I was working on my “Auction Rate Securities : Hibernation Sickness – a review of this week’s Municipal Auction Rate Securities activity. Still sick, but on the rebound … and it appears that hedge funds are throwing in stink bids.

Sitka / Apex Update – BMO still in restructuring talks.

Naked Capitalism : Leveraged Funds Hurry to Sell $100-billion of Debt – there’s a lot of Medium Term Note issuance coming due this year … if they can’t roll it or otherwise refinance it, there’s going to be yet more Asset Backed paper desperately looking for a home.

Naked Capitalism : Did Mark-to-Market Accounting Create the Credit Bubble? … Well, it sure helped! And it’s definitely speeding the way down!

Perpetuals (of both flavours) ended the month on a down-beat, but PerpetualDiscounts were still up 3.03% on the month, which will do for now! Volume was OK.

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 5.55% 5.56% 36,031 14.6 2 +0.4291% 1,080.7
Fixed-Floater 4.97% 5.65% 71.187 14.69 7 +0.2054% 1,033.1
Floater 4.92% 4.99% 66,590 15.45 3 +0.1964% 858.8
Op. Retract 4.81% 3.06% 76,355 2.44 15 -0.1549% 1,048.3
Split-Share 5.27% 5.34% 95,529 4.07 15 +0.0000% 1,050.3
Interest Bearing 6.21% 6.33% 56,235 3.56 4 +0.0511% 1,090.3
Perpetual-Premium 5.72% 5.02% 328,196 4.69 16 -0.0997% 1,033.4
Perpetual-Discount 5.36% 5.40% 273,629 14.81 52 -0.1488% 960.1
Major Price Changes
Issue Index Change Notes
WFS.PR.A SplitShare -1.4563% Asset coverage of just under 1.8:1 as of February 21, according to Mulvihill. Now with a pre-tax bid-YTW of 5.07% based on a bid of 10.15 and a hardMaturity 2011-6-30. 
RY.PR.C PerpetualDiscount -1.2567% Now with a pre-tax bid-YTW of 5.26% based on a bid of 22.00 and a limitMaturity.
ELF.PR.G PerpetualDiscount -1.1516% Now with a pre-tax bid-YTW of 5.85% based on a bid of 20.60 and a limitMaturity.
BAM.PR.J OpRet -1.0449% Now with a pre-tax bid-YTW of 5.25% based on a bid of 25.57 and a softMaturity 2018-3-30 at 25.57.
SLF.PR.A PerpetualDiscount -1.0278% Now with a pre-tax bid-YTW of 5.13% based on a bid of 23.11 and a limitMaturity.
BNA.PR.C SplitShare +1.4706% Asset coverage of 3.3+:1 as of January 31, according to the company. Now with a pre-tax bid-YTW of 6.62% based on a bid of 20.70 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (4.25% to call 2008-3-30 at 25.50; some might prefer 5.38% to hardMaturity 2010-9-30) and BNA.PR.B (7.20% to hardMaturity 2016-3-25).
HSB.PR.C PerpetualDiscount +2.3529% Now with a pre-tax bid-YTW of 5.31% based on a bid of 24.36 and a limitMaturity. 
Volume Highlights
Issue Index Volume Notes
RY.PR.A PerpetualDiscount 84,555 Now with a pre-tax bid-YTW of 5.19% based on a bid of 21.52 and a limitMaturity.
BMO.PR.H PerpetualDiscount 64,015 TD crossed 25,000 at 24.30. Now with a pre-tax bid-YTW of 5.36% based on a bid of 24.51 and a limitMaturity.
PWF.PR.K PerpetualDiscount 63,000 Scotia crossed 25,000 at 23.25, then another 22,000 at the same price. Now with a pre-tax bid-YTW of 5.37% based on a bid of 23.26 and a limitMaturity.
BAM.PR.N PerpetualDiscount 57,400 RBC crossed 40,000 at 19.07. Now with a pre-tax bid-YTW of 6.37% based on a bid of 19.03 and a limitMaturity.
BMO.PR.J PerpetualDiscount 54,850 Now with a pre-tax bid-YTW 5.30% based on a bid of 21.38 and a limitMaturity.

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

HIMI Preferred Indices

HIMIPref™ Preferred Indices : September 2006

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

HIMI Index Values 2006-09-29
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,354.5 1 2.00 4.38% 16.7 50M 4.37%
FixedFloater 2,311.1 7 2.00 3.98% 4.2 65M 5.00%
Floater 2,162.0 6 2.00 -22.44% 0.1 44M 4.50%
OpRet 1,916.0 17 1.48 2.84% 2.4 74M 4.67%
SplitShare 1,973.3 13 1.85 3.72% 2.9 47M 4.97%
Interest-Bearing 2,375.6 7 2.00 4.72% 0.8 34M 6.88%
Perpetual-Premium 1,518.7 48 1.50 4.35% 5.4 115M 5.15%
Perpetual-Discount 1,632.4 6 1.33 4.55% 16.3 332M 4.58%
HIMI Index Changes, September 29, 2006
Issue From To Because
AL.PR.F Scraps Floater Volume
BAM.PR.G Scraps FixFloat Volume
CL.PR.B Scraps PerpetualPremium Volume
MIC.PR.A PerpetualPremium Scraps Volume
PWF.PR.A Scraps Floater Volume
PAY.PR.A SplitShare Scraps Volume
FTU.PR.A Scraps SplitShare Volume

There were the following intra-month changes:

HIMI Index Changes during September 2006
Issue Action Index Because
FTS.PR.F Add Scraps New Issue

Index Constitution, 2006-09-29, Post-rebalancing

Issue Comments

CGQ.E & STR.E & STQ.E Ratings Discontinued

DBRS has announced that it:

today discontinued its ratings on the following preferred shares at the request of Quadravest Capital Management Inc. (the Promoter).

… followed by a list of the three captioned issues. These are all split-share corporations of that horrible form that includes a forward contract and a managed portfolio, like High Income Preferred Shares Corporation. I’m not going to look at the financials to see what I think of them; I’ll just report the NAV of the Managed Portfolio as reported by Quadravest and assume (assume! I can’t even be bothered to check my files!) that this is supposed to cover redemption of the indicated shares.

CGQ.E was downgraded to Pfd-5 on 2006-10-25. Par Value $15.00, Managed Portfolio NAV $12.44.

STQ.E was downgraded to Pfd-5 on 2008-1-7. Par Value $15.00, Managed Portfolio NAV $13.38.

STR.E was downgraded to Pfd-5(low) on 2005-10-25. Par Value $25.00, Managed Portfolio NAV $18.98.