The BAM.PR.G change of terms has been processed on HIMIPref™: the old security code was A41216, the new code is A41219.
RY.PR.C Off to a Fine Start!
The new Royal Bank 4.6% perpetuals were off to a good start today, trading 239,875 shares in a range of 25.15-25 to close at $25.16-18, 3×13.
The reorg entry has been processed on HIMIPref™: the pre-issue code was P50006, the new security code is A45012.
I’ll update this post with some comments about valuation when I update HIMIPref™ with today’s closing quotations later tonight.
Update : The issue still looks attractive at the closing quotation. Consider the YTWs of the other Royal Perpetual issues that are outstanding (except for the soon to be redeemed RY.PR.O:
| Issue | Pre-tax YTW | Quote | “Taxable Curve” Price |
| RY.PR.A | 4.47% | 24.84-91 | 24.97 |
| RY.PR.B | 4.30% | 25.70-75 | 25.83 |
| RY.PR.C | 4.54% | 25.16-18 | 25.59 |
| RY.PR.W | 4.07% | 26.27-55 | 25.89 |
So, it’s my guess there’s still a little value left in this issue!
October 31, 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 | 4.11% | 4.03% | 42,749 | 10.68 | 2 | -0.1794% | 1,019.2 |
| Fixed-Floater | 5.00% | 2.75% | 151,045 | 10.65 | 7 | +0.0864% | 1,027.1 |
| Floater | 4.52% | -16.01% | 74,789 | 6.52 | 5 | 0.0635% | 1,022.9 |
| Op. Retract | 4.67% | 1.94% | 89,693 | 2.37 | 17 | 0.0859% | 1,021.3 |
| Split-Share | 4.95% | 3.47% | 157,739 | 3.26 | 11 | 0.0075% | 1,022.4 |
| Interest Bearing | 6.88% | 5.16% | 57,457 | 1.97 | 7 | 0.0257% | 1,024.2 |
| Perpetual-Premium | 5.07% | 3.88% | 213,084 | 4.32 | 47 | 0.1516% | 1,039.5 |
| Perpetual-Discount | 4.60% | 4.63% | 604,494 | 16.15 | 7 | 0.1804% | 1,032.6 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| BCE.PR.R | FixedFloater | +1.1111% | Just a reversal of yesterday’s loss, really : a handful of shares traded just above $25.50. Closed at 25.48-56, 5×5. |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| GWO.PR.X | OpRet | 307,528 | National sold 150,000 @27.55 to Nesbitt, Scotia & Desjardins in the late afternoon. Pre-tax YTW 2.69% based on a bid of $27.55 and a call 2009-10-30 @ $26.00. It only pays $1.20, so it might possibly make it to 2013-9-29, having yielded 3.23%. |
| ACO.PR.A | OpRet | 276,511 | Nesbitt processed an internal cross of 275,000 @ 27.89. Pre-tax YTW of 2.94%, based on a bid of $27.65 and a call 2008-12-31 @ $26.00. It pays $1.4375, so its chances of making it further along the redemption trail are … not good. |
| SLF.PR.D | PerpetualDiscount | 91,007 | The clean-out sale continues, but at a slower pace! |
| SLF.PR.B | PerpetualPremium | 81,885 | A bit, but not much, expensive I’d say, closing at $25.56-63 for a pre-tax YTW of 4.55% based on a call @ $25.00 on 2014-10-30. |
| PWF.PR.D | OpRet | 70,700 | Nesbitt processed an internal cross at $27.18 in the only trade of the day. This issue has trade enough this month that it will be back in the index after rebalancing. |
There were fifteen other index-included issues trading over 10,000 shares today.
HIMI Preferred Indices : October, 1994
All indices were assigned a value of 1000.0 as of December 31, 1993.
| HIMI Index Values 1994-10-31 | |||||||
| Index | Closing Value (Total Return) | Issues | Mean Credit Quality | Median YTW | Median DTW | Median Daily Trading | Mean Current Yield |
| Ratchet | 1,086.0 | 0 | 0 | 0 | 0 | 0 | 0 |
| FixedFloater | 1,086.0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Floater | 1,024.8 | 3 | 1.33 | 5.63% | 14.4 | 94M | 6.36% |
| OpRet | 969.1 | 17 | 1.34 | 7.21% | 5.3 | 73M | 7.30% |
| SplitShare | 969.1 | 0 | 0 | 0 | 0 | 0 | 0 |
| Interest-Bearing | 969.1 | 0 | 0 | 0 | 0 | 0 | 0 |
| Perpetual-Premium | 1,015.2 | 5 | 1.19 | 6.94% | 4.0 | 56M | 8.32% |
| Perpetual-Discount | 1,004.8 | 1 | 1.00 | 7.40% | 12.1 | 44M | 7.39% |
Marginal Tax Rates: Alberta
Alberta announced their tax credit improvement September 12, which E&Y have analyzed to mean:
| Investors | Taxable Income | Marginal Rate on Interest | Marginal Rate on Dividends | Equivalency Factor |
| Widows & Orphans | $30,000 | 25.25% | 3.63% | 1.29 |
| Professionals | $75,000 | 36.00% | 13.83% | 1.35 |
| Plutocrats | $150,000 | 39.00% | 18.18% | 1.34 |
Hah! The equivalency factors aren’t as good as for BC and Ontario! It almost eases the sting of realizing just how low taxes are out West!
Marginal Tax Rates : Ontario
I’m not sure exactly how I did it, but when I was writing the BC Taxation Update, I wiped out the Ontario one from September 15, that I will now replace.
Ontario announced their tax credit improvement, which E&Y have analyzed to mean:
| Investors | Taxable Income | Marginal Rate on Interest | Marginal Rate on Dividends | Equivalency Factor |
| Widows & Orphans | $30,000 | 21.3% | 0.00% | 1.27 |
| Professionals | $75,000 | 43.41% | 20.74% | 1.40 |
| Plutocrats | $150,000 | 46.41% | 25.09% | 1.40 |
BCE Trust Conversion and Preferred Offer Now Dubious?
It has just been announced that there will be a tax on trusts. Any trusts created after today will be subject to the tax in 2007; existing trusts will be taxed in 2011.
This makes execution of the BCE offer to buy their preferreds rather dubious, since it was conditional on their conversion taking place.
Of course, the pref market never fully believed the conversion would take place anyway: see the attached graph of the flatBidPrice of the most active affected issue, BC.PR.C, for this issue’s reaction to the offer. The putative offer price was $26.25, announced October 11.
The market could be very active tomorrow, and not just in the issues affected by the offer! There may well be a stampede of income investors into prefs out of trusts – well overdue, since they should never have been in those things in the first place.
Ernst & Young Updates Tax Calculator : BC
British Columbia announced on October 11 that the dividend tax credit would be increased; E&Y has updated its on-line Tax Calculator to October 12
So lets plug in some numbers for British Columbia:
| Investors | Taxable Income | Marginal Rate on Interest | Marginal Rate on Dividends | Equivalency Factor |
| Widows & Orphans | $30,000 | 21.3% | 0.00% | 1.27 |
| Professionals | $75,000 | 37.70% | 10.20% | 1.44 |
| Plutocrats | $150,000 | 43.70% | 18.47% | 1.45 |
So not only are tax rates lower in BC than in Ontario, they have a more favourable Dividend/Income conversion ratio as well! Huh!
DBRS Upgrades Canadian Utilities!
DBRS announced today that they are upgrading the Canadian Utilities Limited preferred shares Series O, T, W & X from Pfd-2 to Pfd-2(high), where they will now match the series Q, R, S, U & V.
HIMIPref™ tracks four of these issues:
| CU Issues & HIMIPref™ | ||
| Series | Symbol | Status |
| Q | CU.PR.T | Unchanged |
| R | CU.PR.V | Unchanged |
| W | CU.PR.A | Upgraded |
| X | CU.PR.B | Upgraded |
I do not anticipate much excitement to result from this upgrade. The two issues affected are high-dividend perpetuals with a short period until their YTW call. Due to the shortness of their expected term, NONE of the CU issues are eligible for purchase recommendations from HIMIPref™.
And anyway, as far as I can tell, the market isn’t putting much of a premium on “High” modifiers anyway!
The HIMIPref™ credit rating adjustment will take effect commencing October 31.
October 30, 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 | 4.11% | 3.99% | 42,872 | 10.67 | 2 | -0.0798% | 1,021.0 |
| Fixed-Floater | 5.00% | 2.83% | 153,742 | 6.11 | 7 | -0.0066% | 1,026.2 |
| Floater | 4.52% | -15.94% | 75,151 | 6.51 | 5 | 0.1115% | 1,022.2 |
| Op. Retract | 4.68% | 2.30% | 89,145 | 2.37 | 17 | -0.0108% | 1,020.5 |
| Split-Share | 4.95% | 3.64% | 159,085 | 3.64 | 11 | 0.0562% | 1,022.3 |
| Interest Bearing | 6.88% | 5.11% | 56,689 | 1.98 | 7 | -0.1196% | 1,023.9 |
| Perpetual-Premium | 5.08% | 3.97% | 213,795 | 4.36 | 47 | -0.0275% | 1,037.9 |
| Perpetual-Discount | 4.61% | 4.64% | 604,467 | 16.14 | 7 | -0.0636% | 1,030.8 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| BSD.PR.A | InterestBearing | -1.3699% | Now with a pre-tax YTW of 6.04%, based on a bid of $10.08 and a maturity 2015-03-31 |
| BCE.PR.R | FixedFloater | -1.2640% | Looks like a trade of 400 shares at 3:36pm at $25.40 took out the bid and left the next bid at $25.20 |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| SLF.PR.D | PerpetualDiscount | 399,590 | See SLF.PR.D : Clearance Sale Winding Down?. It doesn’t look like it, at least as far as volume goes! |
| CM.PR.G | PerpetualPremium | 184,770 | Nesbitt processed an internal cross of 130,000 shares @26.95, Scotia crossed 50,000 @ $26.96. YTW 4.11% based on a call 2010-5-31 @ $26.00. Pays $1.35 with a $0.25 annual decline in premium, so it could very well hang on until the $25.00 call 2014-5-31 to have yielded 4.22% … unless interest rates move! |
| CM.PR.A | OpRet | 170,660 | BMO crossed 65,000 for cash at $26.81, then bought 100,000 for cash from Desjardins at the same price. Odd. They’re nowhere near their ex-Date. I commented on this issue on October 26 |
| MFC.PR.B | PerpetualPremium | 50,195 | BMO bought 14,600 from National @ $25.39, then another 10,700 at the same price. |
| LBS.PR.A | SplitShare | 116,200 | Recent new issue |
There were sixteen other index-included issues trading over 10,000 shares today.