PrefBlog

Issue Comments

LCS.PR.A To Get Bigger

that the Company’s treasury offering of class A and preferred shares has been priced at $7.00 per class A share and $10.00 per preferred share. The final class A share and preferred share offering prices were determined so as to be non-dilutive to the net asset value per unit of the Company on April 16, 2014, the most recently calculated net asset value, as adjusted for dividends and certain expenses accrued prior to or upon settlement of the offering.

Brompton Lifeco Split Corp. invests in a portfolio, on an approximately equal weight basis, of common shares of Canada’s four largest publicly-listed life insurance companies: Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc.

The Company intends to file a final prospectus in each of the provinces and territories of Canada in connection with the offering. The offering is expected to close on or about May 1, 2014 and is subject to customary closing conditions including approvals of applicable securities regulatory authorities and the Toronto Stock Exchange.

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC, and Scotiabank, and includes BMO Capital Markets, National Bank Financial Inc., GMP Securities L.P., Raymond James Ltd., Desjardins Securities Inc., Dundee Securities Ltd., Mackie Research Capital Corporation, and Manulife Securities Incorporated.

On February 18, shareholders approved a term extension:

At a special meeting of preferred and class A shareholders (“Shareholders”) of Brompton Lifeco Split Corp. (“LCS”) held today, shareholders approved a special resolution to extend the term of LCS for approximately 5 years to April 29, 2019 and thereafter for successive terms of up to 5 years as determined by the LCS board of directors. Holders of Class A Shares voted approximately 99% in favour of the extension and holders of Preferred Shares voted approximately 97% in favour of the extension. The extension allows Shareholders to continue their investment in LCS’ portfolio of common shares of four Canadian life insurance companies (Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc.). Shareholders will continue to have monthly and annual retraction rights.

In addition to the daily liquidity provided by the TSX listings, shareholders who do not wish to continue their investment may redeem either their preferred shares or class A shares on April 30, 2014 and each extension of the term thereafter on the same terms that currently exist. Further details are available in the management information circular dated January 15, 2014.

Prior to that (as a sweetener!) the company announced the dividend rate for the extension:

As previously announced, Brompton Lifeco Split Corp. (“LCS” or the “Fund”) will hold a special meeting of shareholders on February 18, 2014 to consider the proposed extension of the term of the Class A Shares and Preferred Shares of the Fund. If approved, shareholders will be able to continue their investment in the Fund beyond its currently scheduled termination date of April 30, 2014. The proposed extension will not result in any changes to shareholder redemption rights and is subject to shareholder approval. In the event that the proposed extension is not approved by shareholders, the Fund will terminate and Class A and Preferred shareholders will receive net asset value per Class A and Preferred Share, respectively.

If the extension is approved, the term of the Class A Shares and Preferred Shares will be extended to April 29, 2019 and the distribution rate for the Fund’s Preferred Shares for the new term commencing on May 1, 2014 will be $0.575 per share per annum payable quarterly. This represents a 5.75% yield on the par value ($10.00) of the Preferred Share and is based on current market rates for preferred shares with similar terms. In addition, the Fund intends to maintain the targeted monthly Class A Share distribution at $0.075 per Class A Share.

LCS invests in a portfolio, on an approximately equal weight basis, of common shares of Canada’s 4 largest publicly-listed life insurance companies: Great-West Lifeco Inc., Industrial Alliance Insurance and Financial Services Inc., Manulife Financial Corporation and Sun Life Financial Inc.

The information circular for the term extension was published in January.

LCS.PR.A was placed under Review-Positive by DBRS:

As part of the term extension, the fixed cumulative quarterly distributions to the Preferred Shares will be increased to $0.14375 per preferred share starting May 1, 2014, yielding 5.75% annually on their issue price of $10.00 per share (up from 5.25% previously). Holders of the Class A Shares are expected to continue receiving regular monthly targeted cash distributions of $0.075 per share, yielding 6% annually on their issue price of $15.00 per share. Class A Share distributions were suspended in March 2011, due to the net asset value of the Company falling below $15.00 per unit (i.e., 33% downside protection), but were reinstated in July 2013.

On December 23, 2013, DBRS upgraded the ratings of the Preferred Shares to Pfd-4 (high) from Pfd-5 (high). Since then, the performance of the Company has been generally stable, although downside protection has fallen slightly in April (37.2% as of April 10, 2014). Despite the drop, downside protection remains above levels typically seen at the Pfd-4 (high) level, and as a result, the rating of the Preferred Shares has been placed Under Review with Positive Implications.

The company’s upgrade to Pfd-4(high) by DBRS was reported on PrefBlog. LCS.PR.A is not tracked by HIMIPref™ as it is a very small issue – less than 1.7-million units are outstanding … let’s hope that changes!

Market Action

April 21, 2014

Felix Salmon writes a good piece on Michael Lewis’s flawed new book (Flash Boys) [emphasis added]:

And he also mentions that while you used to be able to drive a truck through the bid-offer prices on stocks, pre-decimalization, nowadays prices are much, much tighter — with the result that trading is much, much less expensive than it used to be. Given all that, it stands to reason that even if the HFT shops are making good money, they’re still making less than the big broker-dealers used to make back in the day. But that’s not a calculation Lewis seems to have any interest in.

In his introduction to the book, Lewis writes this:

The average investor has no hope of knowing, of course, even the little he needs to know. He logs onto his TD Ameritrade or E*Trade or Schwab account, enters a ticker symbol of some stock, and clicks an icon that says “Buy”: Then what? He may think he knows what happens after he presses the key on his computer keyboard, but, trust me, he does not. If he did, he’d think twice before he pressed it.

This is silly. I’ll tell you what happens when the little guy presses that key: his order doesn’t go anywhere near any stock exchange, and no HFT shop is going to front-run it. Instead, he will receive exactly the number of shares he ordered, at exactly the best price in the market at the second he pressed the button, and he will do so in less time than it takes his web browser to refresh. Buying a small number of shares through an online brokerage account is the best guarantee of not getting front-run by HFT types. And there’s no reason whatsoever for the little guy to think twice before pressing the button.

And that emphasis, boys and girls, is the reason why there’s such a big fuss about High Frequency Trading. But don’t forget the lawsuits!

The stuff the complaint complains about, by the way, is mostly just what’s in “Flash Boys.” Basically it’s that high-speed traders trade faster than low-speed traders, via latency arbitrage or moving in reaction to orders in the market or co-location or direct data feeds or … there’s some weird stuff here, like an accusation that high-frequency traders trade in advance of index-fund rebalancing, which is just intelligently making use of public information but which these lawyers find objectionable.[Footnote]

[Footnote reads]:Like:

Most retirement savings, such as public and private pension funds or 401(k) and individual retirement accounts in the United States, are invested in mutual funds, the most popular of which are index funds which periodically “rebalance” or adjust their portfolio to account for current prices and market capitalization of the underlying securities in the stock or other index that they track. This allows trading algorithms to anticipate and trade ahead of stock price movements caused by mutual fund rebalancing, making a profit on advance knowledge of the large institutional block orders. This results in profits being transferred from investors to algorithmic traders, estimated to be at least 21 to 28 basis points annually for S&P 500 index funds, and at least 38 to 77 basis points per year for Russell 2000 funds.

I do not get it. Index rebalancing is public information. If you have a computer that does the math and calculates that people will be buying a lot of stock on an index add, and you buy some of that stock to profit from that calculation — what is illegal or fraudulent or whatever about that? This is not in the book, by the way; they came up with this on their own.

The old guard’s next line of attack might be best execution in a rebate environment:

Brokers entrusted with orders in the U.S. stock market can choose from dozens of exchanges and private venues. Some money managers such as T. Rowe Price Group Inc. (TROW) have told regulators that incentives offered by exchanges for attracting orders can put a broker’s financial interest at odds with the customer’s.
…
Brokers can face a conflict of interest as they select where to send customer orders. Brokers can either capture a rebate or pay a fee to an exchange depending on the type of order used, while private venues known as dark pools charge lower fees but don’t have to disclose how they treat customers.
…
While improved disclosure is helpful, the SEC should experiment with altering the economic incentives that affect how orders are handled, [T. Rowe Price head of equity trading Andy] Brooks said. T. Rowe has joined the New York Stock Exchange, Royal Bank of Canada and IEX Group Inc. in lobbying regulators to ban the “maker-taker” system, which pays rebates to large brokers to attract trades.

Brokerages often put their own self-interest in front of their clients’ under maker-taker, according to a study by Robert Battalio and Shane Corwin of the University of Notre Dame and Robert Jennings of Indiana University.

The linked study is titled Can Brokers Have It All? On the Relation between Make Take Fees & Limit Order Execution Quality:

We identify retail brokers that seemingly route orders to maximize order flow payments: selling market orders and routing limit orders to venues paying large liquidity rebates. Because venues offering high rebates also charge liquidity demanding investors high fees, fee structure may affect the arrival rate of marketable orders. If limit orders on low-fee venues fill when similarly priced orders on high-fee venues do not, routing orders to maximize rebates might not always be in customers’ best interests. Using proprietary limit order data, we document a negative relation between several measures of limit order execution quality and the relative fee level. Specifically, we show that when ‘identical’ limit orders are concurrently displayed on two venues, orders routed to the low-fee venue execute more frequently and suffer lower adverse selection. Using the NYSE’s TAQ data, we show that the negative relation between take fees and execution quality extends beyond our proprietary dataset.

The big problem in Europe is deflation:

Inflation in Europe has been in decline since late 2011, thanks to gruesome unemployment, excess manufacturing capacity, the weak recovery, falling energy prices and the rising euro. At last count, it was running at 0.5 per cent, well below the ECB’s [European Central Bank’s] target rate of slightly under 2 per cent. The question is whether 0.5 per cent is the bottom or close to it. The International Monetary Fund says that Greece alone will post a slightly negative inflation rate in 2014 and most economists forecast inflation at 0.9 per cent to 1.5 per cent for the euro zone his year, rising marginally next year.

The figures don’t suggest deflation is coming. Yet the ECB in its last governing council meeting signalled it was ready to haul out the heavy artillery. Besides another interest rate cut, the options include quantitative easing, in which the ECB would make large-scale purchase of government and private debt (more likely the former) to boost money supply, or charge banks a fee to park their funds at the ECB.

As soon as [ECB honcho] Mr. Draghi said the ECB was ready to launch son of “whatever it takes,” bond yields fell in the expectation that the ECB is about to buy every bond in sight. In the past month, the yields of Portugal’s 10-year dropped 0.7 of a percentage point, to 3.7 per cent, which is only one point higher than U.S. Treasury yields. Remember, this was a country on the verge of bankruptcy not long ago. Italy’s yields have slumped to 3.1 per cent. They were double that level, or higher, two or three years ago. Greece’s yields fell so far so fast – they’re now below 6 per cent – that the country considered the prime candidate to bolt from the euro zone in 2012 is back in the debt markets. Last week, it couldn’t keep up with demand for its new five-year bonds.

It’s always interesting to read how the competition is doing:

Merrill Lynch & Co. Inc. is dangling a new incentive in front of its brokers by creating a “recognition club” for those who bring in $8-million (U.S.) or more a year from clients, more than doubling the top goals set by its securities industry rivals.
…
The new “Pinnacle Club” will pay its members $10,000 in cash and additional benefits if they produce $8-million of revenue or build up five million of production credits.

Club membership also gives members bragging rights as elite brokers, the ability to advertise their status on their websites, and priority when accounts of departing brokers are redistributed or when customers are referred to the broker-dealer from other parts of Bank of America, according to a description of the recognition clubs in Merrill’s 2014 compensation booklet.

Brokers who qualify for Pinnacle as well as for Merrill’s seven lower-tier recognition clubs also can participate with their significant others in “Top Advisor Summits” that are usually held over several days in resort areas.

In reporting first-quarter earnings last week, Merrill said its 13,725 brokers were on target to produce an average of $1.06-million each this year, one of the highest averages in the brokerage industry. The average is skewed, however, by heavy hitters who could qualify for the new club. Fewer than 5,200 of its advisers had $1-million or more of production in 2013.

Treasuries are, on the whole, doing better than the Street expected:

One reason yields have fallen is the U.S. labor market, which has yet to show consistent improvement.

The world’s largest economy added fewer jobs on average in the first three months of the year than in the same period in the prior two years, data compiled by Bloomberg show. At the same time, a slowdown in China and tensions between Russia and Ukraine boosted demand for the safest assets.

Wall Street firms known as primary dealers are getting caught short betting against Treasuries.

They collectively amassed $5.2 billion of wagers in March that would profit if Treasuries fell, the first time they had net short positions on government debt since September 2011, data compiled by the Fed show.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts and FixedResets both gaining 9bp, while DeemedRetractibles were off 2bp. Volatility was not even technically existent. Volume was very low.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.3455 %	2,399.0
FixedFloater	4.69 %	4.24 %	33,145	17.96	1	0.0989 %	3,660.0
Floater	3.03 %	3.17 %	50,576	19.31	4	-0.3455 %	2,590.3
OpRet	4.36 %	-4.48 %	39,066	0.11	2	-0.0194 %	2,692.6
SplitShare	4.81 %	4.33 %	62,120	4.23	5	0.1352 %	3,087.8
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0194 %	2,462.1
Perpetual-Premium	5.54 %	-6.95 %	108,684	0.09	13	0.0786 %	2,386.8
Perpetual-Discount	5.41 %	5.35 %	111,987	14.67	23	0.0934 %	2,491.0
FixedReset	4.68 %	3.69 %	194,754	4.33	79	0.0857 %	2,532.9
Deemed-Retractible	5.02 %	-0.57 %	144,681	0.15	42	-0.0239 %	2,494.6
FloatingReset	2.66 %	2.44 %	180,893	4.25	5	-0.0080 %	2,481.6

Performance Highlights
Issue	Index	Change	Notes
No individual gains or losses exceeding 1%!

Volume Highlights
Issue	Index	Shares Traded	Notes
BNS.PR.X	FixedReset	181,639	TD crossed 75,000 at 25.00; Scotia crossed 104,600 at 24.99. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 24.99 Bid-YTW : 5.08 %
BAM.PF.E	FixedReset	65,025	RBC crossed 49,800 at 25.05. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-21 Maturity Price : 23.11 Evaluated at bid price : 25.01 Bid-YTW : 4.22 %
ENB.PR.Y	FixedReset	57,412	Scotia crossed blocks of 35,000 and 15,000, both at 23.99. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-21 Maturity Price : 22.70 Evaluated at bid price : 23.87 Bid-YTW : 4.23 %
BNS.PR.R	FixedReset	45,751	Nesbitt crossed 40,000 at 25.68. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-01-26 Maturity Price : 25.00 Evaluated at bid price : 25.63 Bid-YTW : 3.25 %
FTS.PR.E	OpRet	41,530	TD crossed 41,500 at 25.95. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-01 Maturity Price : 25.50 Evaluated at bid price : 25.94 Bid-YTW : -4.48 %
TRP.PR.E	FixedReset	33,950	Nesbitt crossed 25,000 at 25.40. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-21 Maturity Price : 23.24 Evaluated at bid price : 25.34 Bid-YTW : 3.92 %
There were 19 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
FTS.PR.F	Perpetual-Discount	Quote: 24.39 – 24.86 Spot Rate : 0.4700 Average : 0.2698 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-21 Maturity Price : 24.09 Evaluated at bid price : 24.39 Bid-YTW : 5.08 %
POW.PR.A	Perpetual-Discount	Quote: 25.11 – 25.48 Spot Rate : 0.3700 Average : 0.2584 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-21 Maturity Price : 25.00 Evaluated at bid price : 25.11 Bid-YTW : 1.36 %
PWF.PR.H	Perpetual-Premium	Quote: 25.30 – 25.50 Spot Rate : 0.2000 Average : 0.1327 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-21 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : -10.24 %
ENB.PR.A	Perpetual-Premium	Quote: 25.40 – 25.64 Spot Rate : 0.2400 Average : 0.1758 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-21 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : -4.52 %
ENB.PF.A	FixedReset	Quote: 25.23 – 25.39 Spot Rate : 0.1600 Average : 0.1047 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-21 Maturity Price : 23.20 Evaluated at bid price : 25.23 Bid-YTW : 4.25 %
BNS.PR.R	FixedReset	Quote: 25.63 – 25.84 Spot Rate : 0.2100 Average : 0.1575 YTW SCENARIO Maturity Type : Call Maturity Date : 2019-01-26 Maturity Price : 25.00 Evaluated at bid price : 25.63 Bid-YTW : 3.25 %

Market Action

April 17, 2014

The Globe ran a piece on an upcoming insurance pow-wow in Toronto:

“The irony of the way insurance works, as opposed to the way banking works, is that it’s not always clear that capital is the relevant solution,” he said. “It’s often not, because insurance companies get into trouble in different ways.”

For example, insurance companies wouldn’t experience a ‘run’ on deposits, Mr. McGavick said, when reserves may not be able to cover mass customer withdrawals in the same way a bank would.

This seems like an odd remark to me, because while bank runs may be rooted in capital problems, they are made possible by liquidity problems – this is the old illiquid vs. insolvent distinction that I frequently mentioned during the Credit Crunch and which is well illustrated by the Panic of 1907.

Anyway, the Geneva Association produced an analysis titled Variable Annuities — An Analysis of Financial Stability, which references (among other things):

Key Financial Stability Issues in Insurance, released in July 2010, comprises analytical work carried out on specific issues that had been raised by regulatory and supervisory counterparts in areas such as investment management, liquidity management, limits of insurability, crisis resolution mechanisms in insurance and the confused concept of an “insurance run” (supposedly akin to a bank run).

and Key Financial Stability Issues in Insurance, which is quite interesting, but which the dorks have copy-protected so I can’t copy-paste the good parts.

Capital is virtually irrelevant during a bank run (although loss of capital might trigger the run); capital is actually more important in the insurance game. While it is quite true that Segregated Fund owners can’t take their money and run – eliminating much of the need for liquidity – a lack of capital will have severe effects on the viability of the operation – as Manulife very nearly found out during the crisis.

DGS.PR.A was confirmed at Pfd-3 by DBRS:

The net asset value (NAV) of the Company has increased steadily since the last rating confirmation in April 2013. As of April 3, 2014, the downside protection available to the Preferred Shares is approximately 46.9% and the dividend coverage ratio is approximately 1.1 times. The Pfd-3 rating of the Preferred Shares is based primarily on the downside protection available and the additional protection provided by an asset coverage test, which does not permit any distributions to holders of the Class A Shares if the NAV of the Company falls below $15.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 16bp, FixedResets gaining 3bp and DeemedRetractibles up 13bp. Volatility was minimal. Volume … was peculiar. Very little breadth, but quite a lot of depth! A very high proportion of the volume leaders have been called for redemption.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	0.1875 %	2,407.4
FixedFloater	4.70 %	4.24 %	32,743	17.96	1	-0.2465 %	3,656.4
Floater	3.02 %	3.15 %	50,422	19.38	4	0.1875 %	2,599.3
OpRet	4.36 %	-4.39 %	36,175	0.12	2	-0.0388 %	2,693.2
SplitShare	4.81 %	4.38 %	60,411	4.24	5	-0.1112 %	3,083.7
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0388 %	2,462.6
Perpetual-Premium	5.55 %	-6.02 %	107,298	0.09	13	0.0272 %	2,384.9
Perpetual-Discount	5.41 %	5.39 %	115,531	14.65	23	0.1591 %	2,488.7
FixedReset	4.68 %	3.64 %	195,270	4.34	79	0.0347 %	2,530.7
Deemed-Retractible	5.02 %	-0.54 %	146,596	0.16	42	0.1331 %	2,495.2
FloatingReset	2.64 %	2.41 %	182,485	4.26	5	0.0159 %	2,481.7

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.F	FixedReset	1.23 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.10 Bid-YTW : 4.25 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PR.G	FixedReset	338,738	Called for Redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 24.97 Bid-YTW : 5.44 %
BNS.PR.T	FixedReset	315,839	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 4.93 %
CM.PR.L	FixedReset	244,798	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 5.27 %
TRP.PR.E	FixedReset	223,516	Desjardins crossed blocks of 23,900 and 50,800, both at 25.42. TD crossed 40,000 and RBC crossed 100,000, all at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-17 Maturity Price : 23.26 Evaluated at bid price : 25.41 Bid-YTW : 3.86 %
ENB.PF.A	FixedReset	182,613	Nesbitt crossed 30,00 at 25.37. TD bought 25,000 from anonymous and crossed blocks of 77,000 and 13,500, all at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-17 Maturity Price : 23.24 Evaluated at bid price : 25.36 Bid-YTW : 4.18 %
FTS.PR.E	OpRet	177,950	Nesbitt crossed 175,000 at 25.95. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-01 Maturity Price : 25.50 Evaluated at bid price : 25.95 Bid-YTW : -4.39 %
NA.PR.S	FixedReset	172,080	RBC crossed blocks of 100,000 and 30,000, both at 25.43. TD crossed 40,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-15 Maturity Price : 25.00 Evaluated at bid price : 25.43 Bid-YTW : 3.67 %
TD.PR.E	FixedReset	155,319	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 5.09 %
MFC.PR.L	FixedReset	142,354	RBC crossed 120,900 at 24.85. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.85 Bid-YTW : 4.01 %
RY.PR.I	FixedReset	114,223	Scotia crossed 50,000 at 25.60. RBC crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.60 Bid-YTW : 3.11 %
VNR.PR.A	FixedReset	111,594	RBC crossed 100,500 at 25.37; Scotia crossed 10,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.36 Bid-YTW : 3.93 %
ELF.PR.H	Perpetual-Discount	102,208	RBC crossed 100,000 at 24.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-17 Maturity Price : 24.01 Evaluated at bid price : 24.41 Bid-YTW : 5.65 %
There were 17 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
CIU.PR.C	FixedReset	Quote: 20.82 – 21.32 Spot Rate : 0.5000 Average : 0.3521 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-17 Maturity Price : 20.82 Evaluated at bid price : 20.82 Bid-YTW : 3.76 %
POW.PR.B	Perpetual-Discount	Quote: 24.32 – 24.67 Spot Rate : 0.3500 Average : 0.2323 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-17 Maturity Price : 24.06 Evaluated at bid price : 24.32 Bid-YTW : 5.53 %
PWF.PR.P	FixedReset	Quote: 23.89 – 24.22 Spot Rate : 0.3300 Average : 0.2261 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-17 Maturity Price : 23.53 Evaluated at bid price : 23.89 Bid-YTW : 3.50 %
CGI.PR.D	SplitShare	Quote: 24.77 – 25.08 Spot Rate : 0.3100 Average : 0.2096 YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2023-06-14 Maturity Price : 25.00 Evaluated at bid price : 24.77 Bid-YTW : 3.93 %
ENB.PR.H	FixedReset	Quote: 23.64 – 23.97 Spot Rate : 0.3300 Average : 0.2445 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-17 Maturity Price : 22.65 Evaluated at bid price : 23.64 Bid-YTW : 4.02 %
POW.PR.D	Perpetual-Discount	Quote: 23.27 – 23.58 Spot Rate : 0.3100 Average : 0.2320 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-17 Maturity Price : 23.01 Evaluated at bid price : 23.27 Bid-YTW : 5.39 %

Issue Comments

FFN.PR.A: Term Extension Details

Financial 15 Split Corp. II has released the Management Information Circular for its May 14 meeting.

The Articles of the Company currently provide that the Preferred Shares and the Class A Shares shall be redeemed by the Company on the Termination Date, which is currently scheduled for December 1, 2014. Shareholders are being asked to pass a special resolution which would, among other things, extend the Termination Date initially to December 1, 2019.

OK, a five year extension is fine since there is a Special Retraction Rights for preferred shareholders:

If the extension of the Termination Date is approved, a Shareholder who retracts a Class A Share under the 2014 Special Retraction Right will receive a retraction price per Class A Share equal to the net asset value per Unit calculated on June 13, 2014, less $10.00. A Shareholder who retracts a Preferred Share under the 2014 Special Retraction Right will receive a retraction price per Preferred Share equal to the lesser of (i) $10.00 and (ii) the net asset value per Unit calculated on June 13, 2014. Shareholders wishing to take advantage of the 2014 Special Retraction Right must surrender their Shares for retraction no later than the close of business on June 4, 2014. Payment for the Class A Shares or Preferred Shares so tendered for retraction pursuant to the 2014 Special Retraction Right will be made no later than June 27, 2014.

Similarly, there will be a Continuing Special Retraction Right, particularly necessary since there will be no vote on further extensions:

By approving the special resolution to extend the Termination Date of the Company to December 1, 2019, Shareholders will also be approving the extension of the Company for an additional term of five years as determined by the Board of Directors of the Company. The Termination Date may then be a further extended for additional successive terms of five years each in the discretion of the Board of Directors. Shareholders will be able to redeem their Shares in connection with any such five year extension by exercising an additional retraction right (the Continuing Special Retraction Right) which is again designed to provide Shareholders with an opportunity to retract their Shares and receive a retraction price that is calculated in the same way that such price would be calculated if the Company were to terminate on its scheduled Termination Date.

Similarly to FTN.PR.A, there’s a peculiar price calculation in the event of a semi-forced liquidation:

In the event the Company were to receive notice from the TSX that the Preferred Shares and the Class A Shares are to be delisted by the TSX, or if the net asset value of the Company were on any Valuation Date (as defined below) be less than $5,000,000 (each such event a Liquidation Event), the Manager could determine to cause the Company to redeem all outstanding Preferred Shares and Class A Shares on a date determined by the directors of the Company (the Liquidation Date) upon payment: (a) of an amount (the Preferred Share Liquidation Redemption Amount) in respect of each Preferred Share to be so redeemed equal to (i) (A) the net asset value of the Company on the Liquidation Date multiplied by a fraction, the numerator of which is the volume-weighted average trading price on the TSX (the VWAP) of the Preferred Shares calculated over the 20 trading days ending immediately prior to the announcement by the Company of the occurrence of the Liquidation Event and the denominator of which is the aggregate VWAP of the Preferred Shares and the Class A Shares calculated over the 20 trading days ending immediately prior to such announcement, divided by (B) the number of Preferred Shares outstanding on the Liquidation Date, plus (ii) all accrued and unpaid and declared and unpaid dividends on a Preferred Share to be so redeemed to but excluding the Liquidation Date;

As with FTN.PR.A, I don’t like it but it’s a minor issue.

The dividend will remain unchanged for the first extension:

For the fiscal year of the Company commencing December 1, 2014 and ending November 30, 2015, the dividend rate on the Preferred Shares will remain unchanged, such that holder of the Preferred Shares will continue to be entitled to receive fixed, cumulative, preferential monthly cash dividends of $0.04375 per Preferred Share. The special resolution will also permit the Company to set the prescribed minimum dividend rate on the Preferred Shares for the five year period commencing December 1, 2014 and for any five year extension of the term of the Company thereafter. This minimum rate would continue to be 5.25% of the Preferred Share Repayment Amount for the five year period from December 1, 2014 to November 30, 2019. The press release referred to above announcing the annual dividend rate for the Preferred Shares would also specify the minimum dividend rate established by the Company.

The monthly retraction formula is being changed in favour of retractors and the manager, to the disadvantage of the continuing shareholders:

Shareholders are being asked at the Meeting to approve a reduction in the discount to net asset value applicable on monthly redemptions of Shares from 4% to 2%. That is, holders of Preferred Shares would be entitled to receive a price per share equal to the lesser of (i) $10.00 and (ii) 98% of the net asset value per Unit determined as of the applicable retraction date, less the cost to the Company of the purchase of a Class A Share in the market for cancellation and less any other applicable costs and holders of Class A Shares would be entitled to receive a retraction price per share equal to 98% of the net asset value per Unit determined as of the applicable retraction date, less the cost to the Company of the purchase of a Preferred Share in the market for cancellation and less any other applicable costs.

The manager has the ability to earn a performance ha-ha fee:

Under the Investment Management Agreement, the Manager is currently entitled to a performance fee equal to 20% of the total return per Unit of the Company for a financial year (which includes all cash distributions per Unit made during the year and any increase in the net asset value per Unit from the beginning of the year after the deduction on a per Unit basis of all fees, other expenses and distributions) that exceeds 112% of the Bonus Threshold. The “Bonus Threshold”, for any financial year immediately following a year for which a performance fee is payable, is equal to the net asset value per Unit at the beginning of that financial year. The “Bonus Threshold”, for any financial year immediately following a year for which a performance fee is not payable, is equal to the greater of (i) the net asset value per Unit at the end of the immediately prior financial year; and (ii) the Bonus Threshold for the prior year, minus the Adjustment Amount. The “Adjustment Amount” for any financial year is the amount, if any, by which the net asset value per Unit at the end of the immediately prior financial year plus dividends paid in that prior year exceeds the Bonus Threshold for that prior year.

It will be somewhat easier for the manager to “earn” a performance fee:

Accordingly, Shareholders are being asked to pass a resolution to approve changes to the Investment Management Agreement to provide for the deletion of the $25.00 Condition and the Ratings Condition. In their place, a new condition would be imposed, such that no performance fee could be paid to the Manager in respect of any fiscal year of the Company unless, at the end of such fiscal year, the net asset value per Unit of the Company was at least two times the amount of the Preferred Share Repayment Amount (representing a minimum coverage requirement of 200% for the Preferred Shares). As the Preferred Share Repayment Amount is currently $10.00 per Preferred Share, this would require the net asset value per Unit of the Company to be at least $20.00 before any performance fee could be paid.

The performance fee is nonsensical and constitutes yet another reason not to buy the Capital Units. The return on the fund is going to be overwhelmingly determined by the performance of the benchmark; manager skill is secondary. If they really wanted to be paid for performance, the calculation would depend on the fund performance relative to a benchmark over a period of not less than four years.

But it doesn’t matter to preferred shareholders. Nothing will be payable unless there’s Asset Coverage of at least 2:1, which is fine, and every penny of the fee comes out of the Capital Unitholders’ hide anyway. So who cares?

The final item fraught with interest is the NAV test, whereby there are no distributions to Capital Units if the NAV is less than $15.00. This will remain unchanged.

All in all, it’s a good deal for preferred shareholders. I recommend that Preferred Shareholders vote in favour of the Special Resolution.

Issue Comments

FTN.PR.A: Term Extension Proposal Details

Financial 15 Split Corp. has released the Management Information Circular for its May 14 meeting.

The Articles of the Company currently provide that the Preferred Shares and the Class A Shares shall be redeemed by the Company on the Termination Date, which is currently scheduled for December 1, 2015. Shareholders are being asked to pass a special resolution which would, among other things, extend the Termination Date initially to December 1, 2020.

OK, a five year extension is fine. What’s more, there is not just one, but two, count ’em, two Special Retraction Rights for preferred shareholders:

If the extension of the Termination Date is approved, a Shareholder who retracts a Class A Share under the 2014 Special Retraction Right will receive a retraction price per Class A Share equal to the net asset value per Unit calculated on June 13, 2014, less $10.00. A Shareholder who retracts a Preferred Share under the 2014 Special Retraction Right will receive a retraction price per Preferred Share equal to the lesser of (i) $10.00 and (ii) the net asset value per Unit calculated on June 13, 2014. Shareholders wishing to take advantage of the 2014 Special Retraction Right must surrender their Shares for retraction no later than the close of business on June 4, 2014. Payment for the Class A Shares or Preferred Shares so tendered for retraction pursuant to the 2014 Special Retraction Right will be made no later than June 27, 2014.
…
If the extension of the Termination Date is approved, a Shareholder who retracts a Preferred Share under the 2015 Special Retraction Right will receive a retraction price per Preferred Share equal to the lesser of (i) $10.00 and (ii) the net asset value per Unit calculated on November 30, 2015. Shareholders wishing to take advantage of the 2015 Special Retraction Right must surrender their Preferred Shares for retraction no later than the close of business on November 13, 2015. Payment for the Preferred Shares so tendered for retraction pursuant to the 2015 Special Retraction Right will be made no later than December 15, 2015.

They don’t want to take another vote in five years:

By approving the special resolution to extend the Termination Date of the Company to December 1, 2020, Shareholders will also be approving the extension of the Company for an additional term of five years as determined by the Board of Directors of the Company. The Termination Date may then be further extended for additional successive terms of five years each in the discretion of the Board of Directors. Shareholders will be able to redeem their Shares in connection with any such five year extension by exercising an additional retraction right (the Continuing Special Retraction Right) which is again designed to provide Shareholders with an opportunity to retract their Shares and receive a retraction price that is calculated in the same way that such price would be calculated if the Company were to terminate on its scheduled Termination Date.

Oddly, there is a strange price calculation in the event of a (semi-)forced liquidation:

In the event the Company were to receive notice from the TSX that the Preferred Shares and the Class A Shares are to be delisted by the TSX, or if the net asset value of the Company were on any Valuation Date (as defined below) be less than $5,000,000 (each such event a Liquidation Event), the Manager could determine to cause the Company to redeem all outstanding Preferred Shares and Class A Shares on a date determined by the directors of the Company (the Liquidation Date) upon payment:

(g) of an amount (the Preferred Share Liquidation Redemption Amount) in respect of each Preferred Share to be so redeemed equal to (i) (A) the net asset value of the Company on the Liquidation Date multiplied by a fraction, the numerator of which is the volume-weighted average trading price on the TSX (the VWAP) of the Preferred Shares calculated over the 20 trading days ending immediately prior to the announcement by the Company of the occurrence of the Liquidation Event and the denominator of which is the aggregate VWAP of the Preferred Shares and the Class A Shares calculated over the 20 trading days ending immediately prior to such announcement, divided by (B) the number of Preferred Shares outstanding on the Liquidation Date, plus (ii) all accrued and unpaid and declared and unpaid dividends on a Preferred Share to be so redeemed to but excluding the Liquidation Date; and

I don’t understand the necessity for this and don’t like it, but the chances of it being triggered are remote and the ill effects if it is are fairly muted, so we’ll let it pass.

A critical issue is the dividend rate on the preferreds:

The special resolution will permit the Company to file an amendment to the Articles that will permit the Company to determine the annual rate of cumulative preferential monthly dividends for the Preferred Shares for the one year period commencing December 1, 2015 and for each fiscal year of the Company thereafter, subject to prescribed minimum annual dividend. Such determination will be made no later than September 30 (or the first business day thereafter, if September 30 is not a business day) each year during the term of the Company and announced by press release.

The special resolution will also permit the Company to set the prescribed minimum dividend rate on the Preferred Shares for the five year period commencing December 1, 2015 and for any five year extension of the term of the Company thereafter. This minimum rate would be a specified percentage of the Preferred Share Repayment Amount. The Preferred Share Repayment Amount is the amount payable per Preferred Share on the Termination Date and is currently $10.00 per Preferred Share. In the event of any subdivision or consolidation of the Preferred Shares, the Preferred Share Repayment Amount would be adjusted accordingly. The press release referred to above announcing the annual dividend rate for the Preferred Shares would also specify the minimum dividend rate established by the Company.

The prescribed minimum dividend amount for the Preferred Shares would be set at 5.25% of the Preferred Share Repayment Amount for the initial five year extension term beginning on December 1, 2015 and ending on November 30, 2020. This change will provide the Board of Directors with the opportunity to make any appropriate changes to the amounts paid on the Preferred Shares in the context of market conditions existing at the relevant time. As there would no longer be a fixed Termination Date for the Company, the Board of Directors believes it important to provide for additional flexibility in this regard.

Fair enough. The dividend rate will not go down for the first extension (and if it doesn’t go up enough, we can take advantage of the 2015 Special Retraction Right. The “minimum dividend rate” appears to be setting up for a potential floating rate with a cap and collar, such as is the case with Canadian Banc Corp.

The monthly retraction formula is being changed in favour of retractors and the manager, to the disadvantage of the continuing shareholders:

Shareholders are being asked at the Meeting to approve a reduction in the discount to net asset value applicable on monthly redemptions of Shares from 4% to 2%. That is, holders of Preferred Shares would be entitled to receive a price per share equal to the lesser of (i) $10.00 and (ii) 98% of the net asset value per Unit determined as of the applicable retraction date, less the cost to the Company of the purchase of a Class A Share in the market for cancellation and less any other applicable costs and holders of Class A Shares would be entitled to receive a retraction price per share equal to 98% of the net asset value per Unit determined as of the applicable retraction date, less the cost to the Company of the purchase of a Preferred Share in the market for cancellation and less any other applicable costs.
…
It is therefore proposed that the 2% discount would be payable to the Manager to partially compensate the Manager for this reduction in management fees.

The manager has the ability to earn a performance ha-ha fee:

Under the Investment Management Agreement, the Manager is currently entitled to a performance fee equal to 20% of the total return per Unit of the Company for a financial year (which includes all cash distributions per Unit made during the year and any increase in the net asset value per Unit from the beginning of the year after the deduction on a per Unit basis of all fees, other expenses and distributions) that exceeds 112% of the Bonus Threshold. The “Bonus Threshold”, for any financial year immediately following a year for which a performance fee is payable, is equal to the net asset value per Unit at the beginning of that financial year. The “Bonus Threshold”, for any financial year immediately following a year for which a performance fee is not payable, is equal to the greater of (i) the net asset value per Unit at the end of the immediately prior financial year; and (ii) the Bonus Threshold for the prior year, minus the Adjustment Amount. The “Adjustment Amount” for any financial year is the amount, if any, by which the net asset value per Unit at the end of the immediately prior financial year plus dividends paid in that prior year exceeds the Bonus Threshold for that prior year.

It will be somewhat easier for the manager to “earn” a performance fee:

Accordingly, Shareholders are being asked to pass a resolution to approve changes to the Investment Management Agreement to provide for the deletion of the $25.00 Condition and the Ratings Condition. In their place, a new condition would be imposed, such that no performance fee could be paid to the Manager in respect of any fiscal year of the Company unless, at the end of such fiscal year, the net asset value per Unit of the Company was at least two times the amount of the Preferred Share Repayment Amount (representing a minimum coverage requirement of 200% for the Preferred Shares).

The final item fraught with interest is the NAV test, whereby there are no distributions to Capital Units if the NAV is less than $15.00. This will remain unchanged.

All in all, it’s a good deal for preferred shareholders. I recommend that Preferred Shareholders vote in favour of the Special Resolution.

Market Action

April 16, 2014

The BoC kept the overnight rate low, with a fairly gloomy outlook:

Inflation in Canada remains low. Core inflation is expected to stay well below 2 per cent this year due to the effects of economic slack and heightened retail competition, and these effects will persist until early 2016. However, higher consumer energy prices and the lower Canadian dollar will exert temporary upward pressure on total CPI inflation, pushing it closer to the 2 per cent target in the coming quarters. We expect total CPI inflation will remain close to target throughout the projection, even as upward pressure from energy prices dissipates, because the impact of retail competition will gradually fade and excess capacity will be absorbed.
…
The Bank continues to expect Canada’s real GDP growth to average about 2 1/2 per cent in 2014 and 2015 before easing to around the 2 per cent growth rate of the economy’s potential in 2016. Competitiveness challenges continue to weigh on Canadian exporters’ ability to benefit from stronger growth abroad. However, a range of export subsectors have been growing in line with fundamentals, which suggests that as the U.S. recovery gathers momentum and becomes more broadly-based, many of our exports will benefit. The lower Canadian dollar should provide additional support. We continue to believe that rising global demand for Canadian goods and services, combined with the assumed high level of oil prices, will stimulate business investment in Canada and shift the economy to a more sustainable growth track.
…
In sum, the Bank continues to see a gradual strengthening in the fundamental drivers of growth and inflation in Canada. This view hinges critically on the projected upturn in exports and investment. With underlying inflation expected to remain below target for some time, the downside risks to inflation remain important. At the same time, the risks associated with household imbalances remain elevated. The Bank judges that the balance of these risks remains within the zone for which the current stance of monetary policy is appropriate and therefore has decided to maintain the target for the overnight rate at 1 per cent. The timing and direction of the next change to the policy rate will depend on how new information influences the balance of risks.

… so the loony got knocked:

The Canadian dollar touched the lowest level in more than a week after the Bank of Canada said its next move on interest rates could be up or down as a forecast pickup in business investment has been slow to materialize.

I saw some husked corn for sale at my favourite greengrocer today; but was told that it was from the US so it will be all dried out. Geez, we can get Chilean apples; why can’t we get Brazilian corn?

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 11bp, FixedResets gaining 1bp and DeemedRetractibles up 8bp. Brookfield’s floaters got whacked – probably on the BoC announcement – but otherwise volatility was minimal. Volume was low; all the highlights are FixedResets.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-1.1125 %	2,402.9
FixedFloater	4.68 %	4.23 %	34,104	17.98	1	0.6951 %	3,665.4
Floater	3.03 %	3.15 %	51,027	19.37	4	-1.1125 %	2,594.4
OpRet	4.36 %	-4.59 %	33,497	0.13	2	0.0194 %	2,694.2
SplitShare	4.81 %	4.37 %	62,595	4.24	5	0.0238 %	3,087.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0194 %	2,463.6
Perpetual-Premium	5.55 %	-5.26 %	108,806	0.09	13	0.0091 %	2,384.3
Perpetual-Discount	5.42 %	5.40 %	115,367	14.60	23	0.1087 %	2,484.7
FixedReset	4.68 %	3.65 %	195,634	4.19	79	0.0077 %	2,529.9
Deemed-Retractible	5.03 %	-0.82 %	147,382	0.13	42	0.0767 %	2,491.9
FloatingReset	2.64 %	2.41 %	189,387	4.26	5	0.0557 %	2,481.4

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.K	Floater	-1.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-16 Maturity Price : 16.60 Evaluated at bid price : 16.60 Bid-YTW : 3.18 %
BAM.PR.B	Floater	-1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-16 Maturity Price : 16.65 Evaluated at bid price : 16.65 Bid-YTW : 3.17 %
BAM.PR.C	Floater	-1.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-16 Maturity Price : 16.77 Evaluated at bid price : 16.77 Bid-YTW : 3.15 %
GWO.PR.I	Deemed-Retractible	1.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.10 Bid-YTW : 6.03 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TRP.PR.A	FixedReset	154,340	RBC crossed blocks of 50,000 and 100,000, both at 23.53. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-16 Maturity Price : 22.85 Evaluated at bid price : 23.50 Bid-YTW : 3.81 %
TD.PR.G	FixedReset	131,900	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 24.99 Bid-YTW : 4.63 %
MFC.PR.L	FixedReset	105,350	Scotia crossed 45,000 and 50,000, both at 24.78. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.78 Bid-YTW : 4.04 %
BNS.PR.X	FixedReset	80,700	Nesbitt crossed 75,000 at 24.99. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 24.99 Bid-YTW : 4.42 %
BMO.PR.O	FixedReset	60,040	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : 1.70 %
BAM.PR.T	FixedReset	49,150	RBC crossed 39,200 at 24.88. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-16 Maturity Price : 23.28 Evaluated at bid price : 24.71 Bid-YTW : 4.02 %
There were 18 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
ELF.PR.G	Perpetual-Discount	Quote: 21.47 – 22.14 Spot Rate : 0.6700 Average : 0.4575 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-16 Maturity Price : 21.47 Evaluated at bid price : 21.47 Bid-YTW : 5.57 %
BAM.PF.B	FixedReset	Quote: 24.80 – 25.06 Spot Rate : 0.2600 Average : 0.1688 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-16 Maturity Price : 23.10 Evaluated at bid price : 24.80 Bid-YTW : 4.21 %
BAM.PR.R	FixedReset	Quote: 25.33 – 25.58 Spot Rate : 0.2500 Average : 0.1650 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-16 Maturity Price : 23.65 Evaluated at bid price : 25.33 Bid-YTW : 3.97 %
GWO.PR.N	FixedReset	Quote: 22.15 – 22.50 Spot Rate : 0.3500 Average : 0.2651 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.15 Bid-YTW : 4.44 %
MFC.PR.B	Deemed-Retractible	Quote: 22.51 – 22.78 Spot Rate : 0.2700 Average : 0.1899 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.51 Bid-YTW : 5.99 %
CIU.PR.C	FixedReset	Quote: 20.89 – 21.16 Spot Rate : 0.2700 Average : 0.1899 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-16 Maturity Price : 20.89 Evaluated at bid price : 20.89 Bid-YTW : 3.75 %

Issue Comments

BMO.PR.O To Be Redeemed

Bank of Montreal has announced:

its intention to redeem all of its $275,000,000 Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 21 (“Preferred Shares Series 21”) on May 25, 2014.

The Preferred Shares Series 21 are redeemable at Bank of Montreal’s option on May 25, 2014, at a redemption price of $25.00 per share. Payment of the redemption price will be made by Bank of Montreal on or after May 26, 2014, upon surrender of the Preferred Shares Series 21.

Separately from the payment of the redemption price, the final quarterly dividend of $0.40625 per share for the Preferred Shares Series 21 will be paid in the usual manner on May 26, 2014, to shareholders of record on May 1, 2014.

Notice will be delivered to holders of the Preferred Shares Series 21 in accordance with the terms outlined in the Preferred Shares Series 21 prospectus supplement.

BMO.PR.O is a FixedReset, 6.50%+458, commenced trading 2009-3-20 after being announced 2009-3-11. The size of the Issue Reset Spread means that the redemption shouldn’t come as a surprise to anyone.

Market Action

April 15, 2014

Nothing happened today.

It was an off day for the Canadian preferred share market, with PerpetualDiscounts down 7bp, FixedResets losing 11bp and DeemedRetractibles off 5bp. Volatility was minor. Volume was average.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	0.2287 %	2,429.9
FixedFloater	4.72 %	4.27 %	33,541	17.93	1	-0.5432 %	3,640.1
Floater	3.00 %	3.11 %	51,033	19.45	4	0.2287 %	2,623.6
OpRet	4.36 %	-6.53 %	34,879	0.13	2	0.1358 %	2,693.7
SplitShare	4.81 %	4.39 %	64,765	4.24	5	0.0318 %	3,086.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1358 %	2,463.1
Perpetual-Premium	5.55 %	-4.53 %	105,697	0.09	13	0.0242 %	2,384.1
Perpetual-Discount	5.43 %	5.39 %	116,527	14.60	23	-0.0730 %	2,482.0
FixedReset	4.68 %	3.65 %	199,362	4.19	79	-0.1147 %	2,529.7
Deemed-Retractible	5.03 %	-0.58 %	145,125	0.12	42	-0.0498 %	2,490.0
FloatingReset	2.64 %	2.43 %	192,420	4.26	5	0.0000 %	2,480.0

Performance Highlights
Issue	Index	Change	Notes
TRP.PR.C	FixedReset	-1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-15 Maturity Price : 22.14 Evaluated at bid price : 22.45 Bid-YTW : 3.65 %
FTS.PR.H	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-15 Maturity Price : 21.32 Evaluated at bid price : 21.61 Bid-YTW : 3.68 %
PWF.PR.A	Floater	1.46 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-15 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 2.71 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.Z	FixedReset	282,650	Scotia bought blocks of 14,000 and 16,600 from Instinet at 25.52 and crossed 35,000 at the same price. RBC crossed 99,900 and TD crossed blocks of 25,000 and 50,000, all at the same price again. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-15 Maturity Price : 23.32 Evaluated at bid price : 25.52 Bid-YTW : 3.72 %
TRP.PR.A	FixedReset	56,288	TD crossed 50,000 at 23.53. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-15 Maturity Price : 22.85 Evaluated at bid price : 23.50 Bid-YTW : 3.80 %
GWO.PR.N	FixedReset	54,775	Nesbitt crossed 50,000 at 22.40. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.30 Bid-YTW : 4.37 %
TD.PR.K	FixedReset	52,334	RBC crossed 50,000 at 25.31. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.27 Bid-YTW : 1.69 %
TD.PR.I	FixedReset	51,979	TD crossed 40,000 at 25.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : 1.42 %
CU.PR.G	Perpetual-Discount	43,207	TD crossed 25,000 at 21.80. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-15 Maturity Price : 21.39 Evaluated at bid price : 21.72 Bid-YTW : 5.23 %
There were 30 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
FTS.PR.H	FixedReset	Quote: 21.61 – 21.89 Spot Rate : 0.2800 Average : 0.1896 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-15 Maturity Price : 21.32 Evaluated at bid price : 21.61 Bid-YTW : 3.68 %
IGM.PR.B	Perpetual-Premium	Quote: 25.93 – 26.15 Spot Rate : 0.2200 Average : 0.1446 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-12-31 Maturity Price : 25.25 Evaluated at bid price : 25.93 Bid-YTW : 5.00 %
POW.PR.D	Perpetual-Discount	Quote: 23.15 – 23.39 Spot Rate : 0.2400 Average : 0.1647 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-15 Maturity Price : 22.89 Evaluated at bid price : 23.15 Bid-YTW : 5.42 %
TRP.PR.E	FixedReset	Quote: 25.30 – 25.45 Spot Rate : 0.1500 Average : 0.0927 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-15 Maturity Price : 23.22 Evaluated at bid price : 25.30 Bid-YTW : 3.88 %
BNS.PR.K	Deemed-Retractible	Quote: 25.35 – 25.56 Spot Rate : 0.2100 Average : 0.1531 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-28 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : -8.51 %
GWO.PR.I	Deemed-Retractible	Quote: 21.88 – 22.08 Spot Rate : 0.2000 Average : 0.1438 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.88 Bid-YTW : 6.15 %

Issue Comments

POW.PR.F Sinking Fund

I received a call today from Assiduous Reader HR, who brought to my attention the buy-back provisions of POW.PR.F:

The First Preferred Shares – 1986 Series are entitled to a quarterly cumulative dividend at a floating rate equal to one quarter of 70% of the average prime rate of two major Canadian chartered banks. Dividends are payable on the 15th day of each of the months of January, April, July, and October in each year.

The shares are redeemable by the Corporation for $50 per share plus declared and unpaid dividends. The Corporation will make all reasonable efforts to purchase for cancellation on the open market 20,000 shares per quarter, such number being cumulative only in the same calendar year.

It’s interesting because according to the 2013 Annual Report:

During the twelve months ended December 31, 2013, the Corporation purchased 12,000 of such shares.

In 2012:

During the twelve months ended December 31, 2012, the Corporation purchased 40,000 such shares.

In 2011:

A total of 77,300 such shares were purchased during the twelve months ended December 31, 2011.

In 2010:

A total of 80,000 such shares were purchased during the twelve months ended December 31, 2010.

In 2009:

A
total of 80,000 such shares were purchased during the twelve months ended December 31, 2009.

In 2008:

A total of 60,000 such shares were purchased during the twelve-month period of 2008.

So it’s clear they’ve made their quota occasionally, but have fallen far short in the past two years. Now, let it be said that these things are hopelessly illiquid. According to the Exchange, there are 530,578 outstanding, about $25-million worth. They are the second-least liquid issue in the HIMIPref™ universe, with an Average Daily Trading Value of only $1,290, beaten only by BSC.PR.B, a split-share with only 713,371 shares outstanding (at a par value of 18.85). They were intermittently included in the Floater subindex a few times in the 1990s – one month in 1994, two months in 1996, two in 1997 and one in 1999 – but otherwise, and since November 30, 1999, they have been relegated to the Scraps sub-index on volume concerns.

But look at this!

Click for Big

Since January 2, 2013, there has not been a single day on which the closing quote provided by the Exchange has been above $50.00. The maximum offer has been $49.90. So, one might think, “all reasonable efforts” would include lifting the offer every day, even if only for 100 shares a time, but this clearly isn’t happening. How come?

I suspect that one reason is the volume: in all of 2013, all of 47,734 shares traded on the Toronto Exchange (there may have been more on Alpha, etc., but my guess is ‘not many’). So to give them their due, buying 12,000 shares ranks as something of an accomplishment, even though it doesn’t meet quota.

It occurred to me that there might be exchange rules with respect to issuer bids. According to the Exchange rules on Normal Course Issuer Bids:

It is inappropriate for an issuer making a Normal Course Issuer Bid to abnormally influence the market price of its shares. Therefore, purchases made by Issuers pursuant to a Normal Course Issuer Bid must not be transacted at a price which is higher than the last independent trade of a Board Lot of the class of shares which is the subject of the Normal Course Issuer Bid.

So if a single Board Lot escapes their net and hits an independent bid, then they can’t bid any more than that price until a higher independent transaction occurs.

Not only that, but there are time and volume restrictions in a NCIB:

“normal course issuer bid” means an issuer bid by a listed issuer to acquire its listed securities where the purchases:

(a) if the issuer is not an investment fund, do not, when aggregated with all other purchases by the listed issuer during the same trading day, aggregate more than the greater of: (i) 25% of the average daily trading volume of the listed securities of that class; and (ii) 1,000 securities;

(b) if the issuer is an investment fund, do not, when aggregated with the total of all other purchases by the listed issuer during the preceding 30 days, aggregate more than 2% of the listed securities of that class outstanding on the date of acceptance of the notice of normal course issuer bid by the Exchange; and

(c) over a 12-month period, commencing on the date specified in the notice of the normal course issuer bid, do not exceed the greater of
(i) 10% of the public float on the date of acceptance of the notice of normal course issuer bid by the Exchange; or

(ii) 5% of such class of securities issued and outstanding on the date of acceptance of the notice of normal course issuer bid by the Exchange, excluding any securities held by or on behalf of the listed issuer on the date of acceptance of the notice of normal course issuer bid by the Exchange,

and for the purposes of (b) and (c), whether such purchases are made through the facilities of a stock exchange or otherwise, but excluding purchases made under a circular bid.
…
7. Block Purchase Exception—A listed issuer may make one block purchase per calendar week which exceeds the daily repurchase restriction contained in subsection 628(a)(ix)(a) of the Company Manual, subject to maximum annual aggregate limits. Once the block purchase exception has been relied on, the listed issuer may not make any further purchases under the normal course issuer bid for the remainder of that calendar day.

8. Purchases at the Opening and Closing—A listed issuer shall not make any purchases of its securities pursuant to a normal course issuer bid at the opening of a trading session, or during the 30 minutes before the scheduled close of a trading session. However, notwithstanding Policy 6-501(1)(1), purchases of securities pursuant to a normal course issue bid may be effected through the Exchange’s Market-On-Close facility

These restrictions were important during the NCIB for CWB.PR.A:

Apart from block purchase exceptions, the maximum number of preferred shares that may purchased per trading day is 1,538, an amount equal to 25% of the average daily trading volume of the preferred shares on the TSX for the six month period ended January 31, 2013.

Now, despite spending a considerable amount of time with Mr. Google, SEDAR and the Power Corporation website, I have not been able to find anything that definitively states that the purchases of POW.PR.F constitute a Normal Course Issuer Bid. I think they do, but I’m not a specialist in such matters and if I was, I’d shoot myself. There are a lot of rules and compliance for such a hopelessly illiquid security must be a nightmare.

But I will send an inquiry to the company.

Market Action

April 14, 2014

It is possible that the US will lose its IMF veto:

At issue is the global community’s efforts to align the IMF’s power structure to match changes in the distribution of strength in the global economy. Each country is assigned shares, or quota, to match its contribution to the world’s gross domestic product. The 2010 changes — which, ironically, were prompted by President Barack Obama — would give more clout to countries such as China and India and reduce the influence of some European nations whose relative share of global GDP has shrunk over time.

The U.S. would remain the IMF’s dominant member. It would retain more than 17 per cent of total shares — which gives the U.S. veto power because approval of members representing 85 per cent of shares is required to approve major decisions. The next closest would be Japan and China, each of which would hold about 6.4 per cent of total quota.

Yet the governance overhaul also requires increased contributions to the fund’s permanent resources. The contributions are akin to insurance, as countries would only lose money if the IMF’s loans to troubled countries went unpaid.

Most legislatures approved the increased financial commitments to the IMF long ago. Mr. Obama, however, has failed repeatedly to muster enough votes in the U.S. Congress to pass the measure. Republican leaders in the House of Representatives and the Senate characterize the Obama administration’s request as akin to asking American taxpayers to bail out troubled countries such as Greece and Portugal.

Seems to me that the IMF should simply let the US drop below 17% if that’s what it wants – and perhaps assign caps to member contributions, instead of quota. If the Chinese want influence, let them buy it. I’ll sell them my share!

Canadian grain farmers aren’t the only ones complaining about railroads:

They can’t move because increasing oil production from North Dakota’s Bakken field, a record grain crop and unprecedented cold weather overwhelmed the U.S. railroad system. In part because of transport delays, coal inventories were down 26 percent in January from a year ago. A quarter of all U.S. freight rail traffic passes through Chicago, or 37,500 rail cars each day. The trip through the city can take more than 30 hours.
…
Coal producers including the Western Coal Traffic League, whose members are shippers of coal mined west of the Mississippi River, point at inconsistent rail service as the primary culprit and railroads put the blame on Chicago. The group asked on March 24 that the U.S. Surface Transportation Board institute a proceeding to address BNSF’s coal service in the region.

BNSF said in a response to the agency that it plans to spend $5 billion this year on service. “As these resources come on line, service will gradually improve,” it said in a March 25 letter.
…
Dwell times, a measure of how long loaded railroad cars sit in a railyard, averaged about 26 hours during the first quarter, up from 21 hours during the same period in 2013, AAR data show.

Trains are getting mired in Chicago’s tangle of bottlenecks, said Charles Clowdis, an IHS Global Insight analyst in Lexington, Massachusetts.

Sheryl King reminds us that long rates are different from short rates:

When it comes to any possible bearish sentiment, bond market investors are currently preoccupied with estimating the neutral policy rate for central banks, and how far long-term bond yields may or may not rise. At this point, however, there has very little focus on where the slope of the yield curve will be headed. History suggests it will get a lot flatter as we head toward the first Federal Reserve rate increase at some point in 2015; and Canada’s bond curve will follow suit.
…
So when will the yield curve start to discount policy tightening? It may already be happening in the U.S., with the curve almost 20 basis points flatter now than it was a few weeks ago. But the Canada curve remains at a cycle high.

The yield curve remains steep because doubt persists about the strength of the economy, which is keeping yields low at the front end of the curve.

Brace yourself for disaster – the regulators are getting interested in the bond market:

Bill Gross and Larry Fink manage a $3 trillion pile of bonds — an amount almost as big as Germany’s economy. Their firms, Pacific Investment Management Co. and BlackRock Inc. (BLK), doubled holdings since 2008, outpacing the market’s growth of 50 percent.
…
The lopsided bond market has caught the attention of the U.S. Securities and Exchange Commission. Not only is the SEC examining whether the biggest players get preferential prices and access because of their influence, it’s also worried about what happens when the five-year bond rally ends as U.S. policy makers prepare to raise interest rates.
…
The biggest funds’ dominance may make it harder for everyone to sell when the Fed boosts borrowing costs from record lows and sends bond prices tumbling. In essence, their selling may crowd narrowed exits, making it more painful as all investors race to get out of a falling market.
…
More than five years of near-zero interest rates from the Fed has propelled corporate bonds to record performance and the biggest debt managers have ballooned in size. Pimco, Vanguard Group Inc. and Fidelity Investments manage 39 percent of all mutual fund-owned taxable bonds today, up from 18 percent in 1997, according to Morningstar Inc. data. The smallest 205 fund providers manage 0.1 percent of the market.
…
At the same time, regulators are examining the way larger firms benefit in markets where transactions are often executed the same way they were a decade ago — through telephone conversations and e-mails.

In this two-tiered market, brokers choose which rivals and clients may see their bond prices on electronic trading systems by turning quotes on and off. Dealers often give bigger investors better prices in return for all of the business they do with Wall Street.

The SEC is examining to what extent smaller buyers are disadvantaged, and whether the behavior constitutes market manipulation, according to two people with direct knowledge of the matter who asked not to be identified because the probe hasn’t been made public.
…
Finra is examining whether Wall Street firms overcharge investors and whether they unfairly allocate new corporate debt issues to reward certain clients, Nancy Condon, a spokeswoman, confirmed in an e-mail last week.

It’s getting tougher to trade bonds as the business gets less profitable for Wall Street. Corporate-debt trading volumes in the U.S. have failed to keep pace with issuance, increasing 14 percent since 2010 as outstanding notes grew by 33 percent, according to Finra and Bank of America Merrill Lynch index data.

Requirements that banks hold more cash in the event their investments tank have prompted dealers to reduce their inventories, giving the biggest managers even more sway in the market. The largest dealers had slashed their holdings of corporate bonds to $56 billion as of a year ago from $235 billion in 2007, according to Fed Bank of New York data. The inventories worked to cushion against price swings and made it easier to trade in larger sizes.

There’s a little pushback on the evil-HFT narrative:

Michael Lewis’s argument that the $23 trillion U.S. stock market is rigged in favor of speed traders is careless, according to Nasdaq OMX Group Inc. Chief Executive Officer Robert Greifeld.

The controversy over high-frequency trading intensified with the publication of Lewis’s book “Flash Boys” on March 31. Lewis argues that the fastest trading firms prey on slower investors by getting early access to nonpublic information.

“I think that was irresponsible on his part,” Greifeld said in an interview on PBS’s “Charlie Rose” show. “I feel poorly for the academics. Our markets are researched more than any other market that’s out there.”

Greifeld said about 100 academic papers have been written about how the U.S. markets operate and a similar number have been produced on overseas markets. Academics who have spent their careers studying markets are divided on high-speed trading, he said, with some in favor of it and some opposed.

“It’s not a story-telling type of issue,” he said. “It’s really dense academic papers to get through what happens in the marketplace.”

Mind you, the Europeans are seizing the opportunity to have more regulators writing more rules:

European Union lawmakers are poised to approve some of the toughest restrictions in the world on high-frequency trading, the first crackdown in the aftermath of Michael Lewis’s latest book, “Flash Boys.”

The curbs are part of revamped EU markets legislation ranging from commodity derivatives speculation to investor protection. The high-frequency trading limits include standards meant to keep the price increment for securities from being too small, mandatory tests of trading algorithms and requirements that market makers provide liquidity for a set number of hours each day.
…
Members of the European Parliament will vote tomorrow on EU rules that also include a requirement for traders to have their algorithms tested on venues and authorized by regulators. The assembly in Strasbourg, France, is set to endorse a tentative deal reached with governments on the measures earlier this year.

So … when do you figure the first scandal about a regulatory clerk selling code after approving it is going to happen? Another point of interest is … if an HFT firm discusses with the regulators what they have to do to get approval, does this mean that the regulators are in the business of writing code? That line of reasoning has been advanced in connection with Credit Rating Agencies and structured products!

Here’s a good joke!

Click for Big

Howard Gold comments on MarketWatch:

Its 20th annual Quantitative Analysis of Investor Behavior paints such a grim picture that if it were a painting, it would look like Edvard Munch’s “The Scream.”

After citing familiar figures on how individual investors substantially underperform the market averages because of terrible market timing, the firm, which has reported these statistics for 20 years, calls out investors’ obtuseness and the miserable failure of the financial-services industry to change their dysfunctional behavior.

“After decades of analyzing investor behavior in good times and in bad times, and after enormous efforts by thousands of industry experts to educate millions of investors, imprudent action continues to be widespread,” the report asserted.

“Attempts to correct irrational investor behavior through education have proved to be futile. The belief that investors will make prudent decisions after education and disclosure has been totally discredited.”

I know I’ve discussed DALBAR somewhere. In PrefLetter, I think. Dan Hallet has discussed DALBAR:

I suspect that DALBAR calculates what it calls investor returns by applying dollar-weighted fund redemption rates to benchmark returns – rather than applying a DWRR [Dollar Weighted Rate of Return] calculation directly to the funds. And if they’re doing that, they’re not calculating investor returns.
…
If I’m right, it’s not clear exactly what they’re calculating. But this explains why their figures show such staggering gaps of several percentage points. My research on this topic over the past 13 years is more in line with figures I’ve seen from Morningstar.com. In the U.S., Morningstar calculates what they call “investor returns” using the same method I have for more than a dozen years – i.e. calculating actual fund DWRR. … But even that is an estimate because it’s based on monthly data; and daily fund flows are required for a precise DWRR. But DALBAR’s reported figures aren’t even an estimate because they appear to blend fund flows with index returns.

Accordingly, DALBAR is probably correct in direction – i.e. whether TWRR [Time Weighted Rate of Return] is higher or lower than DWRR – but not even close in quantifying the gap between the two measures.

You can buy the DALBAR report for USD 775. That’s right, only USD 775! Damn well better be right.

There’s always a lot of political argument about contracting-out … for instance, only Rob Ford was brave enough to defy the unions and contract out garbage collection in Toronto. Many people will claim that government services are cheaper because there is no built-in profit … many people should price a visit to the International Space Station:

Later this month, a company called SpaceX is scheduled to launch its Falcon 9 rocket on a routine supply mission to the International Space Station (ISS). But if all goes as planned, this mission could herald the beginning of something decidedly not routine: the use of private, reusable rockets to service America’s space program.

SpaceX and another private launch company, Orbital Sciences, are the beneficiaries of a recent shift in the American space program toward privatizing more routine missions – such as the transport of supplies and eventually people to and from the ISS. While this upcoming mission is only a preliminary test, SpaceX eventually hopes to dramatically reduce the cost of launching cargo and people into space by eventually making both the first and second stages of its rockets reusable. Last year, the company estimated that once its rockets are able to land back on earth and, after re-fueling, quickly be re-launched, the cost for a trip to the ISS could drop to as low as from $5 million to $7 million.
…
Factoring in NASA’s financial assistance in developing the Falcon 9 rocket and the cost of the 12-launch contract, the space agency is paying SpaceX about $166 million per launch to the ISS. By contrast, estimates for the cost of sending the recently retired space shuttle to the ISS range as high as $1.5 billion, including the money spent developing and building the shuttles.

It was a modestly positive day for the Canadian preferred share market, with PerpetualDiscounts gaining 1bp and both FixedResets and DeemedRetractibles up 5bp. Volatility was higher than usual, with a number of FixedReset winners. Volume was below average.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-1.1447 %	2,424.3
FixedFloater	4.69 %	4.24 %	33,989	17.97	1	0.3469 %	3,660.0
Floater	3.00 %	3.10 %	49,343	19.48	4	-1.1447 %	2,617.6
OpRet	4.37 %	-4.40 %	34,011	0.13	2	-0.0388 %	2,690.0
SplitShare	4.81 %	4.38 %	65,065	4.24	5	0.0159 %	3,085.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0388 %	2,459.8
Perpetual-Premium	5.55 %	-4.35 %	107,247	0.09	13	-0.1299 %	2,383.5
Perpetual-Discount	5.43 %	5.36 %	120,916	14.58	23	0.0056 %	2,483.8
FixedReset	4.68 %	3.53 %	202,402	4.20	79	0.0459 %	2,532.6
Deemed-Retractible	5.03 %	-0.21 %	150,981	0.12	42	0.0508 %	2,491.2
FloatingReset	2.64 %	2.44 %	199,414	4.11	5	-0.0080 %	2,480.0

Performance Highlights
Issue	Index	Change	Notes
PWF.PR.A	Floater	-2.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-14 Maturity Price : 19.22 Evaluated at bid price : 19.22 Bid-YTW : 2.75 %
FTS.PR.G	FixedReset	1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-14 Maturity Price : 23.17 Evaluated at bid price : 24.89 Bid-YTW : 3.74 %
FTS.PR.H	FixedReset	1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-14 Maturity Price : 21.49 Evaluated at bid price : 21.84 Bid-YTW : 3.63 %
IFC.PR.C	FixedReset	1.17 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 2.59 %
BAM.PR.T	FixedReset	1.23 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-14 Maturity Price : 23.28 Evaluated at bid price : 24.70 Bid-YTW : 4.02 %
TRP.PR.C	FixedReset	2.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-14 Maturity Price : 22.38 Evaluated at bid price : 22.72 Bid-YTW : 3.60 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.Z	FixedReset	273,946	RBC bought blocks of 12,400 and 10,000 from Scotia at 25.50 and crossed blocks of 50,000 and 20,000 at 25.54. Scotia crossed 25,000 at 25.50. TD crossed 100,000 at 25.52. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-24 Maturity Price : 25.00 Evaluated at bid price : 25.53 Bid-YTW : 3.46 %
CM.PR.L	FixedReset	178,088	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 4.92 %
TRP.PR.E	FixedReset	108,000	Scotia crossed 24,400 at 25.45 and bought 12,900 from RBC and 10,000 from TD at the same price. Desjardins crossed 50,000 at the same price again. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-14 Maturity Price : 23.26 Evaluated at bid price : 25.41 Bid-YTW : 3.86 %
RY.PR.I	FixedReset	84,950	Scotia crossed 39,600 at 25.60; TD crossed 41,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.59 Bid-YTW : 3.11 %
TD.PR.E	FixedReset	82,100	Called for Redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 4.76 %
ENB.PR.J	FixedReset	77,926	TD crossed blocks of 10,000 and 50,000, both at 25.35. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-14 Maturity Price : 23.25 Evaluated at bid price : 25.26 Bid-YTW : 4.14 %
There were 26 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
PWF.PR.A	Floater	Quote: 19.22 – 20.00 Spot Rate : 0.7800 Average : 0.5839 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-14 Maturity Price : 19.22 Evaluated at bid price : 19.22 Bid-YTW : 2.75 %
ELF.PR.G	Perpetual-Discount	Quote: 21.34 – 21.73 Spot Rate : 0.3900 Average : 0.3061 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-04-14 Maturity Price : 21.34 Evaluated at bid price : 21.34 Bid-YTW : 5.60 %
BNS.PR.R	FixedReset	Quote: 25.58 – 25.84 Spot Rate : 0.2600 Average : 0.1828 YTW SCENARIO Maturity Type : Call Maturity Date : 2019-01-26 Maturity Price : 25.00 Evaluated at bid price : 25.58 Bid-YTW : 3.28 %
TD.PR.S	FixedReset	Quote: 25.27 – 25.42 Spot Rate : 0.1500 Average : 0.0891 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.27 Bid-YTW : 3.08 %
TD.PR.O	Deemed-Retractible	Quote: 25.28 – 25.43 Spot Rate : 0.1500 Average : 0.0913 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-14 Maturity Price : 25.25 Evaluated at bid price : 25.28 Bid-YTW : 0.79 %
BMO.PR.J	Deemed-Retractible	Quote: 25.84 – 25.99 Spot Rate : 0.1500 Average : 0.0939 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-14 Maturity Price : 25.50 Evaluated at bid price : 25.84 Bid-YTW : -4.65 %

PrefBlog

LCS.PR.A To Get Bigger

April 21, 2014

April 17, 2014

FFN.PR.A: Term Extension Details

FTN.PR.A: Term Extension Proposal Details

April 16, 2014

BMO.PR.O To Be Redeemed

April 15, 2014

POW.PR.F Sinking Fund

April 14, 2014

Archives

Of Interest