PrefBlog

The week ended with another thumping for US Equities and Canadian stocks went along for the ride, notably

BCE Inc., target of the largest buyout, retreated after Citi Investment Research cut its recommendation, citing growing risks to its financing.

One analyst puts the odds of a Telus bid at 25% or less, but the long term track record of this analyst was not disclosed.

Some say that a turning point in capital markets has definitely been reached but there is some doubt that Wall Street’s problems will reach Main Street. The US economy has, apparently, been growing at a fair clip but the nattering nabobs of negativism have their own interpretation of the underlying trends. All the uncertainty meant that Treasuries did superbly, while Canadas followed … mostly. Even New York City, almost bankrupt in 1975, was able to get in on the action and scoop up some financing that ain’t going into corporates no more.  

And … I must apologize … the tables and commentary that have something of direct relevance to actual preferred shares will have to wait. HIMIPref™ has been updated, but I have dinner scheduled with a dear friend, whom I intend to regale with stories about how I don’t own any junk bonds.

I will update everything tomorrow!

Update, 2007-07-29: OK, maybe it wasn’t the very next day. But it was a most enjoyable dinner! In the meantime, the National Post has reported that:

“We have our financing,” Claude Lamoureax, president and CEO of Teachers’ said yesterday. “Clearly right now, the spreads have widened but that’s why you pay the bank huge fees to take the risks.”
…
As Mr. Lamoureax said, in leveraged buyouts the banks “take the risks” and right now the investment banks are temporarily swallowing the billions of dollars worth of debt deals for Chrysler and Alliance.

As for whether Teachers’ bankers should be worried, Mr. Lamoureux said there are no worries with its bankers or anyone else.

“Right now, we have our financing in place. No trouble,” he said.

Either he refused to say just exactly how the financing was in place, or the reporter didn’t ask. The story doesn’t go any further than the above bland assurance.

I’ve thought the issue in the context of what a massive break-fee-loss would mean to Teachers, and come to the conclusion that I don’t know enough about the issue. It would seem to me reasonable that there might be provisions regarding financing in the consortium agreement, to the effect that, if the deal fails on financing, the loss would be borne by Teachers financial partners, Providence Equity Partners Inc. and Madison Dearborn Partners, LLC. After all, they’re the financial muscle for the deal! It may be that such a provision is why Mr. Lamoureux is so sanguine … but we will just have to sit back and wait and see! In the meantime, I highly doubt that I’ll be throwing chips down on that table!

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

The day ended, at long last, with not just a sound thumping for US Equities, but just about everybody else as well, including Canada.

Liquidity in the US Corporate markets was terrible (worse than yesterday), with marked spread-widening after yet another blown-up hedge fund, but there is some steepening developing with expectations the Fed will cut rates this year. The housing numbers are getting blamed for this in some quarters. Me, I’m not sure. There’s never just one reason. Weak (non-housing) economic news and Junk Bond Fatigue have also been blamed.

Still, at least Treasuries and Canadas had a good day, although the CAD got whacked.

More mundanely, the quarterly results from Loblaws seem to argue against any imminent reversal of the Weston downgrade. And I couldn’t resist checking the definitive BCE / Teachers’ Agreement:

6.4(9): The Purchaser acknowledges and agrees that its obtaining financing is not a condition to any of its obligations hereunder, regardless of the reasons why financing is not obtained or whether such reasons are within or beyond the control of the Purchaser. For the avoidance of doubt, if any financing referred to in this Section 6.4 is not obtained, the Purchaser will continue to be obligated to consummate the Arrangement, subject to and on the terms contemplated by this Agreement.

The PerpetualDiscount index had a nine-day winning streak snapped – but not by much, as the preferred market displayed its customary insouciance towards silly old market news. BCE issues, particularly, did quite well. The Ratchet Rate Index, comprised entirely of Bell Ratchets, kept its streak alive with ten-straight. The volume certainly wasn’t heavy today, but it wasn’t too much on the light side.

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

The day ended with not much happening in government markets, either in Canada or the US. New Zealand tightened to 8.25%. Now, there’s a central bank that’s drop dead serious about inflation!

The KKR/Boots and Chrysler financings both appear to have failed, which probably has Teachers’ feeling pretty nervous about financing the BCE takeover. BCE preferreds seem to be taking all this in stride, however, perhaps due to Desjardins’ calming words.

Of interest today was action with EPP.PR.A, which – judging by the TSX – was a fizzle. There was some pretty good volume today anyway, highlighted by Nesbitt and a series of internal crosses of issues from the GWO / PWF / IGM / POW group … is somebody placing a bet on the August 1 quarterly results announcement?

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