Issue Comments

BMO on Credit Watch Negative: S&P

S&P today:

placed the ratings on Bank of Montreal (BMO) and its related subsidiaries, including the ‘AA-‘ long-term counterparty credit rating on BMO, on CreditWatch with negative implications.

…

The absolute size of the estimated commodity trading losses far exceeds the bank’s average market value exposure to commodities risk, is disproportionate to its total trading revenues, and does not reflect BMO’s stated strategy of being a low-risk bank.

Standard & Poor’s will be conducting a full review of BMO’s trading risk management and trading operations within the next 30 days, with a particular focus on its commodities trading operations, and its back and middle offices.

Following our review, should the bank’s trading risk and enterprise risk management not meet our expectations, both the short- and long-term ratings could be lowered by one notch.

This follows revelations of trading losses of $680-million. The $680-million figure cannot be taken too seriously – three weeks ago it was somewhere between $350-million and $450-million.

BMO has the following preferred share issues outstanding: BMO.PR.G BMO.PR.H BMO.PR.I BMO.PR.J & BMO.PR.V.

The rogue (or simply incompetent) managers at BMO are going to have to have a lot of lunches with each other to fix this one up! Expect to see a few clerks thrown to the wolves.

Market Action

May 17, 2007

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.95% 4.98% 42,381 15.59 2 -0.3851% 974.9
Fixed-Floater 5.58% 5.00% 135,867 15.65 6 -0.1057% 927.4
Floater 4.81% -2.06% 76,997 11.14 3 +0.1497% 1,046.0
Op. Retract 4.75% 3.39% 84,051 2.33 17 -0.0795% 1,032.0
Split-Share 4.98% 4.22% 231,241 3.97 12 +0.0367% 1,048.8
Interest Bearing 6.50% 6.11% 68,204 3.22 5 +0.0596% 1,047.9
Perpetual-Premium 5.15% 4.66% 173,916 6.15 48 -0.3263% 1,046.6
Perpetual-Discount 4.64% 4.68% 737,370 16.06 19 -0.1475% 1,047.5
Major Price Changes
Issue Index Change Notes
BCE.PR.I FixFloat -2.5676% Exchange/Reset Date is 2011-8-1 (Exchanges with Series ‘AJ’, not issued); until then, pays 4.65% of par. Closed at 21.25-46, 6×2, touching a 52-week low of 21.00.
ELF.PR.G PerpetualPremium -1.3546% Now with a pre-tax bid-YTW of 4.84%, based on a bid of 24.76 and a limitMaturity.
CM.PR.E PerpetualPremium -1.3158% Now with a pre-tax bid-YTW of 4.66% based on a bid of 26.25 and a call 2012-11-30 at 25.00. That’s a lot of interest rate protection, with a still-attractive yield!
GWO.PR.G PerpetualPremium -1.2246% Now with a pre-tax bid-YTW of 4.78% based on a bid of 25.81 and a call 2014-1-30 at 25.00
BNA.PR.C SplitShare -1.2121% Recently downgraded by DBRS – but still investment grade! Now with a pre-tax bid-YTW of 4.72% based on a bid of 24.45 and a hardMaturity 2019-1-10 at 25.00
RY.PR.B PerpetualPremium (for now!) -1.1581% Now with a pre-tax bid-YTW of 4.76% based on a bid of 24.75 and a limitMaturity.
TCA.PR.X PerpetualPremium -1.0056% Now with a pre-tax bid-YTW of 4.54% based on a bid of 53.16 and a call 2013-11-14 at 50.00
BCE.PR.C FixFloat +1.2631% Exchange/Reset date is 2008-03-01 (Exchanges with series ‘AD’, not issued); until then, pays 5.54% of par. Closed at 23.25-64, 11×8
Volume Highlights
Issue Index Volume Notes
HSB.PR.D PerpetualPremium 256,650 National Bank crossed 250,000 at 26.38. Now with a pre-tax bid-YTW of 4.32% based on a bid of 26.31 and a call 2015-1-30 at 25.00.
SBN.PR.A SplitShare 415,750 New issue settled today. Now with a pre-tax bid-YTW of 4.63% based on a bid of 10.42 and a hardMaturity 2014-12-1 at 10.00.
TD.PR.O PerpetualPremium 94,850 Now with a pre-tax bid-YTW of 4.35% based on a bid of 25.90 and a call 2014-11-30 at 25.00.
RY.PR.C PerpetualDiscount 56,300 Now with a pre-tax bid-YTW of 4.66% based on a bid of 24.71 and a limitMaturity.
BMO.PR.J PerpetualDiscount 53,500 Now with a pre-tax bid-YTW of 4.56% based on a bid of 24.71 and a limitMaturity.

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

Index Construction / Reporting

SBN.PR.A Closes: A $45-million Issue

S Split Corp, discussed on April 30 has closed, with 4.5-million shares outstanding. There was the usual price-pop and heavy volume; the issue closed at 10.42-45, 53×10, on volume of 415,750 shares.

I’d say there’s still a little value left: the curvePrice is $10.79, comprised of :

Price due to base-rate :  10.26
Price due to short-term :  -0.30
Price due to long-term :   0.71
Price due to Interest Income :   0.00
Price to to Cumulative Dividends :   0.00
Price due to SplitShareCorp :  -0.22
Price due to Retractibility :   0.37
Price due to Credit Spread (2) :  -0.13
Price due to Liquidity :   0.21
Price due to Floating Rate :   0.00
Price due to Credit Spread (3) :   0.00
Price due to error :   0.03
Price due to Credit Spread (High) :   0.00
Price due to Credit Spread (Low) :  -0.12

Update: This issue has been added to the HIMI Split-Shares Index.

Issue Comments

RBT.PR.A : Partial Call for Redemption

R Split II Corp. is not part of the HIMIPref™ universe, but I’ll pass along this announcement:

R Split II Corp. (the “Company”) announced today that it has called 104,517 Preferred Shares for cash redemption on May 31, 2007 (in accordance with the Company’s Articles) representing approximately 17.927% of the outstanding Preferred Shares as a result of the special annual retraction of 281,824 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on May 30, 2007 will have approximately 17.927% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $30.50 per share.

…

R Split II Corp. is a mutual fund corporation created to hold a portfolio of common shares of Royal Bank of Canada. Capital Shares and Preferred Shares of R Split II Corp. are listed for trading on The Toronto Stock Exchange under the symbols RBT and RBT.PR.A respectively.

Issue Comments

BXN.PR.B : Partial Call for Redemption

B Split II Corporation is no longer part of the HIMIPref™ universe (BXN.PR.A was tracked until its redemption 2005-6-2) but I’ll post the following announcement anyway:

B Split II Corp. (the “Company”) announced today that it has called 804,057 Preferred Shares for cash redemption on June 1, 2007 (in accordance with the Company’s Articles) representing approximately 3.514% of the outstanding Preferred Shares as a result of the special annual retraction of 845,121 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on May 31, 2007 will have approximately 43.514% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $9.75 per share.

…

B Split II Corp. is a mutual fund corporation created to hold a portfolio of common shares of BCE Inc. Capital Shares and Preferred Shares of B Split II Corp. are listed for trading on The Toronto Stock Exchange under the symbols BXN and BXN.PR.B respectively.

Now that the Capital units have finally shown some gains, I suppose a lot of holders wanted to lock them in!

Market Action

May 16, 2007

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.90% 4.93% 42,522 15.67 2 +0.7196% 978.7
Fixed-Floater 5.57% 4.96% 134,514 15.71 6 -0.4594% 928.5
Floater 4.81% 1.21% 77,230 11.19 3 -0.3983% 1,044.4
Op. Retract 4.74% 3.32% 84,919 2.34 17 +0.0565% 1,032.8
Split-Share 4.95% 4.12% 161,772 3.99 12 -0.0713% 1,048.4
Interest Bearing 6.51% 6.19% 66,587 3.38 5 +0.0394% 1,047.2
Perpetual-Premium 5.14% 4.56% 172,676 5.17 48 -0.0234% 1,050.0
Perpetual-Discount 4.64% 4.67% 752,759 16.08 19 -0.0444% 1,049.0
Major Price Changes
Issue Index Change Notes
BCE.PR.A FixFloat -1.2100% Exchange/Reset Date is 2007-9-1 (Exchanges with Series ‘AB’, not issued); until then, pays 5.03% of par. Closed at 22.86-04, 6×19, touching a 52-week low of 22.86.
CM.PR.R OpRet +1.1605% Now with a pre-tax bid-YTW of 3.53%, based on a bid of 26.15 and a call 2008-5-30 at 25.75. That’s a bond-equivalent of 4.94%, not bad!
BCE.PR.S Ratchet +1.4867% Exchange/Reset date is 2011-11-01 (Exchanges with BCE.PR.T, which pays 4.502% until then). Closed at 23.21-39, 3×10; the Ts closed at 22.00-23.75, 1×18, trading 1,250 shares in a range of 21.80-50.
Volume Highlights
Issue Index Volume Notes
WN.PR.B OpRet 139,520 Scotia crossed 138,400 at 26.00. Now with a pre-tax bid-YTW of 3.51% based on a bid of 26.00 and a softMaturity 2009-6-30 at 25.00.
TD.PR.O PerpetualPremium 111,507 Nesbitt crossed 100,000 at 26.03. Now with a pre-tax bid-YTW of 4.27% based on a bid of 26.02 and a call 2014-11-30 at 25.00.
BAM.PR.H OpRet 111,417 Scotia crossed 100,000 at 27.09. Now with a pre-tax bid-YTW of 2.48% based on a bid of 27.07 and a call 2008-10-30 at 25.75. There are those, it would appear, who believe it will last until its softMaturity at 25.00, 2012-3-30, to yield 4.05%!
CM.PR.I PerpetualPremium 34,415 Now with a pre-tax bid-YTW of 4.68% based on a bid of 25.15 and a call 2016-3-1 at 25.00.
NA.PR.L PerpetualPremium 30,607 National Bank crossed 12,700 at 25.75. Now with a pre-tax bid-YTW of 4.41% based on a bid of 25.70 and a call 2014-6-14 at 25.00.

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

Index Construction / Reporting

BAM.PR.T to be redeemed

Brookfield has announced:

it intends to redeem its 8.30% Preferred Securities due June 30, 2051 (the “Securities”) (CUSIP No. 112585 849) on July 3, 2007. The Redemption Price will be C$25.00 per Security plus accrued and unpaid interest of C$0.017055 thereon up to but excluding the redemption date, representing a total Redemption Price of C$25.017055 per Security.There are currently 5,000,000 outstanding 8.30% Preferred Securities, which are listed on the TSX under the symbol BAM.PR.T.

Hardly a surprise, but a sad event never-the-less. As the May 15 evaluation of the “Interest Bearing” index shows, this was the last of the Operating-Company Interest-Bearers that made life so well worth living a few years ago. The only Preferred Securities left are split-share corporations.

Market Action

May 15, 2007

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.90% 4.93% 42,317 15.68 2 +0.1737% 971.7
Fixed-Floater 5.55% 4.90% 133,293 15.80 6 -1.1477% 932.6
Floater 4.79% -2.06% 76,993 11.18 3 -0.2650% 1,048.6
Op. Retract 4.75% 3.41% 84,903 2.58 17 -0.1195% 1,032.2
Split-Share 4.95% 4.10% 161,493 4.00 12 +0.1931% 1,049.2
Interest Bearing 6.51% 6.18% 65,698 3.39 5 +0.1347% 1,046.8
Perpetual-Premium 5.14% 4.39% 172,216 5.36 48 -0.0639% 1,050.2
Perpetual-Discount 4.64% 4.67% 773,492 16.07 19 -0.1614% 1,049.5
Major Price Changes
Issue Index Change Notes
BCE.PR.G FixFloat -2.4018% Exchange/Reset Date is 2011-5-1 (Exchanges with BCE.PR.H); until then, pays 4.35% of par. Closed at 21.13-99, 5×6; the Hs closed at 23.36-49, 27×19.
BCE.PR.I FixFloat -1.4831% Exchange/Reset date is 2011-8-1 (Exchanges with Series ‘AJ’, not issued); until then, pays 4.65% of par. Closed at 21.92-35, 10×15, on volume of 47,082 after Nesbitt crossed 40,000 at 22.25.
BCE.PR.C FixFloat -1.4561% Exchange/Reset date is 2008-03-01 (Exchanges with Series ‘AD’, not issued); until then, pays 5.54% of par. Closed at 23.01-28, 3×1.
RY.PR.F PerpetualDiscount -1.3442% On light volume of 3,280 shares. Now with a pre-tax bid-YTW of 4.66% based on a bid of 24.22 and a limitMaturity.
BCE.PR.Z FixFloat -1.1178% Exchange/Reset date is 2007-12-1 (Exchanges with BCE.PR.Y); until then, pays 5.319% of par. Closed at 23.00-49, 24×5, hitting a 52-week low of 23.00 along the way. BCE.PR.Y closed at 23.10-38, 3×1, also hitting a 52-week low of 23.11.
Volume Highlights
Issue Index Volume Notes
CU.PR.B PerpetualPremium 182,075 Desjardins crossed 150,000 at 27.15 for delayed delivery (DD), then two more tranches at the same price, also DD. This issue went ex-dividend for $0.375 today. Now with a pre-tax bid-YTW of 3.58% based on a bid of 26.56 and a call 2008-7-1 at 26.00.
CM.PR.I PerpetualPremium 95,880 Now with a pre-tax bid-YTW of 4.67% based on a bid of 25.16 and a call 2016-3-1 at 25.00.
BNS.PR.M PerpetualDiscount 51,500 Now with a pre-tax bid-YTW of 4.58% based on a bid of 24.81 and a limitMaturity.
BCE.PR.I FixFloat 47,082 Discussed above as a major price move.
BNS.PR.L PerpetualDiscount 33,400 National Bank crossed 25,000 at 24.85. Now with a pre-tax bid-YTW of 4.56% based on a bid of 24.81 and a limitMaturity.

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

Market Action

May 14, 2007

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.87% 4.91% 43,549 15.73 2 -0.8727% 970.0
Fixed-Floater 5.48% 4.80% 132,810 15.95 6 -0.5383% 943.5
Floater 4.78% -5.12% 76,052 5.61 3 -0.0524% 1,051.4
Op. Retract 4.74% 3.29% 84,232 2.34 17 0.0336% 1,033.5
Split-Share 4.96% 4.18% 162,671 4.00 12 +0.2287% 1,047.2
Interest Bearing 6.52% 6.07% 65,772 3.38 5 -0.0305% 1,045.4
Perpetual-Premium 5.13% 4.36% 171,176 5.58 48 +0.0393% 1,050.9
Perpetual-Discount 4.63% 4.66% 783,166 16.09 19 -0.1021% 1,051.2
Major Price Changes
Issue Index Change Notes
BCE.PR.G FixFloat -2.6966% Exchange/Reset Date is 2011-5-1 (Exchanges with BCE.PR.H); until then, pays 4.35% of par. Sailed right through a small bid on small volume. Closed at 21.65-44, 20×10. The Hs closed at 23.36-49, 30×19.
BCE.PR.S Ratchet -1.7672% Exchange/Reset date is 2011-11-1 (Exchanges with BCE.PR.T, which pays 4.502% until then). Tiny volume of 600 shares, which was never-the-less enough to take out the bid. Closed at 22.79-25, 1×3; Ts closed at 21.90-40, 1×7.
Volume Highlights
Issue Index Volume Notes
PWF.PR.K PerpetualPremium 105,725 Now with a pre-tax bid-YTW of 4.49% based on a bid of 25.82 and a call 2014-11-30 at 25.00.
RY.PR.G PerpetualDiscount 103,460 Scotia bought 15,800 from Anonymous at 24.50, then another 58,900 from RBC at the same price. Now with a pre-tax bid-YTW of 4.63% based on a bid of 24.46 and a limitMaturity.
BNS.PR.L PerpetualDiscount 74,900 Scotia crossed 74,900 at 24.87. Now with a pre-tax bid-YTW of 4.56% based on a bid of 24.82 and a limitMaturity.
RY.PR.W PerpetualPremium 62,070 Now with a pre-tax bid-YTW of 4.29% based on a bid of 25.90 and a call 2014-3-26 at 25.00.
CU.PR.B PerpetualPremium 52,934 TD crossed 49,600 at 27.19. Now with a pre-tax bid-YTW of 2.87% based on a bid of 27.14 and a call 2008-7-1 at 26.00. Somebody’s betting it won’t be called that soon! But I still say they’re expensive.

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

PrefLetter

PrefLetter for May, 2007 Released!

The May edition of PrefLetter has been released and is now available for purchase as the “Previous edition”.

Until further notice, the “Previous Edition” will refer to the May, 2007 issue, while the “Next Edition” will be the June, 2007 issue.

PrefLetter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.