Month: December 2006

Data Changes

FBS.PR.B Closes; FBS.PR.A Redeemed

5Banc Split Inc. has announced (via CCN Matthews) that its new issue of preferreds, FBS.PR.B, has closed.

14-million shares priced at $10.00 were sold, compared to the initial issue 3.25-million of the old shares, FBS.PR.A, the last of which have been redeemed at $25.00. That’s a nice increase of 72% in initial issue size, so I will speculate that TD Bank, the sponsor, is happy!

The new securityCode for FBS.PR.B is A29001, which replaces the preIssue code of P50008. A reorgDataRecord has been added to the HIMIPref™ database.

A reorg entry has also been put through to reflect the redemption of FBS.PR.A (securityCode A29000) and the instrumentDataRecord changed to reflect the delisting.

More, later. Probably much later, as I don’t think I will be able to update the prices tonight and will have to leave it ’till later in the weekend.

New Issues

Sentry Select 40 Split Income Trust : New issue of preferred securities

Sentry Select has just filed a prospectus for a new fund with some interesting twists.

The fund is based on Income Trusts and will turn into an open-ended mutual fund in two years. The preferred securities are non-callable and will mature in two years – or, to be precise, December 1, 2008 – from the expected closing date of January 5, 2007 … which is just in time to mop up some RRSP money!

The prefs will pay 5.25% and are provisionally rated Pfd-2(low) by DBRS. There will be no distribution to the capital units if this would leave the prefs with asset coverage of less than 1.5:1.

Not the worst issue I’ve ever seen in my life, but 5.25% sounds pretty skimpy compared with what’s already out there – see the current ‘Interest Bearing’ Index for comparisons. Trouble is, of course, there just plain ain’t that many preferred securities around any more, and somebody who wants to buy a hatful … through a full-service brokerage and paying commissions through the nose … might well be pleased to get a big fill.

Due to the short term-to-maturity on these things, I will not be adding them to the HIMIPref™ database – unless forced to do so by outraged hue-and-cry!

Market Action

December 14, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.21% 4.23% 34,748 17.00 1 +0.1215% 1,021.1
Fixed-Floater 4.80% 3.87% 101,228 8.38 7 +0.2368% 1,031.4
Floater 4.48% -19.95% 62,955 3.47 5 +0.1340% 1,038.6
Op. Retract 4.64% 1.00% 81,973 2.20 17 -0.0475% 1,031.6
Split-Share 5.12% 2.41% 140,006 2.71 8 +0.2179% 1,040.6
Interest Bearing 6.95% 5.31% 78,518 2.34 7 -0.0019% 1,025.5
Perpetual-Premium 5.01% 3.73% 294,853 4.29 52 +0.0288% 1,052.0
Perpetual-Discount 4.55% 4.54% 946,271 13.31 6 +0.1151% 1,054.2
Major Price Changes
Issue Index Change Notes
FFN.PR.A SplitShare -1.4006% Now with an entirely reasonably pre-tax bid-YTW of 3.31% based on a bid of $10.56 and a hardMaturity at $10.00 on 2009-12-1
GWO.PR.G PerpetualPermium +1.1949% Now with a pre-tax bid-YTW of 3.51% based on a bid of $27.10 and a call 2010-1-30 at $26.00. If it makes it to the $25.00 call 2014-1-30, it will have yielded 3.83%. I call it expensive.
WFS.PR.A SplitShare +1.2299% Now with a pre-tax bid-YTW of 3.54% based on a bid of $10.70 and a hard maturity 2011-6-30 at $10.00. An entirely reasonably priced issue.
BSD.PR.A InterestBearing +1.4199% Now with a pre-tax bid-YTW of 6.05% (as interest!) based on a bid of $10.00 and a hard maturity 2015-3-31 at $10.00
Volume Highlights
Issue Index Volume Notes
CM.PR.I PerpetualPremium 102,755 Recent new issue. Now with a pre-tax bid-YTW of 4.57% based on a bid of $25.40 and a call 2016-3-1 at $25.00
BCE.PR.R FixedFloater 148,375 Maple crossed 140,000 on a cash basis at $25.36.
BCE.PR.T Scraps 141,000 Maple crossed 139,000 for cash at $25.40. They were busy today!
GWO.PR.F PerpetualPremium 136,245 Also a heavy trader yesterday. Pre-tax bid-YTW of 1.21% based on a bid of $28.09 and a call 2008-10-30 at $26.00. Even more expensive than the GWO.PR.G mentioned above, if you want to listen to me.
BAM.PR.M PerpetualDiscount 106,390 Recent new issue. Now with a pre-tax bid-YTW of 4.65% based on a bid of $25.19 and a call 2016-3-1 at $25.00.

There were eighteen other index-included issues with over 10,000 shares traded today.

HIMI Preferred Indices

HIMI Preferred Indices: June, 1996

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

HIMI Index Values 1996-06-28
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,375.5 0 0 0 0 0 0
FixedFloater 1,372.6 0 0 0 0 0 0
Floater 1,295.2 8 1.61 5.02% 15.3 77M 5.34%
OpRet 1,168.9 24 1.24 5.71% 5.5 96M 6.79%
SplitShare 1,168.9 0 0 0 0 0 0
Interest-Bearing 1,168.9 0 0 0 0 0 0
Perpetual-Premium 1,157.9 4 1.00 4.64% 2.9 96M 8.00%
Perpetual-Discount 1,105.5 0 0 0 0 0 0

Index Constitution, 1996-06-28, Pre-Rebalancing

Index Constitution, 1996-06-28, Post-Rebalancing

Market Action

December 13, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.22% 4.24% 36,183 16.98 1 -0.0405% 1,019.9
Fixed-Floater 4.81% 3.89% 100,950 10.63 7 -0.1006% 1,028.9
Floater 4.49% -18.73% 63,688 3.47 5 +0.2245% 1,037.2
Op. Retract 4.64% +0.63% 81,563 2.20 17 -0.0691% 1,032.0
Split-Share 5.14% 2.48% 139,550 2.71 8 -0.0321% 1,038.4
Interest Bearing 6.95% 5.00% 76,607 2.33 7 +0.1522% 1,025.5
Perpetual-Premium 5.01% 3.49% 294,576 4.31 52 +0.0504% 1,051.7
Perpetual-Discount 4.56% 4.56% 941,546 13.14 6 +0.0274% 1,053.0
Major Price Changes
Issue Index Change Notes
There were no index-included issues with major price moves today.
Volume Highlights
Issue Index Volume Notes
BCE.PR.T Scraps 425,300 Scotia crossed 425,000 at $25.40 in Cash trade. About time someone traded this recent conversion in size!
RY.PR.D PerpetualPremium 249,115 New Issue. Pre-tax bid-YTW of 4.47% based on a bid of $25.10 and a call at $25.00 on 2016-3-25
WN.PR.C PerpetualPremium 160,500 Global crossed 80,000 for cash at 27.08, then 80,000 regular settlement at 26.75. Went ex-dividend today for $0.325. Pre-tax bid-YTW now 4.20% based on a bid of 26.60 and a call 2014-7-31 at $25.00 (but 2013-7-31 at 25.25 gives the same yield … and 2012-7-31 at 25.50 outputs 4.21%, so take your pick).
CM.PR.I PerpetualPremium 102,755 Recent new issue. Pre-tax bid-YTW of 4.61% based on a bid of 25.31 and a call on 2016-3-1 at 25.00
GWO.PR.F PerpetualPremium 101,070 Scotia crossed 68,400 at 27.91, then another 31,600 at the same price. Now with a pre-tax bid-YTW of 1.53% based on a bid of 27.93 and a call 2008-10-30 at $26.00. Pays $1.475, so an early call seems likely even given the declining premium, but somebody obviously disagrees and is betting on 2012-10-30 at $25.00 to yield 3.64% … which is still no great shakes, according to me!

There were thirty other index-included issues with over 10,000 shares traded today.

Data Changes

A Solid Start for RY.PR.D

The Royal Bank new issue got off to a solid start today, trading 249,115 shares and closing above the issue price at 25.10-11, 84×10.

Comparables after the first day, with changes from the announcement date in brackets, are:

Royal Bank Perpetuals    

Analysis Using AFTER-TAX Curve (except as noted)
Curve price Component RY.PR.A RY.PR.B RY.PR.C RY.PR.W RY.PR.D
Price due to base-rate 23.07
(-0.05)		 23.87
(-0.04)		 23.65
(-0.04)		 24.41
(-0.03)		 23.24
(-0.05)
Price due to short-term 0.04
Unch		 0.04
(-0.01)		 0.04
(-0.01)		 0.04
(Unch)		 0.04
(-0.01)
Price due to long-term 0.61
(+0.05)		 0.63
(+0.04)		 0.62
(+0.05)		 0.66
(+0.05)		 0.62
(+0.08)
Price to to Cumulative Dividends 0.00 0.00 0.00 0.00 0.00
Price due to Liquidity 1.47
(+0.01)		 1.52
(+0.02)		 1.50
(+0.01)		 0.80
(+0.14)		 1.48
(-0.01?)
Price due to error -0.03
(Unch)		 -0.04
(-0.01)		 -0.03
(Unch)		 -0.02
(Unch)		 -0.03
(-0.03)
CurvePrice 25.16
(Unch)		 26.03
(+0.02)		 25.78
(+0.01)		 25.89
(+0.15)		 25.34
(-0.02)
Annual Dividend 1.1125 1.1750 1.1500 1.2250 1.1250
2006-12-13 Quote 25.14-20
(+0.14b)		 25.76-80
(-0.14b)		 25.51-63
(+0.11b)		 26.47-57
(+0.02b)		 25.10-11
(+0.10b)
After-tax Bid YTW 3.52%
(-0.03)		 3.45%
(+0.08)		 3.51%
(-0.03)		 3.19%
(Unch)		 3.55%
(-0.03)
Pre-Tax Bid YTW 4.43%
(-0.04)		 4.34%
(+0.10)		 4.42%
(-0.04)		 4.02%
(+0.01)		 4.47%
(-0.03)

Tax has been included in the calculation of the elements of the above table in accordance with the Ontario Highest Marginal Rate.

This issue has been added to the HIMIPref™ database with the securityCode A45013, replacing the preIssue code of P75000

HIMI Preferred Indices

HIMI Preferred Indices : May, 1996

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

HIMI Index Values 1996-05-31
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,359.5 0 0 0 0 0 0
FixedFloater 1,356.6 0 0 0 0 0 0
Floater 1,280.1 7 1.55 5.06% 15.0 84M 5.41%
OpRet 1,161.4 26 1.34 5.84% 5.4 76M 6.79%
SplitShare 1,161.4 0 0 0 0 0 0
Interest-Bearing 1,161.4 0 0 0 0 0 0
Perpetual-Premium 1,155.1 4 1.00 4.88% 2.9 95M 7.98%
Perpetual-Discount 1,102.9 0 0 0 0 0 0

Index Constitution, 1996-05-31, Pre-Rebalancing

Index Constitution, 1996-05-31, Post-Rebalancing

Market Action

December 12, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.23% 4.24% 36,419 16.97 1 +0.0000% 1,020.3
Fixed-Floater 4.81% 3.83% 102,144 8.37 7 -0.1061% 1,030.0
Floater 4.48% -17.73% 63,425 6.60 5 -0.2710% 1,034.9
Op. Retract 4.63% +0.08% 82,309 2.20 17 -0.0319% 1,032.8
Split-Share 5.12% 2.98% 139,602 2.70 8 -0.0579% 1,038.7
Interest Bearing 6.90% 5.43% 76,350 3.84 7 -0.1846% 1,023.9
Perpetual-Premium 5.01% 3.54% 249,455 4.41 51 +0.0680% 1,051.1
Perpetual-Discount 4.56% 4.56% 951,558 13.14 6 +0.2833% 1,052.7
Major Price Changes
Issue Index Change Notes
AL.PR.E Floater -1.3884% Any dreams I ever had of attempting to understand this issue, with its bizarre dividend calculation methodology, have long since vanished. It pays 100% of Prime, is priced at 26.28, and has been callable at $25.00 for 13 years.
Volume Highlights
Issue Index Volume Notes
CM.PR.I PerpetualPremium 184,344 Recent new issue, pre-tax bid-YTW now 4.63% based on a bid of $25.27 and a call at $25.00 2016-3-1.
BAM.PR.M PerpetualDiscount 158,700 Recent new issue, pre-tax bid-YTW now 4.77% based on a bid of 25.06 and a limitMaturity.
TOC.PR.B Floater 140,350 Scotia crossed 139,500 at $25.90.
RY.PR.A PerpetualDiscount 29,500 Now with a pre-tax bid-YTW of 4.45% based on a bid of $25.10 and a call 2015-6-23 at $25.00
BAM.PR.B Floater 28,427 National Bank crossed 25,000 at $24.90

There were nineteen other index-included issues with over 10,000 shares traded today.

Issue Comments

POW.PR.B : Current call, so what?

The yield-to-worst on POW.PR.B is now negative. It closed today at 26.46-65, but it is currently callable at $26.00:

POW.PR.B Embedded Options
Redemption 2006-11-28 2007-11-27 26.000000
Redemption 2007-11-28 2008-11-27 25.750000
Redemption 2008-11-28 2009-11-27 25.500000
Redemption 2009-11-28 2010-11-27 25.250000
Redemption 2010-11-28 INFINITE DATE 25.000000

This gives rise to: 

POW.PR.B optionCalculationList
Call 2007-01-11 YTM: -6.26 % [Restricted: -0.51 %] (Prob: 35.43 %)
Call 2007-04-11 YTM: 2.20 % [Restricted: 0.72 %] (Prob: 5.03 %)
Call 2007-12-28 YTM: 3.32 % [Restricted: 3.32 %] (Prob: 7.25 %)
Call 2008-12-28 YTM: 3.76 % [Restricted: 3.76 %] (Prob: 3.72 %)
Call 2009-12-28 YTM: 3.93 % [Restricted: 3.93 %] (Prob: 2.86 %)
Call 2010-12-28 YTM: 4.03 % [Restricted: 4.03 %] (Prob: 2.57 %)
Option Certainty 2035-01-21 YTM: 5.05 % [Restricted: 5.05 %] (Prob: 43.13 %)

 

I’ve uploaded some graphs:

I can’t say I really understand why the price should have gone up so spectacularly recently. One can make the usual argument that since the redemption premium declines by $0.25 annually, the net cost to the company is not the coupon of 1.3375, but $0.25 less than this, or $1.0875, but this is less than the current financing cost only by half the saving. The company’s treasurer has the immediate option of reducing permanent costs by about $0.125 p.a. (gross of issuance costs), at the expense of a few years loss of charges … but this analysis assumes that the current refinancing level will be available a few years hence. It might not be.

And why should the price spike now?

The best an investor can reasonably hope for is a yield of 4.03% if it lasts until its $25.00 call; there are lots of issues with similar characterists that have such a yield without the risk of negative returns. The new RY.PR.D issue settles tomorrow and yields 4.50%. RY.PR.W has a yield to worst of 4.02%, with a 2014 call date, without the risk of an intervening call. The same can be said for POW.PR.D, pre-tax bid-YTW of 4.36% based on a call 2014-11-30, with no intervening call risk – and it’s a more active trader and the same name!

So the whole situation is very mysterious and I consider POW.PR.B to be very expensive at current levels.