Month: December 2008

Issue Comments

CYC.PR.A Redeemed

Cyclical Split NT Corp has announced that it:

today redeemed all of its outstanding Capital Shares and Preferred Shares as previously disclosed. The redemption price for the Preferred Shares is $25.00 per Preferred Share, and the redemption price for the Capital Shares is $118.36821 per Capital Share for those holders of Capital Shares who elected a cash redemption rather than an in-kind redemption.

The Company’s Capital Shares and Preferred Shares were delisted from the TSX following the redemption.

The last mention of CYC.PR.A was in conncection with last year’s partial redemption. CYC.PR.A was not tracked by HIMIPref™.

PrefLetter

December 2008 PrefLetter Released!

The December, 2008, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

Until further notice, the “Previous Edition” will refer to the December, 2008, issue, while the “Next Edition” will be the January, 2009, issue, scheduled to be prepared as of the close January 9 and eMailed to subscribers prior to market-opening on January 12.

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.

Note: PrefLetter, being delivered to clients as a large attachment by eMail, sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Should you have a similar problem, I will:

  • eMail you another copy
  • place it on a website for download without eMail
  • try to get it to you as an image file
  • Fax you a copy
  • Mail the damn thing!

Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note, 2008-12-25: In the discussion of one of the recommendations, I referred to PWF.PR.E with a typographical error on the dividend rate. The correct rate is $1.375 p.a. This did not affect the analysis. The Assiduous Reader who brought this to my attention has had his subscription extended by one issue.

Regulatory Capital

BMO Issues Cumulative Tier 1 Capital

BMO has announced:

that BMO Capital Trust II (the “Trust”), a closed-end trust wholly-owned by the Bank, will issue $450 million of BMO Tier 1 Notes – Series A due December 31, 2107 (the “Notes”). The Notes are expected to qualify as Tier 1 capital of the Bank for regulatory purposes. The Trust intends to file a final prospectus with the Canadian securities regulators today, and anticipates that a receipt for the prospectus will be issued on Monday, December 15, 2008.

Interest on the Notes is payable semi-annually. From the date of issue to but excluding December 31, 2018, the rate of interest on the Notes will be fixed at 10.221% per annum. Starting on December 31, 2018, and on every fifth anniversary after such date, the rate of interest on the Notes will be reset as described in the prospectus filed by the Trust and the Bank.

On or after December 31, 2013, the Trust may, at its option and subject to certain conditions, redeem the Notes, in whole or in part.

In certain circumstances, the Notes or interest thereon may be automatically exchanged or paid by the issuance of Class B non-cumulative preferred shares of the Bank.

The transaction is expected to close on December 18, 2008 and the net proceeds will be used by the Bank for general corporate purposes.

This is the first issue I know of that takes advantage of OSFI’s recent reckless rule change to allow Tier 1 Capital with a stated maturity and cumulative income payments.

Existence of these notes will not directly affect the critical Equity/RWA ratio that was most recent review of BMO’s capital on PrefBlog. They do, however, represent a method of bumping up the Tier 1 Capital ratio with issues effectively senior to the preferreds, which certainly shouldn’t give preferred shareholders any cause for celebration.

Update, 2008-12-15: Preferred shareholders can, however, take heart from a $1-billion equity issue:

Bank of Montreal (TSX, NYSE: BMO) today announced an offering of 33,340,000 common shares at CDN$30.00 per share for total gross proceeds of approximately CDN$1.0 billion. The offering will be underwritten on a bought deal basis by a syndicate of underwriters. The Bank has granted to the underwriters an over-allotment option to purchase, on the same terms, up to a further 3,334,000 common shares. The option is exercisable, in whole or in part, up to 30 days after closing. The maximum gross proceeds raised under the offering will be approximately CDN$1.1 billion if the option is exercised in full.

The anticipated closing date of the offering is December 24, 2008. The net proceeds from the offering will be used by the Bank for general corporate purposes. The issue will qualify as Tier 1 capital.

The Bank’s Tier 1 capital ratio was 9.77% as of October 31, 2008. On a pro-forma basis, adjusting for the issuance of CDN$1.0 billion of common equity, the issuance of the CDN$150MM Series 18 Preferred Shares, the issuance of the CDN$450MM BMO Tier 1 Notes – Series A, the redemption of the CDN$250MM Series 6 Preferred Shares and the November 1, 2008 implementation of a new Basel II requirement, the Tier 1 ratio would be approximately 10.4%.

Update, 2008-12-16: The prospectus is now available on SEDAR – Issuer is BMO Capital Trust II, date is December 12:

Starting on December 31, 2018 and on every fifth anniversary of such date thereafter until December 31, 2103 (each such date, an ‘‘Interest Reset Date’’), the interest rate on the BMO Tier 1 Notes—Series A will be reset at an interest rate per annum equal to the Government of Canada Yield (as defined herein) plus 10.50%.
…
Government of Canada Yield means, on any Interest Reset Date, the average of the annual yields as at 12:00 p.m. (Eastern time) on the third Business Day prior to the applicable Interest Reset Date as determined by two Canadian registered investment dealers, each of which will be selected by, and must be independent of, the Bank and the Trust, as being the annual yield to maturity on such date which a non-callable Government of Canada bond would carry, assuming semi-annual compounding, if issued in Canadian dollars in Canada at 100% of its principal amount on such date with a term to maturity of five years.
…
On or after December 31, 2013, the Trust may, at its option, with the prior approval of the Superintendent, on giving not more than 60 nor less than 30 days’ notice to the holders of the BMO Tier 1 Notes — Series A, redeem the BMO Tier 1 Notes — Series A, in whole or in part. The redemption price per $1,000 principal amount of BMO Tier 1 Notes — Series A redeemed on any day that is not an Interest Reset Date will be equal to the greater of par and the Canada Yield Price, and the redemption price per $1,000 principal amount of BMO Tier 1 Notes — Series A redeemed on any Interest Reset Date will be par, together in either case with accrued and unpaid interest to but excluding the date fixed for redemption, subject to any applicable withholding taxes.
…
The Class B Preferred Shares Series 20 will pay fixed quarterly Shares Series 20: non-cumulative preferential cash dividends, as and when declared by the Board of Directors, subject to the provisions of the Bank Act, at the applicable Perpetual Preferred Share Rate on each quarterly dividend payment date, subject to any applicable withholding taxes.
…
Perpetual Preferred Share Rate means the rate per annum equal to the Thirty Year Canada Yield prevailing: (i) in the case of the Class B Preferred Shares Series 20, at the time of the Automatic Exchange; or (ii) in the case of the Class B Deferral Preferred Shares, on the date of issuance of each series of Class B Deferral Preferred Shares, plus, in each case, 3.49%.

Issue Comments

BCE Under Review-Developing by DBRS

DBRS has announced:

has today placed its ratings of Bell Canada Under Review with Positive Implications and maintained its ratings of BCE Inc. (BCE or the Company) Under Review with Developing Implications. Additionally, DBRS has withdrawn its ratings of BCE Acquisition Inc.
…
DBRS’s review will focus on a re-evaluation of the credit profiles of BCE and Bell Canada. This will include the current business and financial risk profile of Bell Canada and any expected changes to these factors in the near to medium term now that the privatization of its parent, BCE, is not proceeding. This review will include DBRS’s view of the potential for further events over the near term.

In addition to the above, BCE announced that the BCE board will immediately following the termination of its Definitive Agreement address (1) a reinstatement of its common dividend (beginning with declaring its Q4 2008 dividend payable January 15, 2009) and (2) a return of capital to its shareholders through a normal course issuer bid (NCIB). DBRS was largely anticipating the reinstatement of its common dividend, although it is difficult to qualify the magnitude of its NCIB at this stage.

Should there be no significant changes in strategy, business mix or Bell Canada’s capital structure, DBRS believe its ratings could be moved to the A (low) to “A” range given its businesses that generate strong EBITDA margins (at or above 40%) and reasonable leverage with gross debt-to-EBITDA at 2.0 times or below. Concurrently, DBRS plans to remove its recovery ratings on Bell Canada, which will no longer apply. The long-term debt rating of Bell Canada is expected to serve as a reference for BCE’s long-term rating, which could be either one notch lower than Bell Canada’s due to structural subordination or possibly the same.

The NCIB was quantified somewhat in the BCE press release:

BCE will return capital to shareholders in the form of a Normal Course Issuer Bid (NCIB). To that end, BCE will repurchase up to approximately 5% of outstanding common shares, or about 40 million common shares. The NCIB is subject to approval by the Toronto Stock Exchange (TSX) and will be carried out in accordance with the requirements of the TSX and applicable laws.

“A share buyback is the most efficient method of distributing capital to our shareholders, particularly given the current valuation metrics of the Company,” said Siim Vanaselja, Chief Financial Officer of BCE. “The share buyback will be accretive to earnings per share and cash flow. Our improving operational progress provides the Company with confidence in our ability to return value to shareholders now and into the future.”

I noted in the post regarding the death of the deal:

I’m afraid that in the absence of strong, credible statements from BCE regarding their capital structure going forward, BCE prefs remain rather more speculative than I like.

So I share DBRS’ caution! I will say, however, that the absence of dramatic moves by the board to support the stock price – a massive dividend, a massive buy-back – gives comforat and I now consider it more likely than not that BCE will retain its Pfd-2(low) rating.

BCE has the following preferred shares outstanding: BCE.PR.A, BCE.PR.B, BCE.PR.C, BCE.PR.D, BCE.PR.E, BCE.PR.F, BCE.PR.G, BCE.PR.H, BCE.PR.I, BCE.PR.R, BCE.PR.S, BCE.PR.T, BCE.PR.Y & BCE.PR.Z

PrefLetter

December Edition of PrefLetter Now in Preparation

The markets have closed and the December edition of PrefLetter is now being prepared.

PrefLetter is the monthly newsletter recommending individual issues of preferred shares to subscribers. There is at least one recommendation from every major type of preferred share (two of them recently added); the recommendations are taylored for “buy-and-hold” investors.

The December issue will be eMailed to clients and available for single-issue purchase with immediate delivery prior to the opening bell on Monday. I will write another post on the weekend advising when the new issue has been uploaded to the server … so watch this space carefully if you intend to order “Next Issue” or “Previous Issue”! Until then, the “Next Issue” is the December Issue.

Market Action

December 12, 2008

Volume continued heavy today, but should start slowing next week. Still, the deadline for tax-loss selling is Wednesday Dec 24, so we shall see!

PerpetualDiscounts now yield an average of 6.99% 7.99% pre-tax, equivalent to 9.79% 11.19% pre-tax interest at the standard 1.4x conversion factor. Long corporates are at 7.60%, so the Pre-Tax Interest-Equivalent spread is now 219bp 359bp.

Many thanks to Assiduous Reader Chris, who points out in the comments below that I am an idiot.

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.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 7.75% 8.08% 97,994 12.50 6 -4.4604% 684.0
Floater 8.96% 9.01% 77,662 10.44 2 +4.3973% 360.9
Op. Retract 5.50% 6.79% 149,966 4.16 15 -0.1896% 987.1
Split-Share 6.88% 13.09% 77,994 3.98 14 +0.7681% 899.3
Interest Bearing 9.80% 21.65% 53,709 2.77 3 +0.2261% 748.7
Perpetual-Premium N/A N/A N/A N/A N/A N/A N/A
Perpetual-Discount 7.86% 7.99% 218,843 11.44 71 -0.3034% 704.5
Fixed-Reset 6.05% 5.47% 1,228,142 14.37 18 +0.4038% 997.7
Major Price Changes
Issue Index Change Notes
BCE.PR.G FixFloat -8.7833%  
IAG.PR.A PerpetualDiscount -6.6176% Now with a pre-tax bid-YTW of 9.11% based on a bid of 12.70 and a limitMaturity. Closing quote 12.70-19, 8×3. Day’s range of 11.99-13.60.
BCE.PR.R FixFloat -6.0000%  
BAM.PR.M PerpetualDiscount -5.9289% Now with a pre-tax bid-YTW of 12.59% based on a bid of 9.52 and a limitMaturity. Closing quote 9.52-76, 2×3. Day’s range of 9.60-13.
BNA.PR.C SplitShare -5.7803% Asset coverage of 1.7-:1, based on BAM.A at 17.49 and 2.4 BAM.A per preferred. Now with a pre-tax bid-YTW of 20.59% based on a bid of 8.15 and a hardMaturity 2019-01-10 at 25.00. Closing quote of 8.15-39, 2×1. Day’s range of 8.20-65.
BCE.PR.A FixFloat -5.4268%  
FBS.PR.B SplitShare -5.1881% Asset coverage of 1.1-:1 as of December 11 according to TD Securities. Now with a pre-tax bid-YTW of 16.55% based on a bid of 7.31 and a hardMaturity 2011-12-15 at 10.00. Closing quote of 7.31-45, 10×10. Day’s range of 7.20-71.
BCE.PR.I FixFloat -4.4185%  
BNS.PR.J PerpetualDiscount -3.3315% Now with a pre-tax bid-YTW of 7.68% based on a bid of 17.41 and a limitMaturity. Closing quote 17.41-50, 4×20. Day’s range of 17.21-09.
BCE.PR.Y FixFloat -3.0612%  
BAM.PR.J OpRet -2.8452% Now with a pre-tax bid-YTW of 14.07% based on a bid of 14.00 and a softMaturity 2018-3-30 at 25.00. Now with a pre-tax bid-YTW of 14.00-25, 10×10. Day’s range of 14.00-15.15.
TD.PR.S FixedReset -2.7078%  
BAM.PR.N PerpetualDiscount -2.5974% Now with a pre-tax bid-YTW of 12.29% based on a bid of 9.75 and a limitMaturity. Closing quote 9.75-84, 2×1. Day’s range of 9.51-00.
CIU.PR.A PerpetualDiscount -2.5271% Now with a pre-tax bid-YTW of 8.63% based on a bid of 13.50 and a limitMaturity. Closing quote 13.50-71, 2×1. Day’s range of 13.50-71.
HSB.PR.D PerpetualDiscount -2.5000% Now with a pre-tax bid-YTW of 8.06% based on a bid of 15.60 and a limitMaturity. Closing quote 15.60-25, 5×4. Day’s range of 15.75-25.
BNS.PR.N PerpetualDiscount -2.1449% Now with a pre-tax bid-YTW of 7.93% based on a bid of 16.88 and a limitMaturity. Closing quote 16.88-30, 4×7. Day’s range of 16.85-70.
SLF.PR.A PerpetualDiscount +2.0423% Now with a pre-tax bid-YTW of 8.24% based on a bid of 14.49 and a limitMaturity. Closing quote 14.49-50, 1×38. Day’s range of 14.12-50.
BAM.PR.B Floater +2.1472%  
WFS.PR.A SplitShare +2.1879% Asset coverage of 1.2+:1 as of December 4 according to Mulvihill. Now with a pre-tax bid-YTW of 15.29% based on a bid of 7.94 and a hardMaturity 2011-6-30 at 10.00. Closing quote of 7.94-26, 50×22. Day’s range of 7.51-10.
FFN.PR.A SplitShare +2.4320% Asset coverage of 1.3+:1 as of November 28 according to the company. Now with a pre-tax bid-YTW of 12.23% based on a bid of 7.16 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 7.16-32, 40×10. Day’s range of 6.74-25.
TD.PR.A FixedReset +2.8169%  
DFN.PR.A SplitShare +2.8249% Asset coverage of 1.7+:1 as of November 28 according to the company. Now with a pre-tax bid-YTW of 7.22% based on a bid of 9.10 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 9.10-19, 25×18. Day’s range of 8.89-10.
DF.PR.A SplitShare +2.9139% Asset coverage of 1.4+:1 as of November 28 according to the company. Now with a pre-tax bid-YTW of 10.49% based on a bid of 7.77 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 7.77-10, 4×5. Day’s range of 7.55-78.
LFE.PR.A SplitShare +3.0864% Asset coverage of 1.6-:1 as of November 28 according to the company. Now with a pre-tax bid-YTW of 10.57% based on a bid of 8.35 and a hardMaturity 2012-12-1 at 10.00. Closing quote of 8.35-87, 22×1. Day’s range of 8.00-37.
BAM.PR.K Floater +6.5350%  
Volume Highlights
Issue Index Volume Notes
TD.PR.C FixedReset 119,190 National crossed one block of 50,000 at 25.00 and another at 25.01.
BNS.PR.L PerpetualDiscount 77,915 Nesbitt crossed 53,300 at 15.30. Now with a pre-tax bid-YTW of 7.49% based on a bid of 15.30 and a limitMaturity.
RY.PR.N FixedReset 75,690 National crossed 43,200 at 25.21.
BNS.PR.M PerpetualDiscount 74,964 Nesbitt crossed 53,300 at 15.30. Now with a pre-tax bid-YTW of 7.48% based on a bid of 15.33 and a limitMaturity.
BMO.PR.N FixedReset 73,230 Nesbitt bought 10,000 from National at 24.99. New issue settled yesterday.

There were seventy-four index-included $25-pv-equivalent issues trading over 10,000 shares today

Issue Comments

BNS.PR.S Closes, sort-of

BNS.PR.S is the new issue of BNS Fixed-Resets, 6.25%+384 that Scotia issued to SunLife as partial payment for CI.

Today Scotia had this to say:

Scotiabank (TSX/NYSE: BNS) today announced it has closed the Bank’s 37 per cent strategic investment in CI Financial Income Fund (“CI”; TSX: CIX.UN) and become CI’s largest single shareholder.

Scotiabank bought Sun Life Financial’s (“Sun Life” TSX/NYSE:SLF) stake of 104,609,895 CI trust units for $1.55 billion in cash, $500 million in common shares at $34.60 per share and $250 million in 6.25 per cent five year rate reset preferred shares. Going forward, Sun Life will continue its strong distribution arrangement with CI.

And SunLife chimed in with:

Sun Life Financial Inc. (TSX/NYSE: SLF) today announced that the previously announced sale of its 37% interest in CI Financial Income Fund to Scotiabank has closed. $1.55 billion of the $2.3 billion (Canadian) purchase price was paid in cash. The balance was paid in a combination of common and preferred shares of Scotiabank

Stockwatch advises:

2008-12-10 18:09 ET – Prospectus Approved

TSX bulletin 2008-1429

An application has been granted for the listing of 10 million non-cumulative, five-year rate reset preferred shares, Series 24, of the Bank of Nova Scotia.

The preferred shares, Series 24, are to be distributed at a price of $25 per share pursuant to the terms of a prospectus supplement dated Dec. 9, 2008, to the short form base shelf prospectus dated April 16, 2008, as amended by amendment No. 1 dated Dec. 3, 2008. The closing of the prospectus offering is expected to occur prior to the open on Dec. 12, 2008. In anticipation of such closing, the preferred shares, Series 24, will be listed at 5:01 p.m. on Dec. 11, 2008, and will be posted for trading at the open on Dec. 12, 2008.

Symbol: BNS.PR.S

Cusip No.: 064149 13 1

Trading currency: Canadian dollars

I have obtained data from the TSX confirming the symbol and that it is listed for trading today, 2008-12-12. I also have a quote: 25.00 bid, no offer; and volume: 0.

Accordingly, the issue has been added to the HIMIPref™ database and incorporated into the Fixed-Reset sub-index. But I really wish one of the players would announce what happens next … bought deal? exchange offering? distribution to SLF shareholders? Who knows?

Issue Comments

HPF.PR.A / HPF.PR.B : Normal Course Issuer Bid

High Income Preferred Shares Corporation has announced:

that HI PREFS has commenced a normal course issuer bid to purchase a portion of the outstanding Series 1 Preferred Shares (TSX: HPF.PR.A) and Series 2 Preferred Shares (TSX: HPF.PR.B) on the TSX. Under the normal course issuer bid, HI PREFS intends to purchase up to 37,680 Series 1 Preferred Shares, representing approximately 10% of the public float and up to 65,396 Series 2 Preferred Shares, representing approximately 10% of the public float.

These purchases will be made in accordance with applicable regulations over a maximum period of 12 months commencing on December 16, 2008 and ending on the earlier of December 15, 2009 or on such date as HI PREFS completes its purchase under the normal course issuer bid or on such date as HI PREFS may otherwise determine. Series 1 Preferred Shares and Series 2 Preferred Shares purchased will be cancelled. Within the preceding 12 month period, HI PREFS
purchased 18,500 Series 1 Preferred Shares and 77,100 Series 2 Preferred Shares for cancellation. HI PREFS had 376,806 Series 1 Preferred Shares and 653,962 Series 2 Preferred Shares issued and outstanding as at December 5, 2008. HI PREFS will not purchase in any given 30 day period, in the aggregate more than 7,536 Series 1 Preferred Shares, being 2% of the issued and outstanding Series 1 Preferred Shares as at December 5, 2008 and in the aggregate more than 13,079 Series 2 Preferred Shares, being 2% of the issued and outstanding Series 2 Preferred Shares as at December 5, 2008.

PrefBlog has an informal policy of reporting Normal Course Issuer Bids only if they are highly accretive to NAV (e.g., when a SplitShare trades well below its NAV) or if the previous one has been executed to a meaningful extent.

HPF.PR.A & HPF.PR.B are tracked by HIMIPref™ and are included in the “Scraps” sub-index (rather than SplitShare) due to volume and credit concerns, respectively. HPF.PR.A & HPF.PR.B were mentioned on PrefBlog most recently in connection the DBRS affirmation and downgrade, respectively.

Market Action

December 11, 2008

JPMorgan, or one of their clients, wants to make a big bet on Collatteralized Loan Obligations:

JPMorgan Chase & Co., the largest U.S. bank, is seeking as much as $780 million of AAA rated portions of collateralized loan obligations, according to a list of securities the company circulated to traders and investors.
…
New York-based JPMorgan, which has received capital from the government and has obtained loans from the Federal Reserve, told traders it may be willing to accept yields of about 4 percentage points more than the three-month London interbank offered rate for dollars, three of the people said. That’s less than the spread of 5 percentage points that the securities typically trade at, according to JPMorgan’s research department.
…
The purchase may aid the $475 billion CLO market, where prices began falling after the July 2007 collapse of two Bear Stearns Cos. hedge funds that owned collateralized debt obligations.

CLOs, which are a type of CDO, repackage loans used to fund leveraged buyouts and other non-investment-grade, or junk, rated companies into new securities with varying ratings.

The world has gone mad and it has been a week of what Portfolio.com calls a trend of “Rich white men throwing it all away for nothing.”.

And they didn’t even mention the Sextant thing! The OSC has alleged:

15. At November 28, 2008, approximately 5% of the assets of the Sextant Fund were invested in a portfolio of cash, stocks and futures contracts, including stocks of private companies. The portfolio is held in accounts with Newedge Canada Inc. (“Newedge”), the custodian and prime broker for the Sextant Fund.

16. The balance of the assets in the Sextant Fund are invested in two private Luxembourg companies: Iceland Glacier Products S.a.r.l. (“IGP”) and Iceland Global Water 2 Partners SCA (“IGW”).

17. At November 28, 2008, 92% of the assets of the Sextant Fund were invested in IGP and 2.5% of the assets were invested in IGW. These investments are not recorded or valued on Newedge’s books and records.

18. IGP and IGW both purportedly own rights to glaciers in Iceland and intend to use those rights for the purpose of developing and selling bottled water. Neither IGP or IGW have earned any revenue and there are no indications that they will do so in the immediate future. Neither is currently operating.

19. Despite having earned no revenue and having no immediate prospect of doing so, IGP’s shares have purportedly increased in value from an initial average cost of €0.226 to €2.45, or approximately 984% since initial investment by the Sextant Fund. This has contributed to the increase in value of the Sextant Fund by 730.7% over the less than three years between its inception in February 2006 and November 28, 2008.

20. There are no third party valuation reports that support the monthly, material upward revisions in value of IGP, and therefore there is inadequate support for the claimed rate of return of the Sextant Fund.

21. Significant performance fees, in excess of $3 million dollars have flowed out of the Sextant Fund based entirely on its purported rate of return. Fees for the month of November 2008 alone were assessed at over $1.5 million.

22. IGP and IGW are owned almost entirely by the Sextant Fund, the Sextant Offshore Funds and Spork.

The Globe and Mail notes:

Mr. Spork also runs two offshore funds totalling $100-million (U.S.) – Sextant Strategic Hybrid2 Hedge Resource Fund Offshore Ltd. and Sextant Strategic Global Water Fund Offshore Ltd. – which do not have Canadian investors.

After his fund shot up 74 per cent in July alone, Mr. Spork was reluctant then to reveal how his commodities-focused strategy has been racking up stellar returns.

“We make our returns or business grow by having an edge that is not transparent,” Mr. Spork told The Globe and Mail at that time.

Just what the investors were receiving by way of disclosure is not clear. And I am not an expert in the exciting new field of glacier investing. But it seems to me that before I wrote a large cheque – especially to buy large ice-cubes – I would want to know a little more about the non-transparent edge.

Then today after the markets closed the SEC released allegations against Bernard Madoff:

alleged that Madoff yesterday informed two senior employees that his investment advisory business was a fraud. Madoff told these employees that he was “finished,” that he had “absolutely nothing,” that “it’s all just one big lie,” and that it was “basically, a giant Ponzi scheme.” The senior employees understood him to be saying that he had for years been paying returns to certain investors out of the principal received from other, different investors. Madoff admitted in this conversation that the firm was insolvent and had been for years, and that he estimated the losses from this fraud were at least $50 billion.
…
According to regulatory filings, the Madoff firm had more than $17 billion in assets under management as of the beginning of 2008. It appears that virtually all assets of the advisory business are missing.

It’s not clear to me how the two figures cited are reconciled, but with numbers that big it doesn’t matter much does it? One wonders what his client list looked like and what the collateral damage tomorrow is going to be.

It’s not going to be the only headline, either! Carmakers won’t get bailed out:

Senate negotiations for a U.S. automaker bailout plan collapsed, in a blow to General Motors Corp. and Chrysler LLC, which may run out of cash early next year.

“It’s over with,” Majority Leader Harry Reid said on the Senate floor in Washington. “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”
…
Connecticut Democrat Christopher Dodd, who was involved in the negotiations, said the final unresolved issue was a Republican demand that unionized autoworkers accept a reduction in wages next year, rather than later, to match those of U.S. autoworkers who work for foreign-owned companies, such as Toyota Motor Corp.

“More than saddened, I’m worried this evening about what we’re doing with an iconic industry,” Dodd said. “In the midst of deeply troubling economic times we are going to add to that substantially.”

Accrued Interest has a post about negative yields on US T-Bills, asking:

So when I heard that there were T-Bill trades occurring above par, I was more stunned that Princess Leia aboard the Tantive IV. Who bought T-bills above par? Why would you enter into that trade with a certain loss when you can simply hold currency at no loss?

Currency? How currency? Put it in a bank, it’ll go bust. Put it under your mattress, you’ll get robbed. Put it into actual folding paper in a safe deposit box, you’ve got transaction costs out the wazoo, what with money laundering laws and safekeeping fees, not to mention a certain risk of your employees robbing you. How currency?

There are some good comments to that post. I’ll suggest that the commenter Oregon Guy has the right of it:

Say you have a $2,000,000 CD maturing. You can deposit the proceeds in a money market account with FDIC insurance, but the insurance won’t cover the $2,000,000 and you don’t want the bother of opening a plethora of accounts. Treasuries are bubble-priced, so you don’t want to go there. Corporates are shaky because defaults are high and you’re risk adverse. You can roll-over the CD, but that opens up the possibility of uninsured loss again.

I will suggest the additional mechanism of segmentation. There are a LOT of T-Bill funds out there, and a lot more private-manager mandates that will only allow T-Bills. They HAVE to buy bills – they don’t even have the currency option.

Volume continued heavy today, but the market was down this time.

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.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 7.40% 7.73% 97,057 13.18 6 +1.5009% 716.0
Floater 9.35% 9.40% 73,019 10.08 2 -6.8016% 345.7
Op. Retract 5.49% 6.76% 148,229 4.17 15 -0.1952% 988.9
Split-Share 6.92% 13.31% 75,553 3.98 14 +0.6130% 892.4
Interest Bearing 9.82% 21.50% 54,396 2.75 3 -1.2438% 747.0
Perpetual-Premium N/A N/A N/A N/A N/A N/A N/A
Perpetual-Discount 7.84% 7.96% 215,098 11.46 71 -0.4579% 706.6
Fixed-Reset 6.07% 5.45% 1,168,186 14.39 17 +0.2100% 993.7
Major Price Changes
Issue Index Change Notes
BAM.PR.K Floater -8.8639%  
LBS.PR.A SplitShare -6.1250% Asset coverage of 1.4-:1 as of December 4 according to Brompton Group. Now with a pre-tax bid-YTW of 12.42% based on a bid of 7.51 and a hardMaturity 2013-11-29 at 10.00. Closing quote of 7.51-79, 4×1. Day’s range of 7.51-00.
NA.PR.N FixedReset -5.9889%  
NA.PR.M PerpetualDiscount -5.0769% Now with a pre-tax bid-YTW of 8.24% based on a bid of 18.51 and a limitMaturity. Closing quote 18.51-74, 7×2. Day’s range of 18.25-20.98 (!).
BAM.PR.B Floater -4.7204%  
FIG.PR.A InterestBearing -3.7433% Asset coverage of 1.0+:1 as of December 4, based on Capital Unit NAV of 0.39 according to Faircourt and 0.71 Capital Units per preferred. Now with a pre-tax bid-YTW of 20.30% based on a bid of 5.40 and a hardMaturity 2014-12-31 at 10.00. Closing quote of 5.40-60, 6×2. Day’s range of 5.21-70.
FFN.PR.A SplitShare -3.5862% Asset coverage of 1.3+:1 as of November 28 according to the company. Now with a pre-tax bid-YTW of 12.74% based on a bid of 6.99 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 6.99-38, 1×3. Day’s range of 7.25-40.
CM.PR.J PerpetualDiscount -3.3562% Now with a pre-tax bid-YTW of 8.14% based on a bid of 14.11 and a limitMaturity. Closing quote 14.11-30, 5×4. Day’s range of 14.00-67.
CU.PR.A PerpetualDiscount -2.8856% Now with a pre-tax bid-YTW of 7.52% based on a bid of 19.52 and a limitMaturity. Closing quote 19.52-74, 4×1. Day’s range of 19.52-36.
CM.PR.G PerpetualDiscount -2.6163% Now with a pre-tax bid-YTW of 8.23% based on a bid of 16.75 and a limitMaturity. Closing quote 16.75-00, 4×6. Day’s range of 16.70-47.
HSB.PR.D PerpetualDiscount -2.3788% Now with a pre-tax bid-YTW of 7.85% based on a bid of 16.00 and a limitMaturity. Closing quote 16.00-24, 16×1. Day’s range of 15.50-16.70.
BNS.PR.P FixedReset -2.2727%  
BNS.PR.M PerpetualDiscount -2.2350% Now with a pre-tax bid-YTW of 7.49% based on a bid of 15.31 and a limitMaturity. Closing quote 15.31-54, 10×3. Day’s range of 15.25-80.
TCA.PR.Y PerpetualDiscount -2.1463% Now with a pre-tax bid-YTW of 7.10% based on a bid of 40.12 and a limitMaturity. Closing quote 40.12-95, 1×6. Day’s range of 40.11-41.19.
BNS.PR.R FixedReset -2.1176%  
CM.PR.E PerpetualDiscount -2.0328% Now with a pre-tax bid-YTW of 8.24% based on a bid of 17.35 and a limitMaturity. Closing quote 17.35-49, 5×4. Day’s range of 17.32-92.
RY.PR.A PerpetualDiscount +2.1698% Now with a pre-tax bid-YTW of 7.03% based on a bid of 16.01 and a limitMaturity. Closing quote 16.01-24, 4×3. Day’s range of 16.01-24.
SLF.PR.E PerpetualDiscount +2.2222% Now with a pre-tax bid-YTW of 8.20% based on a bid of 13.80 and a limitMaturity. Closing quote 13.80-00, 20×3. Day’s range of 13.50-93.
RY.PR.G PerpetualDiscount +2.3748% Now with a pre-tax bid-YTW of 7.14% based on a bid of 15.95 and a limitMaturity. Closing quote 15.95-99, 2×19. Day’s range of 15.59-99.
RY.PR.I FixedReset +2.6128%  
DF.PR.A SplitShare +3.0014% Asset coverage of 1.4+:1 as of November 28 according to the company. Now with a pre-tax bid-YTW of 11.09% based on a bid of 7.55 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 7.55-60, 60×14. Day’s range of 7.50-51.
BNA.PR.B SplitShare +3.6932% Asset coverage of 1.7-:1 as of December 11 based on BAM.A at 17.46 and 2.4 BAM.A per unit. Now with a pre-tax bid-YTW of 10.41% based on a bid of 18.25 and a hardMaturity 2016-3-25 at 25.00. Closing quote of 18.25-19.99, 5×1. Day’s range of 17.75-50.
FTN.PR.A SplitShare +7.9460% Asset coverage of 1.6-:1 as of November 28 according to the company. Now with a pre-tax bid-YTW of 11.28% based on a bid of 7.20 and a hardMaturity 2015-12-1 at 10.00. Closing quote of 7.20-28, 27×10. Day’s range of 6.50-28.
BCE.PR.G FixFloat +9.7857%  
Volume Highlights
Issue Index Volume Notes
BMO.PR.N FixedReset 343,071 Six blocks totalling 114,500 shares. New issue settled today.
PWF.PR.D OpRet 110,456 Nesbitt crossed 100,000 at 25.50. Now with a pre-tax bid-YTW of 4.93% based on a bid of 25.41 and a softMaturity 2012-10-30 at 25.00.
TD.PR.O PerpetualDiscount 62,988 Nesbitt crossed 15,000 at 16.95. Now with a pre-tax bid-YTW of 7.30% based on a bid of 16.91 and a limitMaturity.
CM.PR.H PerpetualDiscount 57,815 Now with a pre-tax bid-YTW of 8.16% based on a bid of 15.01 and a limitMaturity.
RY.PR.B PerpetualDiscount 45,158 Now with a pre-tax bid-YTW of 7.48% based on a bid of 15.92 and a limitMaturity.

There were seventy-eight index-included $25-pv-equivalent issues trading over 10,000 shares today

Issue Comments

BMO.PR.N Closes Without Incident

BMO’s new issue of Fixed-Reset 6.50%+383 announced November 25 closed today without incident.

Volume was good at 343,071 shares in a range of 24.86-05. The closing quote was 25.00-01, 44×10.

The issue was relatively small, only $150-million, but there was a greenshoe for $100-million. I am unable to determine whether any of the greenshoe was exercised.

The issue is tracked by HIMIPref™ and has been added to the Fixed-Reset Index.

Update, 2009-6-9: The TSX reports six million shares outstanding; therefore the greenshoe was not exercised.