Archive for November, 2009

November 30, 2009

Monday, November 30th, 2009

CIT Group has slightly amended its bankruptcy terms.

Willem Buiter is frequently quoted on PrefBlog … and now he’s got a new job!:

Citigroup Inc. hired former Bank of England policy maker Willem Buiter as its chief economist to fill the position left vacant by Lewis Alexander’s move to the U.S. Treasury eight months ago.

The appointment by the bank, which is 34 percent owned by the U.S. government, puts an academic known for his outspokenness in its most senior economics position. In 2008, Buiter told the Federal Reserve’s annual symposium in Jackson Hole, Wyoming, that the central bank pays too much heed to the concerns of Wall Street.

The Tobin Tax idea seems to be getting some press attention:

U.K. Prime Minister Gordon Brown said on Nov. 7 that a transaction tax might compensate for the billions of dollars that the public has spent on bank bailouts. Government officials in France, Germany and Austria have voiced their backing. U.S. Treasury Secretary Timothy Geithner answered Brown a day later, saying the tax was not something the U.S. would support. House Speaker Nancy Pelosi, on the other hand, says the idea has “substantial currency” among congressional Democrats.

As noted on November 11, Gordon Brown mentioned the idea, but not in a manner to indicate either support or opposition.

Canadian Bond Indices is now offering live quotes on selected bonds. The link has been added to the “Canadian Fixed Income Data” category on the right hand panel of PrefBlog.

The Canadian preferred share market closed the month on a high note, with PerpetualDiscounts up 9bp and FixedResets gaining 5bp, on moderate volume. PerpetualDiscounts now yield 5.82%, equivalent to 8.15% interest at the standard equivalency factor of 1.4x. Long Corporates now yield about 5.9%, so the pre-tax interest-equivalent spread (also called the Seniority Spread, around here, anyway) is now about 225bp, a 10bp tightening from the 235bp reported on November 25.

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 0.0219 % 1,507.7
FixedFloater 6.06 % 4.17 % 41,287 18.58 1 -0.4986 % 2,573.0
Floater 2.59 % 3.03 % 88,613 19.58 3 0.0219 % 1,883.6
OpRet 4.80 % -3.27 % 132,285 0.09 14 -0.1716 % 2,308.9
SplitShare 6.35 % -9.34 % 303,043 0.08 2 -0.5660 % 2,116.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1716 % 2,111.3
Perpetual-Premium 5.85 % 4.74 % 126,357 0.57 4 0.1874 % 1,880.5
Perpetual-Discount 5.82 % 5.90 % 185,407 14.03 70 0.0943 % 1,784.8
FixedReset 5.44 % 3.81 % 372,610 3.92 41 0.0538 % 2,148.1
Performance Highlights
Issue Index Change Notes
IGM.PR.A OpRet -2.29 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-12-30
Maturity Price : 26.00
Evaluated at bid price : 26.05
Bid-YTW : -2.51 %
POW.PR.D Perpetual-Discount -1.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-30
Maturity Price : 21.15
Evaluated at bid price : 21.15
Bid-YTW : 6.01 %
MFC.PR.A OpRet -1.78 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 25.89
Bid-YTW : 3.42 %
GWO.PR.F Perpetual-Discount -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-30
Maturity Price : 24.88
Evaluated at bid price : 25.17
Bid-YTW : 5.96 %
HSB.PR.C Perpetual-Discount -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-30
Maturity Price : 21.95
Evaluated at bid price : 22.08
Bid-YTW : 5.88 %
ELF.PR.G Perpetual-Discount 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-30
Maturity Price : 18.10
Evaluated at bid price : 18.10
Bid-YTW : 6.68 %
MFC.PR.B Perpetual-Discount 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-30
Maturity Price : 19.73
Evaluated at bid price : 19.73
Bid-YTW : 5.91 %
BAM.PR.J OpRet 1.86 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 26.78
Bid-YTW : 4.53 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.M OpRet 285,030 TD crossed 149,700 at 26.30, then another 50,000 and then another 79,500, all at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-12-30
Maturity Price : 26.00
Evaluated at bid price : 26.36
Bid-YTW : -7.59 %
CM.PR.K FixedReset 69,100 Nesbitt crossed 65,000 at 26.80.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 26.71
Bid-YTW : 3.84 %
TRP.PR.A FixedReset 63,890 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-30
Maturity Price : 25.46
Evaluated at bid price : 25.51
Bid-YTW : 4.25 %
MFC.PR.D FixedReset 58,553 RBC crossed 33,100 at 27.75.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.73
Bid-YTW : 3.96 %
RY.PR.I FixedReset 40,210 RBC crossed 25,700 at 26.38.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 26.26
Bid-YTW : 3.72 %
IGM.PR.A OpRet 26,959 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-12-30
Maturity Price : 26.00
Evaluated at bid price : 26.05
Bid-YTW : -2.51 %
There were 35 other index-included issues trading in excess of 10,000 shares.

New Issue: IGM 5.90% Straight

Monday, November 30th, 2009

IGM Financial has announced:

that it has agreed to issue 6,000,000 Non-Cumulative First Preferred Shares, Series B (the “Series B Shares”) on a bought deal basis, for gross proceeds of $150 million. The Series B Shares will be priced at $25.00 per share and will carry an annual dividend yield of 5.90%. Closing is expected on or about December 8, 2009. The issue will be underwritten by a syndicate of underwriters co-led by BMO Capital Markets and by RBC Capital Markets.

IGM Financial has also granted the underwriters an option to purchase an additional 2,000,000 Series B Shares at the same offering price, exercisable up to 48 hours prior to closing. Should the underwriters’ option be exercised fully, the total gross proceeds of the Series B Share offering will be $200 million.

Proceeds from the issue will be used to supplement IGM Financial’s financial resources and for general corporate purposes.

The first dividend is anticipated (based on 2009-12-8 closing) to be 0.57788, payable 2010-4-30.

Redemption terms are standard for straights: redeemable for 26.00 commencing 2014-12-31; redemption price declines by 0.25 p.a. until 2018-12-31; redeemable at 25.00 thereafter.

It’s quite interesting that these are non-cumulative. There is no direct reason for them to be so; IGM is not regulated as a bank or insurer and doesn’t need to qualify them for Tier 1 Capital. I can only imagine – so far – two explanations: (i) that they have decided that making it non-cumulative won’t cost them anything (in other words, that the current spreads observed for cumulativity exist only as a proxy for “non-financial”, and not for any other reason), or (ii) that they are preparing in some way for their parent, PWF, to be regulated due to its position as owner of an insurer, GWO, and there might be a need to qualify this issue as Tier 1 on the consolidated books of PWF. But all that’s merely speculation.

IGM.PR.A to be Redeemed

Monday, November 30th, 2009

IGM Financial has announced:

that it intends to redeem all $360 million of its outstanding 5.75% First Preferred Shares, Series A on December 31, 2009

Consistent with the terms of the original offering document, the redemption price will be $26.00 for each First Preferred Share, Series A plus an amount equal to all declared and unpaid dividends, net of any tax required to be withheld by the Corporation.

A notice of the redemption of the First Preferred Shares, Series A will be sent in accordance with the rights, privileges, restrictions and conditions attached to the First Preferred Shares, Series A.

Brad Setser's Blog Removed from BlogRoll

Saturday, November 28th, 2009

Sadly, Brad Setser’s blog is now dormant, he says:

I have accepted a new job, one that will require a certain level of discretion.

It has been removed from the BlogRoll.

November 27, 2009

Friday, November 27th, 2009

Credit Default Swaps are proving to be less predictable than hoped:

Thomson provided the first test of the procedures for settling contracts triggered by a restructuring in Europe when it said in August it was deferring payments on $72.5 million of 6.05 percent private notes due this year.

The system for restructurings uses multiple auctions that set different payouts based on swap expiration dates. Dealers couldn’t settle the Thomson contracts with simpler failure-to- pay procedures that produce one recovery value because they were unable to prove the electronics company defaulted.

Asked in a July conference call with investors whether Thomson still owed the money, Chief Executive Officer Frederic Rose responded, “Since I am not a qualified lawyer, I prefer not to answer that question.” Marine Boulot, a Thomson spokeswoman in Paris, declined to comment.

To determine the size of the payouts on contracts covering $2 billion in debt, bonds and loans were split by maturity date ranges into three so-called buckets and sold at auction.

Contracts that expired on June 20, 2012 — the first bucket’s latest date — sold for 96.25 percent of the face amount, meaning swap holders received 3.75 percent of the amount covered. Swaps expiring a day later paid 34.875 percent because the debt in that bucket went for 65.125 percent.

Holders of June 20 swaps covering 10 million euros in debt got 375,000 euros, while those with June 21 contracts received almost 3.5 million euros. Swaps that terminated after Oct. 24, 2014, paid the most, 36.75 percent.

The disparity was a result of too few securities in the first bucket to settle swaps, according to Matthew Leeming, a London-based strategist at Barclays. “An imbalance of supply and demand for the deliverables can affect the recovery rate,” he said in a note.

Because they were part of industry indexes, swaps referencing the company “dwarfed the amount of Thomson debt,” said Teo Lasarte, an analyst at Bank of America-Merrill Lynch in London.

Canadian preferred shares had a good day, with PerpetualDiscounts gaining 9bp and FixedResets up 7bp. Volume was moderate.

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 -0.6957 % 1,507.4
FixedFloater 6.02 % 4.14 % 41,212 18.62 1 0.5011 % 2,585.9
Floater 2.59 % 3.01 % 92,164 19.65 3 -0.6957 % 1,883.2
OpRet 4.80 % -6.69 % 122,560 0.09 14 0.0736 % 2,312.9
SplitShare 6.31 % -18.14 % 315,272 0.09 2 -0.1304 % 2,128.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0736 % 2,114.9
Perpetual-Premium 5.86 % 5.01 % 126,482 2.39 4 0.0889 % 1,877.0
Perpetual-Discount 5.82 % 5.88 % 183,705 14.03 70 0.0924 % 1,783.1
FixedReset 5.44 % 3.83 % 366,170 3.92 41 0.0727 % 2,146.9
Performance Highlights
Issue Index Change Notes
TRI.PR.B Floater -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-27
Maturity Price : 19.42
Evaluated at bid price : 19.42
Bid-YTW : 2.04 %
PWF.PR.E Perpetual-Discount 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-27
Maturity Price : 22.69
Evaluated at bid price : 23.50
Bid-YTW : 5.88 %
RY.PR.Y FixedReset 1.25 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-24
Maturity Price : 25.00
Evaluated at bid price : 27.55
Bid-YTW : 3.93 %
GWO.PR.F Perpetual-Discount 1.35 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-10-30
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 5.61 %
GWO.PR.I Perpetual-Discount 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-27
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 5.82 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.M FixedReset 185,750 Desjardins crossed blocks of 15,000 and 25,000 at 27.82, and another one of 10,600 at 27.80. TD crossed 124,100 at 27.82.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 27.82
Bid-YTW : 4.03 %
BNS.PR.Q FixedReset 123,750 TD crossed 120,000 at 26.15.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-11-24
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.99 %
BAM.PR.B Floater 52,150 Nesbitt crossed 44,300 at 13.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-27
Maturity Price : 13.20
Evaluated at bid price : 13.20
Bid-YTW : 3.01 %
BMO.PR.J Perpetual-Discount 29,999 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-27
Maturity Price : 20.13
Evaluated at bid price : 20.13
Bid-YTW : 5.63 %
TRP.PR.A FixedReset 20,785 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 4.33 %
BMO.PR.K Perpetual-Discount 20,100 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-27
Maturity Price : 22.93
Evaluated at bid price : 23.09
Bid-YTW : 5.72 %
There were 30 other index-included issues trading in excess of 10,000 shares.

Liquidity and Forced Sales

Friday, November 27th, 2009

The Bank of England has released a working paper by Viral V Acharya, Hyun Song Shin and Tanju Yorulmazer titled Endogenous choice of bank liquidity: the role of fire sales:

Banks’ liquidity is a crucial determinant of the adversity of banking crises. In this paper, we consider the effect of fire sales and entry during crises on banks’ ex-ante choice of liquid asset holdings. We consider a setting with limited pledgeability of risky cash flows relative to safe ones and a differential expertise between banks and outsiders in employing banking assets. When a large number of banks fail, market for assets clears only at fire-sale prices and outsiders enter the market if prices fall sufficiently low. In such states, there is a private benefit of liquid holdings to banks from purchasing assets. There is also a social benefit since greater banking system liquidity reduces inefficiency from liquidation of assets to outsiders. When pledgeability of risky cash flows is high, for instance, in countries with well-developed capital markets, banks hold less liquidity than is socially optimal due to risk-shifting incentives; otherwise, banks may hold even more liquidity than is socially optimal to capitalise on fire sales. However, if there is a systemic cost associated with crises, for example, in the form of fiscal costs associated with provision of deposit insurance, then socially optimal liquidity may always be higher than the privately optimal one, and, in turn, regulation in the form of prudent liquidity requirements may be desirable. We provide some international evidence on banks’ liquid holdings that is consistent with model’s predictions.

Regretably, I don’t have a lot of time today to go into this further.

OSFI Looking at Board Involvement

Friday, November 27th, 2009

The Office of the Superintendent of Financial Institutions has released the text of a speech by Ted Price, Assistant Superintendent, Supervision Sector, to the 2009 Canada-UK Colloquium on Global Finance.

After the familiar puffery about Canadian banks (and the usual failure to address third party analysis of Canadian banks’ resilience), it gets more interesting:

As the financial services business becomes more and more complex, it is likely that we will see more frequent shocks to the system. In this environment, it is not enough for a board to give tacit approval to management in setting the risk profile; boards need to engage management, ask questions, demand answers, and not sign off until they are satisfied.

In the past, some boards have felt that it was inappropriate for directors to engage management regarding risk management. That it would require too much education and discussion. This implies that risk management is too complex for the board, and that it cannot be explained simply, or understood. If this is the case, then why be in that business? In any other industry it would not be ok for directors to say, “We don’t understand the risks, but let’s get into that business anyway”.

At OSFI, we believe that defining risk appetite is as important in an institution’s strategic planning as other production inputs, like budgets. It has been long accepted that major expenditures and budgets should be reviewed by the board, but when it comes to setting risk appetite, some boards have, incorrectly, abdicated that responsibility to management. We believe that boards have an essential oversight role in setting and limiting risk appetite in financial institutions.

Well, any board that made the statement that “it was inappropriate for directors to engage management regarding risk management” would get a roasting here on PrefBlog, if nowhere else! According to me, the board is elected by shareholders to supervise management – and supervision implies (or should imply) some degree of knowledge and the ability to over-rule.

Unfortunately, there is widespread feeling that the purpose of a board is to provide equal employment opportunities to minorities and traditionally disadvantaged sectors of the populace, as well as supporting diversity, the environment and fluffy little bunnies … yet another internal contradiction of the system that will, from time to time, blow up.

November 26, 2009

Thursday, November 26th, 2009

Apparently, having the world’s most intrusive bonus rules is a Good Thing:

U.K. banks face the toughest bonus regime in the world if proposals outlined in a government- commissioned report are accepted, according to its author, Morgan Stanley Senior Adviser David Walker.

Banks should delay bonus payments for as much as five years and have the power to “claw back” awards, Walker, 69, said in his final report on improvements to U.K. corporate governance released today. The government strongly supports Walker’s recommendations “and will take steps to implement them as soon as possible,” according to a statement from Chancellor of the Exchequer Alistair Darling.

Meanwhile, Andrew Willis of The Globe and Mail speculates that the nudge-and-wink Canadian version might lead to new independent dealers:

As this bonus season begins, there are enormous tensions within the ranks of the six largest and most profitable houses. The bank-owned firms had great years. Yet it’s not at all clear the wealth will be shared with employees the way it was in the past. Bonus cheques may be trimmed, even chopped.

Bank executives, and the folks in HR departments, are taking a New England Patriots approach to talent: They are concluding it’s the franchise, the massive machine, that earns the profits, not any one individual. This attitude does not sit well with the more self-assured of bankers and traders.

To a large extent this is true; investment banking is simply the latest area of investment activities to get hit. The banks can, if they wish, create good products run by superb staff, but it doesn’t matter. Since moving into brokerage and wealth management, they have found that they can make just as much money with barely acceptable products run by high school students, such is their franchise.

I’m not sure where this will end – and it might not end. An internal contradiction can last a long time and either degrade slowly or spectacularly. It’s interesting to speculate just what might trigger a spectacular paradigm shift, but I haven’t got any answers for that one. Bre-X didn’t do it. Nortel didn’t do it. And small shops sell out to big shops when the proprietors retire, which takes care of the slow pathway.

Ultimately, a reversal of the process will occur only when performance actually becomes a selling feature – which isn’t going to happen any time soon. Avner Mandelman had a good piece in Saturday’s Globe regarding what is actually being sold. One thing that would be good would be increased regulatory emphasis on performance: investment managers are required to state their experience in prospectuses, but not performance. Many trading rules in UMIR are designed to protect morons – simply rescinding those would be a great leap forward. But guess which segment of the industry has captured the regulators – nothing will happen.

Some might argue that the consequences of an incompetent culture have already been felt, in the shape of the Credit Crunch. Maybe. It is very hard to read the SEC Inspector-General’s report on Bear Stearns and not get the feeling that the smiley-boys had taken over management completely and that they deserved to fail.

Not much action in the preferred share market on American Thanksgiving, but up-days are always welcome! PerpetualDiscounts gained 4bp and FixedResets were up 6bp.

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 0.5684 % 1,518.0
FixedFloater 6.06 % 4.17 % 41,842 18.59 1 0.0557 % 2,573.0
Floater 2.57 % 2.99 % 92,188 19.69 3 0.5684 % 1,896.4
OpRet 4.80 % -6.38 % 122,871 0.09 14 0.0734 % 2,311.2
SplitShare 6.30 % -17.93 % 317,814 0.09 2 0.5245 % 2,131.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0734 % 2,113.4
Perpetual-Premium 5.86 % 5.17 % 125,238 2.40 4 0.2375 % 1,875.4
Perpetual-Discount 5.83 % 5.91 % 184,225 13.99 70 0.0366 % 1,781.4
FixedReset 5.45 % 3.86 % 377,573 3.92 41 0.0572 % 2,145.4
Performance Highlights
Issue Index Change Notes
RY.PR.Y FixedReset -1.59 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-24
Maturity Price : 25.00
Evaluated at bid price : 27.21
Bid-YTW : 4.21 %
PWF.PR.O Perpetual-Discount -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-26
Maturity Price : 24.30
Evaluated at bid price : 24.50
Bid-YTW : 6.01 %
TRI.PR.B Floater 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-26
Maturity Price : 19.65
Evaluated at bid price : 19.65
Bid-YTW : 2.02 %
ELF.PR.G Perpetual-Discount 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-26
Maturity Price : 18.01
Evaluated at bid price : 18.01
Bid-YTW : 6.70 %
IGM.PR.A OpRet 1.38 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-12-26
Maturity Price : 26.00
Evaluated at bid price : 26.81
Bid-YTW : -34.83 %
CU.PR.B Perpetual-Premium 1.92 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-01
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 5.17 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.N OpRet 139,190 TD crossed blocks of 52,900 and 40,400 and 35,000 shares, all at 26.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-12-26
Maturity Price : 26.00
Evaluated at bid price : 26.24
Bid-YTW : -2.94 %
GWO.PR.E OpRet 49,168 Nesbitt crossed 41,300 at 25.85.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-12-26
Maturity Price : 25.50
Evaluated at bid price : 25.81
Bid-YTW : -1.57 %
BMO.PR.J Perpetual-Discount 41,700 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-26
Maturity Price : 20.15
Evaluated at bid price : 20.15
Bid-YTW : 5.62 %
MFC.PR.D FixedReset 37,194 Nesbitt bought 10,200 from CIBC at 27.70.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.74
Bid-YTW : 3.95 %
BMO.PR.L Perpetual-Discount 29,765 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-24
Maturity Price : 25.00
Evaluated at bid price : 25.02
Bid-YTW : 5.83 %
RY.PR.D Perpetual-Discount 24,985 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-26
Maturity Price : 20.25
Evaluated at bid price : 20.25
Bid-YTW : 5.60 %
There were 19 other index-included issues trading in excess of 10,000 shares.

November 25, 2009

Wednesday, November 25th, 2009

Connecticut is claiming that its pension fund portfolio managers are a pack of incompetent time-servers:

Connecticut plans to join Ohio in suing Standard & Poor’s, Moody’s Corp. and Fitch Ratings for their “negligent, reckless and incompetent work” in grading investments made by state pension funds, according to Attorney General Richard Blumenthal.

Connecticut and “a number of other states” are preparing legal action against the credit-rating companies, Blumenthal said today in a Bloomberg Television interview. Ohio Attorney General Richard Cordray sued the debt raters this month on behalf of five Ohio public employee retirement and pension funds, saying “improper” ratings cost the funds more than $457 million.

Geez, you know, sometimes I think I’d like to be a portfolio manager at a big firm. Nothing to do all day but suck arse and pass the blame …

The PerpetualDiscount winning streak came to an end today, albeit just barely. Its last down day was October 28, as it then rose for nineteen consecutive days, gaining 2.99% as yields fell from 6.05% to 5.88% (quick check: 299bp total return with 6.05% yield for 27 days including weekends implies price change of 299-45 = 254bp, on 17bp yield change, implies Modified Duration of 14.94 years, which in turn implies a yield of 6.69%. Well … close enough. I’m ignoring convexity and discussing an index, after all).

Anyway, PerpetualDiscounts now yield 5.90%, equivalent to 8.26% interest at the standard equivalency factor of 1.4x. Long Corporates now yield about 5.9%, so the pre-tax interest-equivalent spread (also called the seniority spread, around here, anyway) is now about 235bp, a modest but welcome tightening from the 240bp reported on November 19.

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 0.1094 % 1,509.4
FixedFloater 6.06 % 4.17 % 42,240 18.58 1 0.2793 % 2,571.6
Floater 2.58 % 3.02 % 92,864 19.63 3 0.1094 % 1,885.6
OpRet 4.80 % -7.86 % 123,040 0.09 14 0.1337 % 2,309.5
SplitShare 6.34 % -7.34 % 321,361 0.08 2 0.2190 % 2,119.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1337 % 2,111.8
Perpetual-Premium 5.88 % 5.55 % 124,199 2.39 4 0.0000 % 1,870.9
Perpetual-Discount 5.83 % 5.90 % 184,213 14.02 70 -0.0091 % 1,780.8
FixedReset 5.45 % 3.85 % 389,623 3.92 41 0.1007 % 2,144.1
Performance Highlights
Issue Index Change Notes
MFC.PR.E FixedReset -1.44 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-19
Maturity Price : 25.00
Evaluated at bid price : 26.61
Bid-YTW : 4.09 %
MFC.PR.C Perpetual-Discount -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-25
Maturity Price : 18.92
Evaluated at bid price : 18.92
Bid-YTW : 5.96 %
SLF.PR.C Perpetual-Discount -1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-25
Maturity Price : 18.72
Evaluated at bid price : 18.72
Bid-YTW : 5.95 %
POW.PR.D Perpetual-Discount 1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-25
Maturity Price : 21.52
Evaluated at bid price : 21.52
Bid-YTW : 5.90 %
MFC.PR.A OpRet 1.74 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2010-07-19
Maturity Price : 26.25
Evaluated at bid price : 26.35
Bid-YTW : 2.93 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.D FixedReset 168,431 Nesbitt crossed 100,000 at 27.70; Scotia crossed 26,900 at the same price; TD crossed 11,000 at the same price again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.70
Bid-YTW : 3.98 %
BNS.PR.N Perpetual-Discount 82,790 RBC crossed 75,700 at 23.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-25
Maturity Price : 23.18
Evaluated at bid price : 23.35
Bid-YTW : 5.68 %
CM.PR.D Perpetual-Discount 72,100 RBC crossed 63,300 at 24.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-25
Maturity Price : 23.96
Evaluated at bid price : 24.29
Bid-YTW : 5.97 %
TRP.PR.A FixedReset 58,355 Nesbitt sold 10,000 to anonymous at 25.80.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.79
Bid-YTW : 4.08 %
BMO.PR.J Perpetual-Discount 53,395 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-25
Maturity Price : 20.14
Evaluated at bid price : 20.14
Bid-YTW : 5.62 %
ELF.PR.F Perpetual-Discount 51,400 Scotia crossed 50,000 at 20.05.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-25
Maturity Price : 20.05
Evaluated at bid price : 20.05
Bid-YTW : 6.72 %
There were 36 other index-included issues trading in excess of 10,000 shares.

Brookfield Renewable Power Issues 7-Year Bonds at 6.132%

Wednesday, November 25th, 2009

DBRS has announced it has:

assigned a rating of BBB (high) with a Stable trend to the Brookfield Renewable Power Inc. (BRP) prospective issue of $300 million of 6.132% Series 6 notes due November 30, 2016 (the Notes).

The Notes are being offered pursuant to a Prospectus Supplement to BRP’s Short Form Base Shelf Prospectus dated July 28, 2008, and a related Prospectus Supplement to be filed before November 27, 2009. The Notes will rank equally with all other unsecured indebtedness of BRP. Proceeds from the offering will be used to repay BRP’s remaining $280 million of 4.65% Series 1 notes due in December 2009, and for general corporate purposes. The offering is expected to close on November 30, 2009.

DBRS notes that BRP has recently signed a long-term power sale contract with the Ontario Power Authority (rated A (high), with a Stable trend) for all of the output from 16 of BRP’s electric generating facilities in Ontario, representing 837 megawatts (MW). This is supportive of BRP’s credit profile as it will substantially increase its long-term contracted position and provide greater cash flow certainty.

BAM commented in its 3Q09 Shareholders’ Report:

Brookfield Renewable Power has $262 million of public term notes that mature in December 2009. The substantial cash flow generated within this business and the high quality of its asset base facilitates access to capital markets notwithstanding current volatility, and in that regard we completed a public offering of C$300 million (US$244 million) of three-year notes in February 2009.

In April 2009 we exchanged a further C$100 million (US$82 million) of the December maturity for three-year notes. The remaining borrowings consist of public notes that mature in 2018 and 2036.

The CAD 300-million three-year notes were done at 8.75%, with a step up feature if the company gets downgraded by DBRS or S&P with a Canada Call at +175bp. We’ve come a long way, baby!