Archive for March, 2010

March 26, 2010

Friday, March 26th, 2010

OSFI published its Report on Plans and Priorities today. I continue to be amused by their performance targets: under the programme target “Accurate risk assessments”, they set a target of 70% for “Percentage of knowledgeable observers who agree that their institution’s Composite Risk Rating is appropriate.”. “Knowledgeable observers” are defined as “Senior Executives and professionals who act on behalf of federally regulated financial institutions.” Sounds pretty cosy! Don’t hold your breath waiting for a politician to ask any questions – that would screw up their chances of post-public-servant employment.

Heavy volume AGAIN, PerpetualDiscounts down AGAIN (this time 20bp) and FixedResets up AGAIN – this time by 11bp, taking the median average weighted YTW down to a new low of 3.31%. Good volatility.

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 2.64 % 2.70 % 59,650 20.71 1 -1.1111 % 2,089.9
FixedFloater 4.91 % 3.03 % 50,245 20.14 1 0.6818 % 3,220.2
Floater 1.92 % 1.69 % 47,803 23.35 4 0.8467 % 2,407.5
OpRet 4.84 % 3.27 % 109,942 0.66 12 -0.0420 % 2,312.1
SplitShare 6.36 % 4.38 % 136,088 0.08 2 0.0878 % 2,146.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0420 % 2,114.2
Perpetual-Premium 5.95 % 6.02 % 119,349 13.72 7 0.0172 % 1,871.8
Perpetual-Discount 6.00 % 6.02 % 185,230 13.85 71 -0.2006 % 1,763.7
FixedReset 5.33 % 3.31 % 349,799 3.67 43 0.1075 % 2,214.5
Performance Highlights
Issue Index Change Notes
TD.PR.R Perpetual-Discount -1.87 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 23.47
Evaluated at bid price : 23.66
Bid-YTW : 6.02 %
CM.PR.D Perpetual-Discount -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 23.48
Evaluated at bid price : 23.82
Bid-YTW : 6.02 %
BMO.PR.J Perpetual-Discount -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 19.60
Evaluated at bid price : 19.60
Bid-YTW : 5.82 %
BMO.PR.H Perpetual-Discount -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 22.34
Evaluated at bid price : 22.85
Bid-YTW : 5.85 %
TD.PR.Q Perpetual-Discount -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 23.70
Evaluated at bid price : 23.90
Bid-YTW : 5.95 %
BAM.PR.E Ratchet -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 21.75
Evaluated at bid price : 21.36
Bid-YTW : 2.70 %
BAM.PR.N Perpetual-Discount -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 17.26
Evaluated at bid price : 17.26
Bid-YTW : 6.93 %
CM.PR.J Perpetual-Discount -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 18.69
Evaluated at bid price : 18.69
Bid-YTW : 6.02 %
GWO.PR.H Perpetual-Discount 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 6.10 %
GWO.PR.I Perpetual-Discount 1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 18.85
Evaluated at bid price : 18.85
Bid-YTW : 6.01 %
PWF.PR.A Floater 1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 22.71
Evaluated at bid price : 23.00
Bid-YTW : 1.69 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRI.PR.B Floater 152,760 Recently highlighted as somewhat comparable to TRI’s USD bond issue. Nesbitt crossed 150,000 at 24.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 23.71
Evaluated at bid price : 23.98
Bid-YTW : 1.61 %
MFC.PR.C Perpetual-Discount 86,240 RBC crossed 44,800 at 18.50. Nesbitt crossed 25,000 at 18.42.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-26
Maturity Price : 18.36
Evaluated at bid price : 18.36
Bid-YTW : 6.18 %
BNS.PR.T FixedReset 83,544 Desjardins crossed 20,000 at 28.40; CIBC bought 32,000 from National at 28.36. RBC crossed 13,500 at 28.36.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 28.37
Bid-YTW : 3.09 %
RY.PR.P FixedReset 79,248 National crossed 50,000 at 28.24.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 28.20
Bid-YTW : 3.02 %
MFC.PR.D FixedReset 75,095 National crossed 50,000 at 28.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 28.12
Bid-YTW : 3.54 %
BMO.PR.O FixedReset 74,353 CIBC bought 13,500 from anonymous at 28.50; then another 17,600 from National at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-24
Maturity Price : 25.00
Evaluated at bid price : 28.45
Bid-YTW : 3.20 %
There were 52 other index-included issues trading in excess of 10,000 shares.

FTN.PR.A To Get Bigger

Friday, March 26th, 2010

Hard on the heels of the DFN.PR.A enlargement, Financial 15 Split Corp. has announced:

it has filed a short form prospectus in each of the provinces of Canada with respect to an additional offering of Preferred Shares and Class A Shares. The offering will be available through a group of underwriters, co-led by RBC Capital Markets and CIBC World Markets. The Company will file an amended and restated prospectus shortly outlining the offering prices set forth below.

The Preferred Shares will be offered at a price of $10.00 per share to yield 5.25% based on current distribution policy. The closing price of the Preferred Shares on March 25, 2010 on the TMX was $10.41.

The Class A Shares will be offered at a price of $9.75 per share to yield 15.5% based on current distribution policy. The closing price of the Class A Shares on March 25, 2010 on the TMX was $10.40.

The proceeds from the re-opening of Financial 15, net of expenses and Agents’ fees, will be used by Financial 15 to invest in an actively managed portfolio of 15 financial services companies made up of 10 Canadian and 5 U.S. issuers

The Net Asset Value Per Unit was 17.84 on March 15.

FTN.PR.A was last mentioned on PrefBlog when it was upgraded to Pfd-3 by DBRS.

FTN.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

March 25, 2010

Thursday, March 25th, 2010

The Ontario Securities Commission has released the new edition of Perspectives, which provides information on regulatory initiatives.

We have a new poster-boy for the banks’ pursuit of mediocrity, rivalling Canada’s David Berry. Ladies & Gentlemen, let’s hear it for Raphael Geys!

Raphael Geys, former managing director of European fixed income sales for French bank Societe Generale, claims he was summarily dismissed without cause in November 2007.

He said that during his three years at the bank he was responsible for more than doubling the gross revenue of his division, from 205 million euros to 440 million euros.

Deputy Judge George Leggatt QC was told at a hearing earlier this month: “He was dismissed for being too successful in that role because the provisions in his contract were considered by the bank to be too generous.”

It was claimed that the bank’s termination of the contract “raised issues about the claimant’s entitlement to termination and other payments due under the contract. Very substantial sums are at stake”.

These have been reported as being 12.5 million euros (£11.3 million).

The bank claims he is not entitled to any “termination payment” under the contract because he has taken legal action.

And now, he’s passed the first milestone:

Societe Generale SA, France’s second-largest bank, lost a U.K. court decision over whether an 8 million-euro ($10.6 million) severance package it offered a former employee was less than what he was owed.

Raphael Geys, a former managing director of European fixed income sales at Societe Generale, sued and claimed at a trial that began last week in a London court that under his contract’s terms he was owed more severance than the bank offered.

If a severance value can’t be negotiated, a trial will be held to determine the amount, Judge George Leggatt said in the ruling today. Geys, who was fired in November 2007, said he was entitled to more than 12.5 million euros under his contract. Societe Generale argued it no longer owes Geys any severance because suing breached his contract.

“I reject the bank’s arguments that the claimant has lost any right to receive a termination payment, or any other payment, as a result of making or pursuing any claims,” Leggatt said.

The bank may have saved itself about 2.5 million euros had it “appropriately” worded a November 2007 letter firing Geys, according to the judge. Leggatt said the company didn’t properly end Geys’s contract until months later, meaning Societe Generale owed him a year-end bonus.

Sarah Butcher of eFinancial News reports It’s not unusual for banks to fire over-performers:

Bizarrely, lawyers say it’s not at all unusual for banks to eject high performers with large pay claims, even if they’re making a profit for the firm.

“You’d think that banks would recognise that it’s sensible to keep these people onboard,” says Charles Ferguson, a solicitor who specialises in the representation of traders. “However, there are some banks where there’s a limit to what they’re willing to pay. If someone takes them above that, they’ll look for an excuse to back out.”

Most banks include clauses in their contracts specifying that you need to be in employment and not under notice at the bonus date in order to be eligible for a payment. As a result, redundancies in the run up to bonuses are abnormally common.

Equally, Ferguson says some contracts specify that profit sharing entitlements will disappear if salespeople or traders are sacked for gross incompetence. He says this is also a favourite reason for dismissal.

Hah! Us proud Canadians can teach them a thing or two about justification for firing, eh?

The Ontario 2010-11 Budget was introduced today. Not a word about dividends – probably a good thing! More worrisomely, they proudly announce that the current deficit will be eliminated in a mere eight years – which stands a good chance of being the next completely unexpected and totally unforecasted recession. In that time, a mere $88.9-billion will be added to the provincial debt … and debt charges will rise from 9.35% of revenue to 11.3%.

In the Canadian preferred share market, volume was heavy AGAIN, Perpetual Discounts were down AGAIN (losing 21bp) and FixedResets were up AGAIN (gaining 5bp). Yields on FixedResets are now at 3.38%.

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 2.61 % 2.73 % 59,156 20.84 1 1.8868 % 2,113.4
FixedFloater 4.94 % 3.06 % 50,216 20.10 1 2.2305 % 3,198.4
Floater 1.93 % 1.72 % 44,167 23.26 4 -0.1470 % 2,387.2
OpRet 4.84 % 1.26 % 111,554 0.18 12 -0.0965 % 2,313.1
SplitShare 6.36 % 6.05 % 137,742 0.08 2 0.1538 % 2,144.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0965 % 2,115.1
Perpetual-Premium 5.95 % 6.02 % 119,154 13.75 7 -0.0630 % 1,871.5
Perpetual-Discount 5.99 % 6.01 % 180,510 13.90 71 -0.2061 % 1,767.2
FixedReset 5.34 % 3.38 % 348,962 3.67 43 0.0488 % 2,212.1
Performance Highlights
Issue Index Change Notes
W.PR.H Perpetual-Discount -1.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-25
Maturity Price : 21.89
Evaluated at bid price : 21.89
Bid-YTW : 6.42 %
TD.PR.P Perpetual-Discount -1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-25
Maturity Price : 22.47
Evaluated at bid price : 22.61
Bid-YTW : 5.90 %
IGM.PR.B Perpetual-Premium -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-25
Maturity Price : 24.49
Evaluated at bid price : 24.70
Bid-YTW : 6.13 %
TD.PR.R Perpetual-Discount -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-25
Maturity Price : 23.90
Evaluated at bid price : 24.11
Bid-YTW : 5.90 %
CM.PR.K FixedReset -1.23 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 26.51
Bid-YTW : 3.76 %
IAG.PR.E Perpetual-Premium 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-25
Maturity Price : 24.40
Evaluated at bid price : 24.61
Bid-YTW : 6.12 %
BAM.PR.E Ratchet 1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-25
Maturity Price : 22.64
Evaluated at bid price : 21.60
Bid-YTW : 2.73 %
BAM.PR.G FixedFloater 2.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-25
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 3.06 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.C Perpetual-Discount 191,429 Nesbitt crossed blocks of 100,000 and 73,300 at 18.58.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-25
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 6.13 %
BNS.PR.T FixedReset 132,410 CIBC bought 10,000 from National at 28.28; RBC crossed 50,000 at 28.31. CIBC bought another 13,600 from National at 28.32; anonymous bought 10,000 from TD at 28.39.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 28.36
Bid-YTW : 3.09 %
BNS.PR.X FixedReset 116,804 CIBC bought 48,200 from National at 28.35, then another 10,000 from anonymous at the same price. Desjardins sold 20,000 to anonymous at 28.35; CIBC bought another 20,000 from National at 28.35 again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 28.40
Bid-YTW : 3.07 %
TD.PR.K FixedReset 112,270 CIBC bought 43,500 from National at 28.35. TD sold 23,300 to RBC at 28.35, then crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 28.35
Bid-YTW : 3.26 %
RY.PR.P FixedReset 92,243 National crossed 50,000 at 28.09, then bought 17,000 from TD at 28.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 28.16
Bid-YTW : 3.06 %
SLF.PR.A Perpetual-Discount 86,888 RBC bought 18,700 from Dundee at 19.31, then crossed 50,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-25
Maturity Price : 19.24
Evaluated at bid price : 19.24
Bid-YTW : 6.21 %
There were 52 other index-included issues trading in excess of 10,000 shares.

March 24, 2010

Wednesday, March 24th, 2010

Covered bonds are recovering:

Europe’s banks are selling covered bonds at the fastest pace in four years in a sign that debt investors are betting Europe’s economy is strong enough to weather the budget crisis in Greece.

Caja Ahorros Barcelona, Spain’s largest savings bank, and Westdeutsche Immobilienbank AG, a unit of Germany’s third- biggest state-owned lender, are among the mainly European financial companies that issued 87.5 billion euros ($118 billion) of the notes this year, according to data compiled by Bloomberg. That’s the most since 95.4 billion euros of the bonds were sold in the same period of 2006.

Covered bond spreads have tightened at a slower pace than those on other senior corporate debt. Typically carrying top ratings, they also widened less at the onset of the deepest financial crisis since the Great Depression.

The extra yield on the mortgage- and public sector-backed securities is still more than double the 36 basis-point average for the past 12 years, according to Bank of America Merrill Lynch’s EMU Covered Bonds Index. Investment-grade corporate bond spreads narrowed to 148 basis points as of March 22, compared with an average 92 basis points since 1997, index data show.

Covered bond sales fell as the credit market seized up, when investors shunned hard-to-value securities such as those backed by real estate. Issuance tumbled to 228.4 billion euros in 2008, from a record-high 347.8 billion euros in 2007, according to data compiled by Bloomberg.

It’s hard to interpret shifts in covered bonds in isolation, or with highly aggregated data such as the above. If it means more investor interest – good! If it means the banks are locked out of the unsecured market – bad!

It is possible to have your CFA Charter pulled for pornography.

Volume continued heavy in the Canadian preferred share market today as the ACO.PR.A redemption took effect. PerpetualDiscounts lost 1bp and FixedResets gained 9bp – which did not affect the median weighted average yield, which remains at 3.40%. That’s the trouble with using medians – sometimes things simply don’t move in-line!

PerpetualDiscounts now yield 6.01%, equivalent to 8.41% interest at the standard 1.4x equivalency factor. Long Corporates now yield about 5.7% (showing a total return of 0.35% on the month-to-date, +4.46% YTD), so the pre-tax interest-equivalent spread (also called the seniority spread) is now about 270bp, a slight widening from the 265bp reported March 17 and edging closer to their one year high in the low 290s.

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 2.66 % 2.73 % 61,221 20.67 1 0.0472 % 2,074.3
FixedFloater 5.05 % 3.17 % 49,126 19.96 1 0.7491 % 3,128.6
Floater 1.93 % 1.72 % 45,900 23.26 4 0.2580 % 2,390.8
OpRet 4.82 % 1.85 % 108,644 0.18 12 0.1092 % 2,315.3
SplitShare 6.37 % 6.26 % 136,379 3.67 2 -0.0659 % 2,141.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1092 % 2,117.2
Perpetual-Premium 5.94 % 6.01 % 118,718 13.67 7 -0.1715 % 1,872.7
Perpetual-Discount 5.97 % 6.01 % 181,218 13.83 71 -0.0095 % 1,770.9
FixedReset 5.33 % 3.40 % 344,628 3.67 43 0.0881 % 2,211.1
Performance Highlights
Issue Index Change Notes
IAG.PR.E Perpetual-Premium -2.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-24
Maturity Price : 24.11
Evaluated at bid price : 24.31
Bid-YTW : 6.20 %
BAM.PR.J OpRet -1.53 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 4.99 %
CIU.PR.A Perpetual-Discount -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-24
Maturity Price : 19.54
Evaluated at bid price : 19.54
Bid-YTW : 5.95 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.A OpRet 225,530 Nesbitt crossed 23,100 at 25.83; Desjardins bought 10,000 from anonymous at the same price. National crossed 40,000 at 25.80 and two blocks, 50,000 and 60,000 at 25.84. Desardins crossed 25,000 at 25.83.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2010-04-23
Maturity Price : 25.25
Evaluated at bid price : 25.81
Bid-YTW : -11.91 %
CM.PR.L FixedReset 184,250 National crossed 40,000 at 28.50 and 50,000 at 28.57. Nesbitt crossed 50,000 at 28.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 28.45
Bid-YTW : 3.25 %
BAM.PR.O OpRet 124,100 Nesbitt crossed 120,000 at 25.85.
YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 3.81 %
SLF.PR.A Perpetual-Discount 120,690 RBC crossed 50,000 at 19.33 and 10,000 at 19.30, followed by another 50,000 at 19.33.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-24
Maturity Price : 19.28
Evaluated at bid price : 19.28
Bid-YTW : 6.20 %
TD.PR.K FixedReset 100,919 National crossed 19,400 at 28.36 and 60,000 at 28.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 28.35
Bid-YTW : 3.26 %
TRP.PR.B FixedReset 95,524 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-24
Maturity Price : 24.95
Evaluated at bid price : 25.00
Bid-YTW : 3.94 %
There were 59 other index-included issues trading in excess of 10,000 shares.

LSC.PR.C Considering Extending Term

Wednesday, March 24th, 2010

Lifeco Split Corporation has announced:

that it is considering the merits of a possible extension of the term of the Capital Shares and the Preferred Shares beyond their scheduled redemption date of July 31, 2010. Lifeco has retained Scotia Capital Inc. to assist in this regard. There is no guarantee that after such review an extension will be proposed or if proposed will be approved by shareholders.

Lifeco is a mutual fund corporation created to hold a portfolio of common shares of selected publicly listed Canadian life insurance companies. Lifeco will generate a fixed quarterly dividend for the Preferred shareholders and provide the Capital shareholders with a leveraged investment, the value of which is linked to changes in the market price of the portfolio shares.

Capital Shares and Preferred Shares of Lifeco are listed for trading on The Toronto Stock Exchange
under the symbols LSC and LSC.PR.C respectively.

Asset coverage is 1.7+:1 according to the company; total asset value is about $32-million.

LSC.PR.C is not tracked by HIMIPref™. LSC.PR.C was last mentioned on PrefBlog when the capital unit dividend was suspended (it has since been reinstated).

TRI Issues USD Long Notes at 5.85%: TRI.PR.B Expensive?

Wednesday, March 24th, 2010

Thomson Reuters has announced:

the offering of US$500 million of 5.85% notes due 2040. The offering is expected to close on March 30, 2010, subject to customary closing conditions. Thomson Reuters plans to use the net proceeds from this offering and available cash to repurchase all of its US$700 million principal amount of 6.20% notes due 2012, as previously announced earlier today.

J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, RBS Securities Inc. and UBS Securities LLC are the joint book-running managers for the offering.

DBRS rates it A(low).

USD 30-Year Swaps are now at 4.45%, implying that the issue could be swapped into 3-month USD LIBOR +140bp. This in turn implies (to me!) that TRI.PR.B, paying 70% of Prime and quoted today at 23.75-95 (95% of par; hence paying about 74% of Prime as a dividend (so call it pre-tax interest equivalent = prime, close enough for government work).

Therefore TRI.PR.B pays the pre-tax equivalent of Prime, which is equal to about the overnight rate +200bp … so you’re getting a yield increment for the prefs of about +60bp, which is way, way less than you get for nominals … although, mind you, there is a LOT of basis risk in this calculation.

So I say TRI.PR.B is expensive.

DFN.PR.A Gets Bigger

Wednesday, March 24th, 2010

Dividend 15 Split Corp. announced on March 3:

that it has filed a short form prospectus in each of the provinces of Canada with respect to an additional offering of Preferred Shares and Class A Shares. The offering will be co-led by RBC Capital Markets and CIBC World Markets. The Company will file an amended and restated prospectus shortly outlining the offering prices set forth below.

The Preferred Shares will be offered at a price of $10.00 per share to yield 5.25% based on current distribution policy. The closing price of the preferred shares on March 2, 2010 on the TMX was $10.40.

The Class A shares will be offered at a price of $11.00 per share to yield 10.91% based on current distribution
policy. The closing price of the preferred shares on March 2, 2010 on the TMX was $11.99.

It announced on March 10 that it:

filed a final prospectus for its secondary offering of 2,400,000 Preferred Shares and 2,400,000 Class A Shares of the Company for aggregate gross proceeds of $50,400,000, bringing the Company’s net assets to approximately $273 million.

Finally, it announced on March 16 that it:

completed its secondary offering of 2,400,000 Preferred Shares and 2,400,000 Class A Shares of the Company for aggregate gross proceeds of $50,400,000, bringing the Company’s net assets to approximately $273 million.

DFN.PR.A was last mentioned on PrefBlog when it was reviewed by Larry MacDonald.

DFN.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

March 23, 2010

Tuesday, March 23rd, 2010

After skirmishing over the Greek bail-out, France has surrendered to Germany:

Germany and France have agreed to back International Monetary Fund aid for Greece, a German Finance Ministry official said, signaling a joint position after weeks of dispute over how to resolve the Greek crisis.

Germany and France, the euro region’s two biggest economies, are now pulling together before a two-day EU summit in Brussels beginning March 25, the official said on condition of anonymity. Greece has pressed the EU to make specific commitments on aid to help lower its borrowing costs.

Apparently, the IMF money will be spent on armanents:

In a bizarre twist to the Greek debt crisis, France and Germany are pressing Greece to buy their gunboats and warplanes, even as they urge it to cut public spending and curb its deficit.

Indeed, some Greek officials privately say Paris and Berlin are using the crisis as leverage to advance arms contracts or settle payment disputes, just when the Greeks are trying to reduce defense spending.

“No one is saying ‘Buy our warships or we won’t bail you out’, but the clear implication is that they will be more supportive if we do what they want on the armaments front,” said an adviser to Prime Minister George Papandreou, speaking on condition of anonymity because of the diplomatic sensitivity.

Ten-Year swap spreads are negative:

The 10-year U.S. swap spread turned negative for the first time on record amid rising demand for higher-yielding assets such as corporate and emerging market securities.

The gap between the rate to exchange floating- for fixed- interest payments and comparable maturity Treasury yields for 10 years, known as the swap spread, narrowed to as low as negative 2.5 basis points, the lowest since at least 1988, when Bloomberg began collecting the data. The spread narrowed 5.38 basis points to negative 2.38 basis point at 3:12 p.m. in New York.

A negative swap spread means the Treasury yield is higher than the swap rate, which typically is greater given the floating payments are based on interest rates that contain credit risk, such as the London interbank offered rate, or Libor. The 30-year swap spread turned negative for the first time in August 2008, after the collapse of Lehman Brothers Holdings Inc. triggered a surge of hedging in swaps. The difference narrowed to negative 20.5 basis points today.

“It’s hedge-related activity related to new corporate issuance,” said Christian Cooper, an interest-rate strategist at Royal Bank of Canada in New York, one of 18 primary dealers that trade with the Federal Reserve. “As more and more institutions receive, then swap rates will go lower.”

PerpetualDiscounts slid again on a day of elevated volume, losing 10bp, while FixedResets roared ahead, gaining 12bp and taking weighted median average yield down to 3.40%.

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 2.66 % 2.73 % 61,237 20.67 1 0.9048 % 2,073.3
FixedFloater 5.09 % 3.21 % 48,919 19.92 1 -0.0468 % 3,105.4
Floater 1.93 % 1.72 % 47,698 23.24 4 0.6180 % 2,384.6
OpRet 4.89 % 2.89 % 100,637 0.18 13 0.1582 % 2,312.8
SplitShare 6.37 % 6.26 % 135,559 3.67 2 0.5077 % 2,142.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1582 % 2,114.8
Perpetual-Premium 5.93 % 6.03 % 120,056 13.79 7 0.0000 % 1,875.9
Perpetual-Discount 5.97 % 6.00 % 180,024 13.83 71 -0.1000 % 1,771.0
FixedReset 5.34 % 3.40 % 343,611 3.68 43 0.1221 % 2,209.1
Performance Highlights
Issue Index Change Notes
MFC.PR.C Perpetual-Discount -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-23
Maturity Price : 18.70
Evaluated at bid price : 18.70
Bid-YTW : 6.07 %
BNS.PR.J Perpetual-Discount -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-23
Maturity Price : 22.17
Evaluated at bid price : 22.67
Bid-YTW : 5.87 %
IAG.PR.F Perpetual-Discount -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-23
Maturity Price : 24.40
Evaluated at bid price : 24.60
Bid-YTW : 6.06 %
BAM.PR.P FixedReset 1.25 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-30
Maturity Price : 25.00
Evaluated at bid price : 27.61
Bid-YTW : 4.47 %
TRI.PR.B Floater 2.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-23
Maturity Price : 23.48
Evaluated at bid price : 23.75
Bid-YTW : 1.62 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.R OpRet 376,300 TD crossed 65,900 at 25.95. Scotia bought 75,000 from National at 26.00. Anonymous bought 12,000 from TD at 25.99 and 34,900 from National at the same price. National crossed 12,000 at 25.95, then sold 24,000 to Scotia at 26.00. National crossed 140,000 at 25.96.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2010-04-22
Maturity Price : 25.60
Evaluated at bid price : 25.95
Bid-YTW : -3.36 %
MFC.PR.D FixedReset 166,970 RBC crossed 150,000 at 28.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 28.07
Bid-YTW : 3.58 %
PWF.PR.O Perpetual-Discount 87,575 Nesbitt crossed 80,000 at 24.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-23
Maturity Price : 23.72
Evaluated at bid price : 23.90
Bid-YTW : 6.17 %
BNS.PR.X FixedReset 78,344 CIBC bought 14,800 from Desjardins at 28.24 and 10,000 from National at the same price. CIBC then bought two blocks, of 13,000 and 20,000 shares, from National at 28.22.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 28.24
Bid-YTW : 3.22 %
TRP.PR.B FixedReset 77,460 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-03-23
Maturity Price : 24.88
Evaluated at bid price : 24.93
Bid-YTW : 3.95 %
TD.PR.K FixedReset 65,500 CIBC bought 25,000 from Desjardins at 28.40. National crossed 25,000 at 28.37.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 28.40
Bid-YTW : 3.21 %
There were 64 other index-included issues trading in excess of 10,000 shares.

Marginal Tax Rates: BC

Tuesday, March 23rd, 2010

An Assiduous Reader of PrefLetter writes in and says:

I believe your Equivalency Factors for taxes (Table 3 in Preletter March) are wrong for low-income earners.

The dividend credit can be applied to other income which results in a negative marginal tax rate on dividends. For example, for BC $30,000, 2009 tax year, this is -14.36% (regular income taxed at 20.06%) so
equivalency is 1.43.

This handy website will give you the marginal rate without capping them at 0% like the E&Y calculator does:

http://taxtips.ca/taxrates/bc.htm

The point is well taken – but unfortunately I do not consider taxtips.ca to be an authoritative source. According to their website:

TaxTips.ca is owned by a small private company located in Cedar, British Columbia. It is prepared by a husband and wife team who are retired from owning and operating a small business, with one being a retired CGA (Certified General Accountant). The goal of the site is to be a reference site for easy to understand tax, financial, and related information.

In order to consider a source authoritative I want to see names. I also want to see that the person making a claim has something at stake in the matter and is pronouncing on a subject on which they are earning a living. I consider it highly important in this wonderful world of looney-tunes in which we live that somebody maing a claim get hurt – either directly in the pocketbook, or (as in the case of academics) in reputation – if they make a mistake. And size helps (although I am realistic enough to recognize that it’s no guarantee): Ernst & Young, for instance, will have many opinionated partners who will jump on any egregious or doubtful claim because E&Y’s reputation is their reputation. While this means that many publicly expressed opinions get diluted to the point of uselessness, it does imply that what they do say has a reasonably good probability of being right.

So, while the Assiduous Reader’s claim has a ring of truth to it, I am – as I always stress – not competent on tax matters and am looking for an authoritative source to substantiate the claim. Any help will be appreciated.

GWO, PWF PerpetualDiscounts: Implied Volatility Goes Negative

Monday, March 22nd, 2010

The recent slide in PerpetualDiscounts has been particularly hard on insurers – and particularly the lower coupon issues in a continuation of the trend discussed in MAPF: February Performance.

In fact, implied volatility has gone negative:


Click for Big


Click for Big

Both graphs have been prepared using the Straight Perpetual Implied Volatility Calculator and, for purposes of the theoretical curve, setting the implied volatility to 15% / 3 Years.