PrefBlog

S&P has put Portugal on watch-negative:

What Portugal does to combat downward pressures on growth and under what terms it accepts external support–if it does at all–will influence the government’s creditworthiness. The Eurogroup Ministers recently proposed treaty changes to establish a permanent crisis mechanism to be called the European Stability Mechanism (ESM), which will be based on the European Financial Stability Facility. It is our understanding that the ESM may be designed to rank ahead of private creditors in any future debt restructurings beginning in 2013. As a result, debt that European Monetary Union member states issue might not rank pari passu with debt that the ESM issues. We think that this treaty change would represent a move away from the original design of the European Financial Stability Facility, which was intentionally exempt from preferred creditor status by the 16 members of the Euro Area in an effort to assist European Monetary Union members in financial difficulties.

I’m always looking for new perspectives, so I asked the question:

Why Issue Preferred Shares

Glad you asked…
Perferred shares are issued for a wide variety of reasons. One of the reasons why a preferred share may be issued is because people actually like these kinds of shares compared to other types of shares.

Nicole_Marie8201, Answers Expert

Well, I’m relieved to have finally cleared that one up!

Are politicians taking the US fiscal deficit seriously enough? Is the perfect the enemy of the good? If two deficit panel members are to be believed, the answers are “No” and “Yes”:

A panel vote set for today was delayed until Dec. 3. Bowles said yesterday he didn’t know if members will reach agreement on the proposal, which includes scaling back such popular tax breaks as the home-mortgage interest deduction. Agreement from 14 of the commission’s 18 members is needed to send a plan to Congress for a vote on whether to put it into effect. A failure to get 14 votes would kill the plan.
…
Representative Paul Ryan, a Wisconsin Republican on the panel, said in an interview he will vote against the plan because it doesn’t do enough to address rising health-care costs. Representative Jeb Hensarling, a Texas Republican, expressed the same concern and said, “I don’t know if you’re going to get my vote.”

Achieving the goal imperfectly and then merely having to tinker with the solution in place is just not sexy enough, I guess.

I had a laugh at the 7% targetted distribution of Quadravest’s Dividend Select 15 on November 26. In the interest of fairness, I think we should all now laugh just as loudly at Mulvihill’s Canadian Utilities & Telecom Income Fund:

The Fund’s investment objectives are (i) to pay holders of its Units (“Unitholders”) monthly distributions in an amount targeted to be 7.0% per annum on the NAV of the Fund; and (ii) to preserve and enhance the Fund’s NAV while reducing portfolio volatility.

The Fund will seek to achieve its investment objectives by investing in a portfolio consisting principally of equity securities of large capitalization (over $1 billion) utility and, to a lesser degree, telecommunications issuers listed on the Toronto Stock Exchange (“TSX”).

The underwriter’s fee is 5.25%. dealers get a trailer of 40bp, and Mulvihill gets 1.1%; the total underlying performance required for a stable NAV is about 8.91% … not entirely unreasonable for equities, provided we ignore sequence-of-returns risk. And, of course, Mulvihill does not provide details of its track record in the prospectus, merely their experience.

PrefBlog salutes Emil Cohen who, despite the best efforts (and a little bullying) of the Toronto District School Board, has the makings of an independent and assertive young man.

In a further abuse of the right to due process, police can now impound cars for failure to make family support payments. Doesn’t this make everybody feel good? After all, the SIU now admits that their investigation of the police assault on Adam Nobody did not include such esoteric investigative techniques as talking to the guy who made the video (although it seems that in the last few days they have listened to a lecture on investigative techniques by Officer Bubbles).

Abuse of police authority? Cover-ups and grossly incompetent pseudo-investigations? A police spokesman claims the officers involved would be outraged at allegations that there’s any kind of cover-up going on, no sir, no way, ain’t never gonna happen, but remains unable to name the officers. Ah, well … here in the true North strong and free, abuse of power is rewarded.

There was continued high volume on the Canadian preferred share market today, with PerpetualDiscounts losing 14bp and FixedResets down marginally.

PerpetualDiscounts now yield 5.37%, equivalent to 7.52% interest at the standard equivalency factor of 1.4x. Long Corporates now yield 5.4%, so the pre-tax interest equivalent spread is now 210bp, an apparrent, but probably meaningless, tightening from the 220bp reported at month-end (i.e., yesterday).

Markets remain unimpressed by the Irish bail-out:

The difference in yield between Italian 10-year bonds and German bunds widened to 199 basis points after reaching 212 points earlier. The Spanish-German yield spread rose 17 basis points to 284 basis points and the yield premium for Belgian 10- year bonds reached 131 basis points, the most since January 2009.
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Credit-default swaps insuring Italian government bonds rose 24 basis points to 270, contracts on Spain increased 16 basis points to 368 and Portugal climbed 12 basis points to 552, all record highs, according to CMA, a data provider.

DBRS has assigned ratings to Loblaw’s shelf prospectus:

DBRS has today assigned a rating of BBB with a Stable trend to Loblaw Companies Limited’s (Loblaw or the Company) new $1 billion Short Form Base Shelf Prospectus, dated November 25, 2010.

This prospectus will enable Loblaw to offer and issue up to $1.0 billion of debentures and second preferred shares during the 25-month period the base shelf prospectus remains valid. Additionally, DBRS has assigned a new rating of Pfd-3 to the Company’s preferred share portion of this prospectus.

Connor Clark & Lunn, best known for the default of their highly structured RPB.PR.A offering (among others) are reinforcing their effort (kicked off with the issue of HBanc Capital Securities Trust, discussed on October 13) to win the covetted PrefBlog “Most Ridiculous Family of Funds” award with the issue of Australian Banc Capital Securites Trust. It should do quite well; the underwriting fee on the Class A units is 5.25%, not that that will have anything to do with the success of the offering, of course.

Coincidentally, a team of analysts has commented on the Aussie Dollar:

Cricket’s oldest international rivalry resumed last week in Australia without a traditional taunt of traveling English fans: “We’re fat, we’re round, three dollars to the pound.”
…
The dollar chant “won’t be coming out of the songbook this time,” Barmy Army spokeswoman Becky Fairlie-Clarke said in a telephone interview. “It’s more like 1 1/2 now.”

It was a poor day for the Canadian preferred share market, with PerpetualDiscounts down 24bp and FixedResets losing 10bp. Volume was heavy.

PerpetualDiscounts now yield 5.41%, equivalent to 7.57% interest at the standard equivalency factor of 1.4x. Long Corporates continue to yield about 5.4% (maybe a little under) , so the pre-tax interest-equivalent spread is now about 220bp, a significant widening from the 210bp reported on November 24, although it must be noted that the spread has been bouncing between these two levels all month.

It is instructive to review the performance of the BMO Long Corporate ETF for the month:

Click for big

Long Corporates had a total return of about -1% on the month.

And that’s a wrap for November, 2010!