PrefBlog

Nothing happened today.

It was a good day for the Canadian preferred share market, helped along by my decision to stop commenting daily on the four issue PerpetualDiscount index. FixedResets were up 14bp and DeemedRetractibles wone 32bp. Volatility was average. Volume was huge.

Greece is a problem. Portugal, not so much:

Portugal doesn’t present the risk of default that Greece does to the rest of the European Union because officials there are seeking to contain the nation’s financial crisis, according to Fitch Ratings.

“The government there is committed and credible. The economy is highly indebted, but they are working on organizing a debt-for-equity swap,” David Riley, head of the sovereign-debt unit at Fitch Ratings, said at a conference in New York today. “That is the right strategy and in the near term we don’t see them as a significant risk to the rest of the euro zone.”

Banks in Germany, France, Belgium and the U.K. have the least periphery exposure to Portugal, excluding Ireland, among the debtor nations at the heart of the region’s financial crisis, according to data provided by Fitch at a presentation today. Riley wasn’t immediately available to elaborate on a possible debt-to-equity exchange.

Here in Soviet Canuckistan, we know what to do when demand exceeds supply – we allocate the supply:

Canada Mortgage & Housing Corp. said it is rationing mortgage insurance for lenders as the country’s housing agency approaches the legal limit of its ability to backstop the loans.

“CMHC has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance,” Charles Sauriol, a spokesman for the Ottawa-based agency, said in an e-mailed statement. “To ensure equitable access to portfolio insurance within CMHC’s annual limits, an allocation process is being established which has caused some delays.”

The agency said that lenders have increased their demand for insurance of their mortgages amid “liquidity needs” since the 2007 financial crisis.

“This does not affect the availability of CMHC’s mortgage loan insurance for qualified home buyers and will not impact the cost of buying a house,” Sauriol said in the statement.

Portfolio insurance allows lenders to insure mortgages that aren’t already backstopped by the housing agency. Under Canadian law, homebuyers who put down less than 20 percent of the cost must insure the mortgage. Banks also buy insurance for other home loans before securitizing them.

CMHC said it had C$541 billion ($539 billion) of insurance in force as of Sept. 30. The organization’s legislated limit is C$600 billion, it said.

This comes after news of OSFI micro-management of the banking business:

Canada’s banking regulator is stepping up its scrutiny of the housing sector, concerned about speculators in Toronto and Vancouver as well as riskier lending practices.

In a series of documents made public on Monday, the Office of the Superintendent of Financial Institutions says existing market analysis does not capture the degree of speculation in the condo markets of the two cities. The regulator is also concerned about the long-term risks home equity lines of credit (HELOCs) could pose to the banking sector in a downturn.

As a result, OSFI has told the banks it will now monitor on a quarterly basis what steps the lenders are taking to avoid problems in the HELOC market. It also wants to spend more time compiling data on speculators in the real estate market, and the impact they are having on prices.

The basic problem – such as there is one – is that 40%+ of Canadian banks’ assets are now mortgage related, compared to 30% historically. But it doesn’t occur to the useless twerps at OSFI that they should simply apply a surcharge on the capital required when proportions get massively and quickly out of whack. It’s much more fun to play ‘Let’s pretend we’re bankers!’.

BNS is raising equity capital:

It has long been assumed that Bank of Nova Scotia (BNS-T51.840.310.60%) would need to issue common equity to boost its capital ratios after acquiring abroad. No surprise, then, that the bank is in the market with a new bought deal this afternoon.

But no one was quite sure of when exactly the equity raise would come, and how much it would be worth — especially after it was revealed that the bank is looking to sell its flagship office tower in downtown Toronto for around $1-billion. That money, many believed, could supplant some of the much-needed common equity

For that reason, it is a bit surprising that the bank has gone so big with its capital raise, opting to selling $1.5-billion of new common shares at $50.25 each. And the timing is a little odd considering that the office tower sale is just getting under way.

DBRS confirmed ALA.PR.A at Pfd-3:

DBRS has today confirmed the ratings on the Medium-Term Notes (MTNs) and Preferred Shares – Cumulative of AltaGas Ltd. (AltaGas or the Company) at BBB and Pfd-3, respectively, both with Stable trends.

The rating actions follow the announcement that AltaGas has agreed to acquire SEMCO Holding Corporation (SEMCO). SEMCO is the sole shareholder of SEMCO Energy, Inc., a regulated public utility company with natural gas distribution and storage operations in Michigan and Alaska. The proposed purchase price of approximately US$1.135 billion, including assumed debt of approximately US$355 million, represents about 1.5 times the combined regulated rate base of US$725 million. The transaction value equates to approximately 8.7 times SEMCO’s expected EBITDA of approximately US$130 million in the first full year of ownership in 2013, which is reasonable.

Trading in ALA.PR.A was halted for the last 50 minutes of the day:

TORONTO, Feb. 1, 2012 /CNW/ – The following issues have been halted by IIROC:

Company: AltaGas Ltd.

TSX Symbol: ALA (all issues)

Reason: Pending News

Halt Time (ET): 3:09 PM ET

It was a good strong day for the Canadian preferred share market,with PerpetualDiscounts (all four of them! Both issuers!) up 28bp, FixedResets gaining 22bp and DeemedRetractibles winning 37bp. There was a good long list of Performance Highlights, all winners. Volume was high.

PerpetualDiscounts now yield 4.93%, equivalent to 6.41% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.5%, so the pre-tax interest-equivalent spread is now about 190bp, an interesting, but possibly spurious widening from the 180bp reported January 31.