Archive for October, 2012

ABK.PR.B: Reorganization Proposal to Refund Preferreds

Wednesday, October 31st, 2012

Scotia Managed Companies has announced:

The Board of Directors of allBanc Split Corp. (the “Company”) announced today it has approved a proposal to reorganize the Company. The reorganization will permit holders of Capital Shares to extend their investment in the Company beyond the scheduled redemption date of March 8, 2013 for an additional five years. The Preferred Shares will be redeemed on the same terms originally contemplated in their share provisions on March 8, 2013. Holders of Capital Shares who do not wish to extend their investment and all holders of Preferred Shares will have their shares redeemed on March 8, 2013.

The reorganization will involve (i) the extension of the originally scheduled redemption date, (ii) a special retraction right to enable holders of Capital Shares to retract their shares as originally contemplated should they not wish to extend their investment and (iii) the issuance of a new class of preferred shares in order to provide continuing leverage for the Capital Shares. The Company may also offer additional Capital Shares at the time of the preferred share offering.

A special meeting of holders of the Capital Shares will be held on December 13, 2012 to consider and vote upon the proposed reorganization. Details of the proposed reorganization will be outlined in an information circular to be prepared and delivered to holders of Capital Shares of record on November 9, 2012 in connection with the special meeting and will be available on www.sedar.com. Implementation of the proposed reorganization will also be subject to applicable regulatory approval including the Toronto Stock Exchange.

allBanc Split Corp. is a mutual fund corporation created to hold a portfolio of common shares of the Bank of Montreal, Canadian Imperial Bank of Commerce, The Bank of Nova Scotia, Royal Bank of Canada and The Toronto Dominion Bank. Capital Shares and Preferred Shares of allBanc Split Corp. are listed for trading on the Toronto Stock Exchange under the symbols ABK.A and ABK.PR.B respectively.

ABK.PR.B is a fairly small issue, with less than a million shares outstanding with a par value of $26.75 each. It is scheduled for redemption 2013-3-8.

ABK.PR.B was last mentioned on PrefBlog when they retained their advisor for this transaction. ABK.PR.B is not tracked by HIMIPref™.

October 30, 2012

Wednesday, October 31st, 2012

Sandy did some damage:

Citigroup Inc. (C), the third-largest U.S. bank, said its offices at 111 Wall St. will be unusable for weeks after Hurricane Sandy battered lower Manhattan with water and power outages.

“The building experienced severe flooding and will be out of commission for several weeks,” Chief Executive Officer Michael Corbat wrote in a memo to employees today.

The New York-based firm is still assessing when buildings at 388 and 390 Greenwich St. can reopen, a process complicated by power and transit outages, he said.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 5bp, FixedResets off 3bp and DeemedRetractibles up 11bp. Volatility was non-existent. Volume was extremely low.

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 0.0533 % 2,469.1
FixedFloater 4.18 % 3.51 % 35,049 18.32 1 0.2203 % 3,853.3
Floater 2.80 % 2.99 % 56,699 19.74 4 0.0533 % 2,665.9
OpRet 4.62 % 2.02 % 41,555 0.65 4 -0.3705 % 2,569.0
SplitShare 5.39 % 4.82 % 66,825 4.47 3 -0.0131 % 2,844.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.3705 % 2,349.1
Perpetual-Premium 5.28 % 1.21 % 79,560 0.32 27 0.0545 % 2,311.4
Perpetual-Discount 5.01 % 4.92 % 42,885 15.47 4 0.1744 % 2,583.7
FixedReset 4.98 % 3.03 % 209,361 3.94 73 -0.0312 % 2,444.7
Deemed-Retractible 4.93 % 3.56 % 126,769 1.13 46 0.1102 % 2,384.4
Performance Highlights
Issue Index Change Notes
No individual gains or losses exceeding 1%!
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.K Deemed-Retractible 101,839 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-12-25
Maturity Price : 26.00
Evaluated at bid price : 26.11
Bid-YTW : -0.05 %
IFC.PR.A FixedReset 59,804 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.34
Bid-YTW : 3.64 %
RY.PR.X FixedReset 50,100 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.81
Bid-YTW : 1.96 %
BNS.PR.Y FixedReset 44,540 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.87
Bid-YTW : 2.85 %
SLF.PR.D Deemed-Retractible 31,664 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.70
Bid-YTW : 5.25 %
GWO.PR.G Deemed-Retractible 30,225 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 4.73 %
There were 12 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BNA.PR.D SplitShare Quote: 26.50 – 26.89
Spot Rate : 0.3900
Average : 0.2629

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-11-29
Maturity Price : 26.00
Evaluated at bid price : 26.50
Bid-YTW : -4.02 %

MFC.PR.B Deemed-Retractible Quote: 23.85 – 24.20
Spot Rate : 0.3500
Average : 0.2342

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.85
Bid-YTW : 5.39 %

PWF.PR.O Perpetual-Premium Quote: 26.51 – 26.89
Spot Rate : 0.3800
Average : 0.2699

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-31
Maturity Price : 26.00
Evaluated at bid price : 26.51
Bid-YTW : 4.56 %

IAG.PR.E Deemed-Retractible Quote: 26.38 – 26.87
Spot Rate : 0.4900
Average : 0.3858

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 26.00
Evaluated at bid price : 26.38
Bid-YTW : 5.32 %

TRI.PR.B Floater Quote: 22.20 – 22.50
Spot Rate : 0.3000
Average : 0.2030

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-30
Maturity Price : 21.97
Evaluated at bid price : 22.20
Bid-YTW : 2.35 %

RY.PR.G Deemed-Retractible Quote: 25.54 – 25.77
Spot Rate : 0.2300
Average : 0.1452

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.54
Bid-YTW : 3.78 %

New Issue: NA FixedReset, 3.80%+243

Tuesday, October 30th, 2012

National Bank of Canada has announced:

that it has entered into an agreement with a group of underwriters led by National Bank Financial Inc. for an issue on a bought deal basis of 7 million non-cumulative 5-year rate reset first preferred shares series 28 (the “Series 28 Preferred Shares”), at a price of $25.00 per share, to raise gross proceeds of $175 million.

National Bank has also granted the underwriters an option to purchase, on the same terms, up to an additional 1 million Series 28 Preferred Shares. This option is exercisable in whole or in part by the underwriters at any time up to one business day prior to closing. The maximum gross proceeds raised under the offering will be $200 million should this option be exercised in full.

The Series 28 Preferred Shares will yield 3.80% annually, payable quarterly, as and when declared by the Board of Directors of National Bank, for the initial period ending November 15, 2017. The first of such dividends, if declared, shall be payable on February 15, 2013. Thereafter, the dividend rate will reset every five years at a level of 243 basis points over the then 5-year Government of Canada bond yield.

Holders of the Series 28 Preferred Shares will have the right to convert their shares into an equal number of non-cumulative floating rate first preferred shares Series 29 (the “Series 29 Preferred Shares”), subject to certain conditions, on November 15, 2017, and on November 15th every five years thereafter. Holders of the Series 29 Preferred Shares will be entitled to receive quarterly floating dividends, as and when declared by the Board of Directors of National Bank, equal to the 90-day Government of Canada Treasury Bill rate plus 243 basis points.

The net proceeds of the offering will be used for general corporate purposes and are expected to qualify as Tier 1 capital for National Bank. The expected closing date is on or about November 7, 2012. National Bank intends to file in Canada a prospectus supplement to its October 5, 2012 base shelf prospectus in respect of this issue.

There is nothing in the base prospectus (SEDAR, “National Bank”, October 5, Final short form prospectus – English) that speaks to the existence of a Non Viability Contingent Capital (NVCC) clause, so we shall just have to wait for the supplement.

October 29, 2012

Tuesday, October 30th, 2012

UBS is cutting way back on investment banking:

UBS AG (UBSN), Switzerland’s largest bank, will cut as many as 10,000 jobs companywide as the trading business shrinks, a person with knowledge of the plan said.

The bank had about 63,250 employees as of June 30, according to its most recent financial report, which means the staff cut could equal 16 percent. UBS already announced it is reducing risk-weighted assets at the investment bank by more than half from September 2011 levels, mostly in fixed income.

The plan will lead to a further reduction of as much as 100 billion Swiss francs ($107 billion) of risk-weighted assets, the person said. Much of the fixed-income operations will be put in a new unit that will hold non-core assets, and [investment-bank co-head Carsten] Kengeter will probably give up his current role to head the new unit, the person said.

There are threats of turmoil in Italy:

Former Italian prime minister Silvio Berlusconi said his party, the biggest in parliament, may end support for Premier Mario Monti’s government because its policies are deepening the country’s recession.

The People of Liberty party needs to consider that “with a no-confidence vote by us, we would determine a situation that would be interpreted in a certain way by the financial markets and would cause early elections,” Berlusconi, 76, told reporters yesterday near Milan. “We will consider these facts and decide whether to immediately withdraw our support of the government.”

“It’s impossible to say what is in Berlusconi’s head now, but if he decides to end his support to Monti, early elections become almost inevitable,” said Roberto D’Alimonte, a professor of politics at Rome’s LUISS University. “Berlusconi would lose the elections anyway, but would likely get more votes thanks to an anti-austerity platform and that would increase his party’s bargaining power in the next parliament.”

Monti is still implementing some of the steps aimed at containing debt and keeping the deficit under 3 percent of gross domestic product this year. Industrial output unexpectedly rose in August, signalling the recession may be easing and consumer confidence gained this month as the government announced tax cuts for the lowest earners to offset the effect of an increase on the value-added levy in 2012.

Government micro-management of the mortgage market is getting popular:

The monetary policy committee, led by Governor Stanley Fischer, cut the rate by a quarter-point to 2 percent, the Jerusalem-based bank said on its website today. None of the 24 economists surveyed by Bloomberg predicted the decision.

The Bank of Israel also released, together with the rate decision, new draft directives aimed at cooling the mortgage market, which are expected to go into effect on Nov. 1. The directives limit mortgages to 70 percent of the value of the home, with the exception of new home buyers, who will be permitted to borrow up to 75 percent.

I will admit that I was inclined to be rather contemptuous of today’s shut-down of the NYSE – until I saw this picture from Manhattan:


Click for Big

This has had an effect on power supply:

Con Edison shut down power to parts of downtown Manhattan, including Wall Street and the nation’s financial nerve center, as the storm surge, boosted by high tide, sent saltwater pouring into its underground power network.

About 250,000 customers in Manhattan were without power as of 9 p.m. on Oct. 29 local time after flooding in substations caused outages from the lower tip of the island to East 39th Street, the utility said in a statement. It may need to cut power in additional areas of downtown, as well as in parts of Brooklyn, Queens and the Bronx due to record tides and surge from Sandy,the utility said in a separate statement last night.

It was a day of very little price movement for the Canadian preferred share market, with PerpetualPremiums gaining 1bp, FixedResets down 3bp and DeemedRetractibles off 1bp. There was no volatility of note. Volume was low.

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 -0.0400 % 2,467.7
FixedFloater 4.19 % 3.52 % 36,308 18.31 1 -0.2198 % 3,844.9
Floater 2.80 % 3.00 % 57,035 19.72 4 -0.0400 % 2,664.5
OpRet 4.61 % 0.53 % 42,088 0.63 4 0.5252 % 2,578.6
SplitShare 5.39 % 4.81 % 67,019 4.48 3 0.1050 % 2,844.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.5252 % 2,357.9
Perpetual-Premium 5.28 % 1.32 % 80,536 0.22 27 0.0086 % 2,310.1
Perpetual-Discount 5.02 % 4.93 % 42,252 15.45 4 -0.1128 % 2,579.2
FixedReset 4.97 % 3.04 % 210,548 3.95 73 -0.0265 % 2,445.5
Deemed-Retractible 4.95 % 3.58 % 131,392 2.02 47 -0.0067 % 2,381.8
Performance Highlights
Issue Index Change Notes
No individual gains or losses exceeding 1%!
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.O Deemed-Retractible 63,190 TD bought 19,400 from CIBC at 25.41. Nesbitt crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.46
Bid-YTW : 3.90 %
TD.PR.G FixedReset 61,641 National crossed 50,000 at 26.59.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.60
Bid-YTW : 1.88 %
MFC.PR.F FixedReset 60,163 RBC crossed 46,300 at 24.00.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.91
Bid-YTW : 4.00 %
BNS.PR.R FixedReset 54,042 RBC crossed 50,000 at 25.54.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.53
Bid-YTW : 3.22 %
MFC.PR.H FixedReset 52,508 RBC crossed 49,900 at 26.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.75 %
FTS.PR.H FixedReset 50,350 RBC crossed 50,000 at 25.60.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-29
Maturity Price : 23.64
Evaluated at bid price : 25.55
Bid-YTW : 2.77 %
There were 20 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IAG.PR.A Deemed-Retractible Quote: 24.25 – 25.00
Spot Rate : 0.7500
Average : 0.4319

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.25
Bid-YTW : 5.09 %

IAG.PR.E Deemed-Retractible Quote: 26.37 – 26.86
Spot Rate : 0.4900
Average : 0.2716

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 26.00
Evaluated at bid price : 26.37
Bid-YTW : 5.34 %

CM.PR.E Perpetual-Premium Quote: 25.44 – 25.72
Spot Rate : 0.2800
Average : 0.1706

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-11-30
Maturity Price : 25.00
Evaluated at bid price : 25.44
Bid-YTW : -13.99 %

MFC.PR.A OpRet Quote: 25.76 – 26.13
Spot Rate : 0.3700
Average : 0.2616

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-19
Maturity Price : 25.50
Evaluated at bid price : 25.76
Bid-YTW : 3.14 %

POW.PR.C Perpetual-Premium Quote: 25.41 – 25.68
Spot Rate : 0.2700
Average : 0.1784

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-11-28
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : -11.01 %

HSB.PR.E FixedReset Quote: 26.74 – 26.95
Spot Rate : 0.2100
Average : 0.1405

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.74
Bid-YTW : 2.67 %

Preferred shares an attractive alternative to bonds, stocks

Monday, October 29th, 2012

Richard Morrison of the Financial Post wrote a piece titled Preferred shares an attractive alternative to bonds, stocks that featured a number of quotes from me. It was published in Saturday’s Financial Post with the title “Gentlemen prefer preferreds”.

October 26, 2012

Saturday, October 27th, 2012

The Kansas City Fed has published an interesting paper by George A. Kahn titled Estimated Rules for Monetary Policy:

This article estimates policy rules over periods of favorable economic performance to derive benchmark rules that might be useful guides for future monetary policy. Section I describes two simple, nonestimated rules that have been proposed as guides for policy and examines how closely they describe the actual setting of policy over various periods. Section II identifies time periods over which macroeconomic performance has generally been favorable and estimates policy rules that describe how monetary policy responded to key indicators over these periods. Section III evaluates past and current policy relative to the estimated rule and gives a number of reasons why policymakers should remain cautious about blindly following any estimated rule.

There was a meeting today regarding Money Market Fund reform:

Investment managers including BlackRock Inc. (BLK) and Fidelity Investments, under pressure to pre- empt action by a new super-committee of regulators, are seeking to end an impasse over money-fund reform.

Officials from several firms, as well as representatives from the Investment Company Institute, the industry’s trade group, are scheduled to meet with the Securities and Exchange Commission and Treasury Department officials today to discuss proposals for a potential compromise, BlackRock spokeswoman Bobbie Collins and Fidelity spokesman Vincent Loporchio said today. The industry helped block a plan in August that was backed by SEC Chairman Mary Schapiro.

BlackRock, the world’s largest asset manager, has held talks previously with SEC staff over a proposal that would include temporary withdrawal restrictions when money funds are under stress, said two people familiar with the matter, who asked not to be identified because the discussions were private.

BlackRock published an outline of its plan in a Sept. 27 paper, proposing that money funds, under some circumstances, impose “stand-by liquidity fees” on investors who withdraw money. The fee would be triggered only when a fund’s liquidity failed to meet existing minimums, or when a fund’s mark-to- market share value dipped below a certain level.

The BlackRock proposal is titled Money Market Funds: A Path Forward:

Circuit Breakers. Build in circuit breakers to all MMFs to limit runs in the time of a crisis. We believe these should take the form of stand-by liquidity fees (SLFs). We recommend these have the following features:
a) Objective triggers. The SLFs would not be active during times of normal market functioning. They would be triggered when a fund has fallen to half the requirement for NAV rounding or to one quarter the required liquidity levels based on the standards set above. In the case of US Rule 2a-7 MMFs, this means that the SLFs would be triggered when the fund fell below a mark-to-market NAV of 99.75 or when its 1-week liquidity fell below 7.5%.

b) The amount of the fee is a simple calculation. We recommend the amount of the fee charged when the SLFs are in force to be twice (2x) the difference between the mark-to-market NAV and $1. As an example, if the mark-to-market NAV fell to 99.70%, the fee would be 60 basis points (30 bps x 2). The rationale for this fee is to create a positive cycle as clients redeem in place of a negative cycle. As each client redeems and leaves behind twice the deficit, the NAV for the remaining shareholders is strengthened. In a run today, redeeming shareholders can weaken the fund as they leave and the NAV begins to spiral downward further accelerating the run. With SLFs in place, the NAV would improve as people who leave are charged a fee, which would create a natural brake on a run, and investors remaining in the fund would be protected from the behavior of those who redeemed.

c) Let clients choose. The SLF model gives clients a choice in a crisis, based on straight-forward economic incentives. Clients that truly need liquidity (e.g., to meet the payment of salaries and pensions) can get it, but they must pay a price for it. If a client can wait for their liquidity, they can attempt to preserve the value of their shares by staying put and redeeming once the SLFs are lifted. This is a model similar to the one BlackRock employed in working with the State of Florida on a government cash pool that was experiencing mass redemptions in 2007.

d) Closure to redemptions. Fund boards should have the right to close funds to redemptions in extreme circumstances, as they currently do in the US. Fund Boards should also be given the discretion to end the SLFs after an appropriate recovery of the fund, and after a determination that it is in the shareholders’ interests to do so.

e) Payment to clients that stayed. Any amount of liquidity fees gathered by the fund would be retained in the fund to restore the NAV to $1 (or par). If there were an excess liquidity fee in the fund, it would be paid to all shareholders of record on the last day in which the SLFs were in force. This way, those shareholders that stayed with the fund in the difficult time, as well as those who invested or reinvested and thereby helped “boost” the fund, would receive a benefit for the risk they took.

I think this is nonsensical. The single-issuer limit is 5% and it will be remembered that lightning can strike at any time. Let’s look at Primary Reserve Fund’s buck-break:

In a new sign of market turbulence, managers of a multibillion-dollar money market fund said on Tuesday that customers might lose money in the fund, a type of investment that has long been considered as safe and risk-free as a bank savings account, The New York Times’s Diana B. Henriques writes.

The announcement was made by the Primary Fund, which had almost $65 billion in assets at the end of May. It is part of the Reserve Fund, a group whose founder helped invent the money market fund more than 30 years ago.

The fund said that because the value of some investments had fallen, customers now have only 97 cents for each dollar they had invested.

So if I’m to be allowed to access my ninety-seven cents, you’re going to charge me a fee of three cents? That doesn’t sound like much of a MMF to me! Or the alternative is to leave the funds locked in for a whole freakin’ year while it earns enough interest to crawl back to par.

The other phrase of interest in the proposal is Fund Boards should also be given the discretion to end the SLFs after an appropriate recovery of the fund, and after a determination that it is in the shareholders’ interests to do so. Huh? I thought there were supposed to be “Objective triggers“! Objective triggers but subjective reversals? It would be most interesting to nail down just what they have in mind.

So, this is just another attempt by the MMF industry to put lipstick on the pig. Sorry, folks, but when you lend money, there’s always a chance you won’t get it back, no matter how high the credit rating, no matter how short term the loan. All the regulatory ticky-boxes in the world won’t change that simple fact. The risk needs to be covered by capital.

I’ve said it before, I’ll say it again: MMFs are banks. They need to be regulated like banks.

The slowness in finding tenancies for the World Financial Centre played a major role in the DBRS trend change for BPO. The company is taking decisive action:

Lower Manhattan’s World Financial Center, the 8 million-square-foot complex near the Hudson River, will soon have a new identity as owner Brookfield Office Properties Inc. (BPO) seeks to attract a shifting mix of tenants.

By late next year, the property will be known as Brookfield Place, said Mitchell Rudin, the company’s president of U.S. commercial operations. The landlord has already started the process, with its website referring to the new name under the current one.

The change reflects the smaller role finance plays in lower Manhattan as Brookfield faces vacancies at the site. Bank of America Corp. is leaving almost 3 million square feet (279,000 square meters) inherited with its 2009 takeover of Merrill Lynch & Co., which was based at the property. Its leases expire next year in what Green Street Advisors Inc.’s Michael Knott calls a “perfect real estate storm” because it coincides with two new towers at the nearby World Trade Center becoming available and a broader slowdown in leasing by financial firms.

Jonathan Weil makes an interesting point about the BofA / Countrywide fraud lawsuit:

Prosecutors are suing under a statute called the False Claims Act, which imposes liability on those who defraud the federal government. Curiously, the suit is seeking damages for acts that Countrywide Financial Corp. committed before Fannie and Freddie were seized by the government — back when U.S. officials were adamant that Fannie and Freddie didn’t have any implicit government guarantee. (Bank of America bought Countrywide in July 2008.)

During testimony before Congress in 2003, then-Treasury Secretary John Snow explicitly denied there was any implicit government guarantee of Fannie or Freddie: “We do not believe there is any government guarantee, and we go out of our way to say there is not a government guarantee,” he said. “We need to be on guard against this perception. It is a perception. It is not, in our view, a reality.”

Here’s a quote from U.S. Representative Barney Frank, one of the companies’ most vocal supporters in Congress, in 2003: “There is no guarantee. There’s no explicit guarantee. There’s no implicit guarantee. There’s no wink-and-nod guarantee. Invest and you’re on your own.”

Of course, now we’re being asked to believe that Countrywide was defrauding the government in 2007 and early 2008 when it was ripping off Fannie and Freddie — in spite of the government’s vehement insistence that Fannie and Freddie weren’t backed by the government in any way.

Laws, schmaws! There’s headlines to be made and bank-bashing to be done!

There has finally been a grain of common sense written about MPs pensions:

Speaking in the Senate Wednesday, Alberta Senator Grant Mitchell said Western industrialized democracies have made huge efforts to pay their politicians well enough to discourage corruption.

“All of our MPs are above reproach, but the pressures of not making enough money can become an issue and that is why [take-home salary] needs to be maintained at a certain level,” Mitchell said.”We could talk about brown paper bags with cash in it, because there is pressure all the time. That is why pay needs to be absolutely adequate.”

Although he acknowledged he was taking an unpopular position and one for which he could be left “politically vulnerable,” Mitchell went on to make several points against Conservative plans to increase pension contributions for MPs and senators — legislation that was fast-tracked because of Liberal support in the House of Commons.

Mitchell addressed the issue of contribution rates and the decline of take-home pay, but I consider the issue of pension receipts to be more important. If we have an unpopular government six months away from an election that they’re going to lose – and lose badly – do we really want the cabinet to be wondering how they’re going to make ends meet after defeat? There doesn’t even have to be an explicit quid pro quo – just a little … friendliness.

For instance, how about this Conservative thug:

Conservative MP Dean Del Mastro suggests that the government should look at ending anonymous comments on news articles as a way to combat online bullying.

“One of the best ways to end on-line and electronic bullying, libel and slander would be to force people posting hurtful comments to properly identify themselves,” Del Mastro wrote Thursday on Facebook. “This morning I read comments on a news story posted on an electronic news publication, many of them could only be described as hateful rants. The common denominator is that none of them identified the person that wrote them; this strikes me as something that parliament should address.”

I have a degree of contempt for those who post anonymously on the Internet, but no rational person will join Del Mastro in his efforts to make it an offense under the Criminal Code and use all the enormous powers of the state to punish those who do so. At least, no rational Western person. It’s quite popular in China.

Libels? Slanders? With a court order you can already track down mean people who say mean things. Even Constable Adam Josephs of the Toronto Police knows that, as discussed on October 18, 2010.

It was a moderately good day for the Canadian preferred share market, with PerpetualPremiums winning 12bp, FixedResets up 4bp and DeemedRetractibles gaining 1bp. Volatility was nothing special. Volume was well above average.

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 0.0800 % 2,468.7
FixedFloater 4.18 % 3.51 % 36,731 18.33 1 -0.6550 % 3,853.3
Floater 2.80 % 2.99 % 59,370 19.74 4 0.0800 % 2,665.6
OpRet 4.63 % 1.99 % 40,662 0.66 4 -0.0477 % 2,565.1
SplitShare 5.40 % 4.86 % 69,563 4.48 3 -0.0787 % 2,841.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0477 % 2,345.5
Perpetual-Premium 5.28 % 1.53 % 83,540 0.33 27 0.1221 % 2,309.9
Perpetual-Discount 5.01 % 4.92 % 43,921 15.49 4 0.1334 % 2,582.2
FixedReset 4.97 % 3.02 % 205,381 3.96 73 0.0402 % 2,446.1
Deemed-Retractible 4.94 % 3.64 % 132,974 1.91 47 0.0142 % 2,381.9
Performance Highlights
Issue Index Change Notes
TD.PR.Y FixedReset 1.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 3.14 %
GWO.PR.R Deemed-Retractible 1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 4.87 %
Volume Highlights
Issue Index Shares
Traded
Notes
POW.PR.D Perpetual-Premium 274,804 Desjardins crossed blocks of 249,500 and 15,500, both at 25.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 4.06 %
TD.PR.S FixedReset 146,080 Nesbitt crossed 132,600 at 25.05.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.07
Bid-YTW : 3.09 %
CM.PR.E Perpetual-Premium 93,603 TD crossed 83,000 at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-11-30
Maturity Price : 25.00
Evaluated at bid price : 25.53
Bid-YTW : -16.25 %
BNS.PR.Q FixedReset 85,806 Nesbitt bought 82,400 from Scotia at 25.25.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 3.15 %
TD.PR.Y FixedReset 66,915 Scotia sold 20,500 to Nesbitt and 35,200 to RBC, both at 25.25.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 3.14 %
BMO.PR.O FixedReset 60,772 Scotia crossed 25,000 at 27.05.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 27.05
Bid-YTW : 1.91 %
There were 40 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BNA.PR.E SplitShare Quote: 25.16 – 25.50
Spot Rate : 0.3400
Average : 0.2119

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 4.88 %

MFC.PR.H FixedReset Quote: 25.92 – 26.24
Spot Rate : 0.3200
Average : 0.1966

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.92
Bid-YTW : 3.82 %

TRP.PR.C FixedReset Quote: 25.34 – 25.65
Spot Rate : 0.3100
Average : 0.2175

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-26
Maturity Price : 23.45
Evaluated at bid price : 25.34
Bid-YTW : 2.92 %

PWF.PR.M FixedReset Quote: 25.90 – 26.36
Spot Rate : 0.4600
Average : 0.3725

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 3.02 %

BAM.PR.Z FixedReset Quote: 26.22 – 26.46
Spot Rate : 0.2400
Average : 0.1600

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.22
Bid-YTW : 3.85 %

MFC.PR.A OpRet Quote: 25.58 – 25.80
Spot Rate : 0.2200
Average : 0.1427

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 25.58
Bid-YTW : 3.48 %

BMO, BNS, CM, NA, TD: Moody's Reviews for Possible Downgrade

Saturday, October 27th, 2012

Moody’s Investors Service has announced that it:

has placed the long-term ratings of six Canadian banks (including the bank financial strength ratings, all senior debt, junior subordinated debt, and preferred stock ratings) on review for downgrade.

Following the review, the senior debt and deposit ratings for the six banks are expected to generally be no more than one notch lower than today.

During this review Moody’s will also consider the removal of systemic support from the ratings of all seven Canadian banks’ subordinated debt instruments that benefit from support. It is our view that the global trend towards imposing losses on junior creditors in the context of future bank resolutions may reduce the predictability of such support being provided to the sub-debt holders of the large Canadian banks. We currently incorporate two notches of systemic support into the subordinated debt ratings of the six banks outlined above as well as in Royal Bank of Canada (RBC; Aa3 Stable (m); C+/a2 Stable). All RBC ratings were affirmed (as they were addressed by our rating actions on Firms with Global Capital Markets Operations in June 2012) except for its supported subordinated debt ratings that have been placed on review for downgrade.

High levels of consumer indebtedness and elevated housing prices leave Canadian banks more vulnerable to downside risks to the Canadian economy than in the past. By the second quarter of 2012, Canadian household debt to personal disposable income reached a record 163%, up from 137% in the second quarter of 2007, reflecting growth in debt that significantly outpaced personal incomes. Growth in consumer debt has been driven by rising house prices, which have increased by 21% since August 2007 (Source: Teranet-National Bank House Price Index).

Moody’s central scenario for Canada’s gross domestic product (GDP) is to grow between 2% and 3% in 2013, but downside risks have increased. The open, commodity-oriented economy is exposed to external risks, primarily (i) the weak US economic recovery (ii) the ongoing sovereign and banking crisis in the euro area; and (iii) a slowdown in emerging markets which weighs on commodity prices. Should these risks materialize, they would have significant ramifications for the Canadian economy that would be transmitted into the banking system.

Additionally, the large Canadian banks’ noteworthy reliance on confidence-sensitive wholesale funding, which is obscured by limited public disclosure, increases their vulnerability to financial markets turmoil.

In addition to the macro-economic factors cited above, National Bank of Canada, Bank of Montreal, Bank of Nova Scotia and Canadian Imperial Bank of Commerce have sizable exposure to volatile capital markets businesses. Moody’s believes that trading and investment banking activities expose financial firms to the risk of outsized losses and risk management and controls challenges, and leave them highly dependent on the confidence of investors, customers and counterparties.

Toronto Dominion and Caisse Centrale Desjardins have other idiosyncratic factors that are additive to the macro-economic risks. Toronto Dominion’s exceptionally robust creditworthiness may be weakened by the increasing contribution of its less-strong US subsidiary…

There has been lots of handwringing and crocodile tears from Lapdog Carney regarding Canadian consumer debt recently:

Mr. Carney also said the risk posed by household debt might be dissipating as the Bank of Canada’s repeated warnings sink in.

and – after the water has been tested – from his boss:

Finance Minister Jim Flaherty has also made this a crusade as the ratio of household debt to disposable income holds at record levels, and is expected to rise further.

… but the most obvious way to address the problem is though the other group of highly politicized financial lackeys. Unfortunately, however, there has been nothing – absolutely nothing – from OSFI on the subject.

The problem is that reducing interest rates has not had as great an effect on business spending as might have been hoped, but there has been a large effect on consumer spending; that is, low rates have not been used to buy capital goods so much as they have been to finance consumption (and I believe that while there is an element of “capital goods” in houses, there is also a large component of “consumption”, an effect that can be captured through such concepts as “owner equivalent rents” or, perhaps the price to rent ratio)

Monetary policy is a very blunt instrument and Spend-every-penny has been gleefully exploiting this weakness to indulge in micro-management of the mortgage market and – at last, this part is actually good, if long overdue – throttling back on the money he’s been using to inflate a housing bubble.

This possible downgrade serves as a great argument in favour of countercyclical capital buffers. This is much more general than the micro-management indulged in so far, because, if properly designed, it is irrelevant whether consumers are over-borrowing for houses or tulip bulbs. Trouble is, this might require OSFI to spend some time actually thinking about what it’s doing, so I don’t think we’ll see it any time soon.

Issues affect by the possible downgrade are (deep breath):
BMO.PR.H, BMO.PR.J, BMO.PR.K, BMO.PR.L, BMO.PR.M, BMO.PR.N, BMO.PR.O, BMO.PR.P, BMO.PR.Q
BNS.PR.J, BNS.PR.K, BNS.PR.L, BNS.PR.M, BNS.PR.N, BNS.PR.O, BNS.PR.P, BNS.PR.Q, BNS.PR.R, BNS.PR.T, BNS.PR.X, BNS.PR.Y, BNS.PR.Z
CM.PR.D, CM.PR.E, CM.PR.G, CM.PR.K, CM.PR.L, CM.PR.M, CM.PR.P
NA.PR.K, NA.PR.L, NA.PR.M, NA.PR.N, NA.PR.O, NA.PR.P
TD.PR.A, TD.PR.C, TD.PR.E, TD.PR.G, TD.PR.I, TD.PR.K, TD.PR.O, TD.PR.P, TD.PR.Q, TD.PR.R, TD.PR.S, TD.PR.Y

LCS.PR.A Downgraded to Pfd-5(high) by DBRS

Friday, October 26th, 2012

DBRS has announced that it:

has today downgraded the rating of the Preferred Shares issued by Brompton Lifeco Split Corp. (the Company) to Pfd-5 (high) from Pfd-4 (low).

In April 2007, the Company issued 3.1 million Preferred Shares (at $10 each), along with an equal number of Class A Shares (at $15 each). The termination date for both classes of shares issued is April 30, 2014.

Not the best timing ever to start a lifeco SplitShare Corporation!

On March 20, 2012, DBRS downgraded the ratings of the Preferred Shares to Pfd-4 (low) from Pfd-4 (high), due to the considerable drop in downside protection available to holders of the Preferred Shares. Since the rating downgrade, the NAV of the Company has been volatile, causing downside protection to fluctuate widely between -4.9% and 18.3%. The downside protection available to the Preferred Shares was 8.2% as of October 11, 2012, and the current Preferred Shares distribution coverage ratio is approximately 0.7 times. As a result of the downside protection falling and remaining below acceptable levels for a prolonged period, along with the insufficient distribution coverage ratio on the Portfolio, the rating has been further downgraded to Pfd-5 (high).

LCS.PR.A was last mentioned on PrefBlog when it was downgraded to Pfd-4(low) by DBRS. LCS.PR.A is not tracked by HIMIPref™ – not only is the Asset Coverage very low, but there are less than 2-million units outstanding.

October 25, 2012

Friday, October 26th, 2012

Nothing happened today.

It was a steady day for the Canadian preferred share market, with PerpetualPremiums and FixedResets both up 3bp, while DeemedRetractibles gained 2bp. Volatility was muted. Volume was average – but the top two traders were issues that rarely see any play at all! Nice tickets for RBC, if they were able to get full commission on them!

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 0.0934 % 2,466.8
FixedFloater 4.15 % 3.48 % 38,097 18.39 1 -0.4348 % 3,878.7
Floater 2.80 % 3.00 % 54,956 19.72 4 0.0934 % 2,663.4
OpRet 4.63 % 1.98 % 40,969 0.64 4 -0.0477 % 2,566.3
SplitShare 5.39 % 4.84 % 69,263 4.49 3 0.0525 % 2,844.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0477 % 2,346.7
Perpetual-Premium 5.29 % 0.92 % 83,091 0.33 27 0.0273 % 2,307.1
Perpetual-Discount 5.02 % 4.92 % 45,360 15.47 4 0.0205 % 2,578.7
FixedReset 4.97 % 3.03 % 202,897 3.96 73 0.0265 % 2,445.2
Deemed-Retractible 4.95 % 3.52 % 134,749 1.14 47 0.0150 % 2,381.6
Performance Highlights
Issue Index Change Notes
GWO.PR.R Deemed-Retractible -1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 5.01 %
TD.PR.Y FixedReset -1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 3.27 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRI.PR.B Floater 602,000 RBC crossed two blocks of 300,000 each, at 22.20 and 22.21.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-25
Maturity Price : 21.94
Evaluated at bid price : 22.18
Bid-YTW : 2.35 %
BNA.PR.C SplitShare 470,470 RBC crossed two blocks of 235,000 each, at 24.52 and 24.53.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 4.86 %
TD.PR.S FixedReset 320,498 Nesbitt crossed blocks of 200,000 and 100,000, both at 25.05.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.04
Bid-YTW : 3.10 %
MFC.PR.F FixedReset 60,310 TD crossed 50,000 at 24.00.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.95
Bid-YTW : 3.98 %
BMO.PR.K Deemed-Retractible 56,533 National crossed 50,000 at 26.39.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-11-25
Maturity Price : 26.00
Evaluated at bid price : 26.38
Bid-YTW : -2.20 %
SLF.PR.I FixedReset 40,350 TD crossed 32,200 at 25.96.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.85
Bid-YTW : 3.46 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.R Deemed-Retractible Quote: 24.71 – 25.02
Spot Rate : 0.3100
Average : 0.1731

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 5.01 %

TD.PR.Y FixedReset Quote: 25.00 – 25.25
Spot Rate : 0.2500
Average : 0.1648

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 3.27 %

ENB.PR.D FixedReset Quote: 25.50 – 25.75
Spot Rate : 0.2500
Average : 0.1677

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-10-25
Maturity Price : 23.30
Evaluated at bid price : 25.50
Bid-YTW : 3.60 %

CM.PR.L FixedReset Quote: 26.51 – 26.72
Spot Rate : 0.2100
Average : 0.1325

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.51
Bid-YTW : 2.36 %

GWO.PR.P Deemed-Retractible Quote: 26.21 – 26.48
Spot Rate : 0.2700
Average : 0.1926

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.21
Bid-YTW : 4.83 %

NA.PR.O FixedReset Quote: 26.60 – 26.80
Spot Rate : 0.2000
Average : 0.1434

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-15
Maturity Price : 25.00
Evaluated at bid price : 26.60
Bid-YTW : 1.37 %

New Issue: AQN FixedReset, 4.50%+294

Thursday, October 25th, 2012

Algonquin Power & Utilities Corp. (“APUC” in the press release) has announced:

that it will issue 4.8 million cumulative rate reset preferred shares, Series A (the “Series A Shares”) at a price of $25.00 per share, for aggregate gross proceeds of $120 million, on a bought deal basis to a syndicate of underwriters in Canada led by Scotiabank and TD Securities Inc.

The holders of the Series A Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.125 per share, payable quarterly, as and when declared by the board of directors of APUC. The Series A Shares will yield 4.5% per cent annually, for the initial six-year period ending on December 31, 2018. The first of such dividends, if declared, shall be payable on December 31, 2012, and shall be $0.1603 per Series A Share, based on the anticipated closing of the offering on November 9, 2012. The dividend rate will be reset on December 31, 2018 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.94%. The Series A Shares are redeemable by APUC, at its option, on December 31, 2018 and on December 31st of every five years thereafter.

The holders of Series A Shares will have the option to convert all or any of their Series A Shares into Cumulative Floating Rate Preferred Shares, Series B (the “Series B Shares”) of APUC on the basis of one Series B Share for each Series A Share converted, subject to certain conditions, on December 31, 2018 and on December 31 every five years thereafter. The holders of the Series B Shares will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the board of directors of APUC, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 2.94%.

The net proceeds of the offering will be used to fund the equity portion of the acquisition of two wind farms (Minonk and Senate) in the United States and for general corporate purposes.

Chief Financial Officer, David Bronicheski commented “With the imminent conversion of our final series of convertible debentures to equity, our first series of preferred shares opens another source of capital to fund our growth and further lowers our cost of capital.”

The Series A Shares will be offered to the public in Canada by way of a short-form prospectus of APUC.

It is my understanding that this issue will be rated P-3 by S&P, Pfd-3(low) by DBRS.

Update: S&P has assigned a rating of BBB- with a positive outlook to the company:

  • •We are assigning our ‘BBB-‘ long-term corporate credit rating to Algonquin Power & Utilities Corp.
  • •The rating reflects our consolidated rating approach and our opinion on its two subsidiaries, Ontario-based independent power generator Algonquin Power Co. and U.S.-based regulated utility Liberty Utilities Co.
  • •The positive outlook reflects our assessment of an increasing proportion of relatively stable cash flows that Liberty’s regulated utilities support.


The positive outlook reflects our assessment of an increasing proportion of relatively stable cash flows that Liberty’s regulated utilities support. The outlook also reflects our expectations that APUC will achieve sustained adjusted funds from operations (AFFO)-to-total debt of 15%-20%, with Liberty’s regulated cash flow supporting 40%-50% of its consolidated cash flows by 2014. We could raise the rating a notch upon the company’s meeting these expectations. Conversely, if it does not meet our expectations or its sustained AFFO-to-debt falls below 15% during our two-year outlook horizon, we would revise the outlook to stable.

The preferred rating is, as reported above, P-3.

Update, 2012-11-3:Pfd-3 low by DBRS.