Archive for February, 2013

DBRS Downgrades SLF to Pfd-2(high)

Thursday, February 28th, 2013

DBRS has announced that it:

has today downgraded its ratings on the debt and preferred share obligations of Sun Life Financial Inc. (Sun Life or the Company) and its affiliates by a single notch, including the senior debt of Sun Life to A (high) from AA (low). The IC-1 Claims Paying Ability rating of Sun Life Assurance Company of Canada, the Company’s major operating subsidiary, is not affected by this action. The trend on all ratings is Stable. Today’s rating actions resolve DBRS’s September 7, 2012, decision to put the debt and preferred shares of Sun Life Under Review with Negative Implications following a review of industry peers and their ratings. DBRS regards the pre-existing ratings as being out of alignment with the Company’s recent earnings track record and those of its peers.

DBRS recognizes the strength of the Company’s core Canadian franchise, with leading positions in individual life insurance, employee benefits and group retirement services such as pension administration and payout annuities. DBRS also acknowledges that the announced sale of the Sun Life Assurance Company of Canada (U.S.) subsidiary is expected to remove a material source of earnings uncertainty and market risk exposure, which is net positive for the credit. The resulting runoff block of the U.S. life insurance business is also expected to be a long-term, albeit declining, contributor to earnings as will the Company’s MFS Investment Management asset management operation, which continues to experience positive inflows on the back of strong fund performance. Less visible to DBRS is the Company’s growth prospects for its U.S. employee benefits business, which has been investing in development of the targeted voluntary benefits business and in Asia where growth through acquisition and distribution expansion continues to weigh on earnings, at least in the short term.

A recovery in earnings to meet the 15% return on equity and seven times fixed-charge coverage ratio thresholds for AA-rated life insurance companies, as published in the DBRS methodology “Rating Companies in the Canadian Life Insurance Industry” (January 2013), would reflect the Company’s ability to articulate and execute on its chosen strategies. In turn, such a recovery in earnings would put upward pressure on the Company’s ratings. Additionally, a reduction in financial leverage (measured by debt plus preferred shares relative to total capitalization) from the current levels of 29.4% would be viewed favourably.

The Canadian life insurance industry has gone through a fair amount of turmoil over the past five years, largely related to rapid sales growth of wealth management products with embedded equity market guarantees and a continuing low interest rate environment which has resulted in increasing policy reserves and earnings volatility. The related impacts on actuarial assumptions regarding expected market returns, reinvestment rate assumptions and policyholder behaviours have given rise to similar adverse reserve developments and earnings volatility. Risk mitigating hedging activity has also reduced earnings. The impact of reduced earnings has filtered through to downward pressure on capital, which has resulted in the need for additional third party-provided capital in the form of increased financial leverage. Correspondingly, earnings and fixed-charge coverage ratios have remained below former levels and, in the case of Sun Life, below the levels prescribed by the DBRS methodology for a AA-rated life insurance company.

While DBRS recognizes a number of market challenges for the Canadian life insurance industry, it also acknowledges a number of growth opportunities and fundamental credit strengths, including increasingly effective risk management, conservative reserving practices and rigourous regulatory oversight, which support the industry’s relatively strong ratings.

DBRS’ Review-Negative was reported on PrefBlog. When SLF sold its US unit in December 2012, DBRS yawned and Moody’s put the prefs on watch for a possible upgrade.

Sun Life Financial has the following issues outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D & SLF.PR.E (all DeemedRetractible) and SLF.PR.F, SLF.PR.G, SLF.PR.H & SLF.PR.I (all FixedReset). All are tracked by HIMIPref™ and all are constituents of the indicated subindices. All are now rated Pfd-2(high) by DBRS.

GMP.PR.B Next Ex-Dividend Date?

Thursday, February 28th, 2013

It’s rather difficult to get information about the GMP.PR.B dividends!

Their historical dividend information indicates that the last dividend was paid 2012-9-30, although I feel certain that the December payment proceeded smoothly; Information regarding 12Q4 is not available; and the TMX Money site reports an ex-date of 2012-12-6.

Come on, guys! I find this poor communication irritating enough in non-financial companies; it is not acceptable for a financial firm – particularly one rated Pfd-3(low) Trend Negative – to cultivate such an air of mystery.

February 27, 2013

Wednesday, February 27th, 2013

To my surprise, an adult was quoted regarding the role of underwriters in capital markets:

In both cases, banks that profited by bringing the securities to market were later accused of misrepresenting the risks and contributing to losses. Their defense was that they were serving clients who wanted to buy the securities, as well as helping finance entrepreneurs and homeowners. They said they attracted undue criticism for essentially playing the role of middlemen and that they shouldn’t be held responsible for investors’ decisions to buy the securities.

“They’re intermediaries, and they’re not supposed to make up their minds for their customers as to what’s good for them, they’re supposed to supply them with what they want,” said Roy Smith, a finance professor at New York University’s Stern School of Business and a former Goldman Sachs partner.

Smith said bond prospectuses “point out repeatedly that just because the market price goes down, that’s not something we can be responsible for.”

However, I have no doubt but that a few lawyers and boxtickers at the SEC are excitedly preparing indictments against the salesmen who sell their clients things “they know are about to fall”.

Canadian Western Bank has announced an issuer bid for CWB.PR.A:

Canadian Western Bank (the “Bank”) today announced the Toronto Stock Exchange (TSX) and the Office of the Superintendent of Financial Institutions Canada (OSFI) have approved the Bank’s normal course issuer bid (NCIB) to purchase, for cancelation, up to 826,120 Non-Cumulative 5-Year Rate Reset Preferred Shares Series 3 (“preferred shares”). The number of preferred shares to be purchased under the NCIB represents approximately 10% of the 8,390,000 preferred shares issued and outstanding as at February 27, 2013.

Purchases under the NCIB may begin on March 1, 2013 and will end no later than February 28, 2014. The price paid for any preferred shares purchased will be the market price of such shares on the TSX at the time of acquisition. Purchases will be effected through the facilities of the TSX and all preferred shares purchased pursuant to the NCIB will be canceled. Apart from block purchase exceptions, the maximum number of preferred shares that may purchased per trading day is 1,538, an amount equal to 25% of the average daily trading volume of the preferred shares on the TSX for the six month period ended January 31, 2013.

Management believes the purchase of preferred shares below a certain price threshold represents an appropriate use of available funds and is also consistent with strategies to enhance shareholder value while ensuring the Bank maintains its solid regulatory capital position.

Since CWB has no history of following up on issuer bids, this announcement doesn’t get its own post – it has to slum it in the daily commentary. I don’t see any reason why they might follow this up with actual cash dollars anyway – at today’s closing bid of 26.65, the issue yields only 1.98% until the 2014-4-30 call date.

ALB.PR.B was confirmed at Pfd-2(low) by DBRS:

Current downside protection available to holders of the Class B Preferred Shares is 56.3% as of February 14, 2013.

The Pfd-2 (low) rating of the Class B Preferred Shares is based primarily on the downside protection and dividend coverage available, as well as on the strong credit quality and consistency of dividend distributions of the Portfolio holdings.

The main constraints to the rating are the following:

(1) The downside protection provided to holders of the Class B Preferred Shares is dependent on the value of the shares in the Portfolio.

(2) Volatility of price and changes in the dividend policies of the Canadian banks may result in significant reductions in downside protection from time to time.

(3) The entire Portfolio is concentrated in the Canadian financial services industry.

The Class B Preferred Shares will be redeemed by the Company on February 28, 2016.

It was another mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 5bp, FixedResets off 5bp and DeemedRetractibles up 15bp. Volatility was low. Volume was well above average.

PerpetualDiscounts now yield 4.91%, equivalent to about 6.38% interest at the standard conversion rate of 1.3x. Long corporates now yield about 4.3%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 210bp, a significant widening from the 200bp reported February 20.

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 -0.7163 % 2,597.1
FixedFloater 4.08 % 3.41 % 24,456 18.48 1 0.5611 % 3,988.8
Floater 2.56 % 2.86 % 81,400 20.03 5 -0.7163 % 2,804.2
OpRet 4.80 % 2.69 % 45,287 0.33 5 0.1859 % 2,595.9
SplitShare 4.59 % 4.43 % 44,326 4.26 2 0.0799 % 2,934.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1859 % 2,373.7
Perpetual-Premium 5.25 % -1.78 % 92,307 0.17 29 0.0474 % 2,353.0
Perpetual-Discount 4.84 % 4.91 % 129,892 15.59 4 0.1623 % 2,653.6
FixedReset 4.91 % 2.86 % 281,602 3.52 78 -0.0457 % 2,495.4
Deemed-Retractible 4.87 % 2.14 % 141,924 0.24 44 0.1485 % 2,440.7
Performance Highlights
Issue Index Change Notes
BAM.PR.C Floater -2.86 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-27
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 2.94 %
BAM.PR.K Floater -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-27
Maturity Price : 18.24
Evaluated at bid price : 18.24
Bid-YTW : 2.90 %
FTS.PR.H FixedReset -1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-27
Maturity Price : 23.73
Evaluated at bid price : 25.64
Bid-YTW : 2.73 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.E Perpetual-Premium 72,380 Desjardins crossed 32,000 at 25.75; Nesbitt crossed 21,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-03-29
Maturity Price : 25.00
Evaluated at bid price : 25.73
Bid-YTW : -22.85 %
BAM.PR.B Floater 63,461 RBC crossed 48,900 at 18.60.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-27
Maturity Price : 18.52
Evaluated at bid price : 18.52
Bid-YTW : 2.86 %
ENB.PR.T FixedReset 57,540 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-27
Maturity Price : 23.21
Evaluated at bid price : 25.36
Bid-YTW : 3.71 %
TD.PR.E FixedReset 57,025 TD crossed 50,000 at 26.35.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.36
Bid-YTW : 1.93 %
TD.PR.S FixedReset 41,117 Desjardins bought 19,000 from Scotia at 25.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 3.06 %
BMO.PR.N FixedReset 41,040 Scotia crossed 30,000 at 25.95.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 2.47 %
There were 41 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.C Floater Quote: 18.00 – 18.59
Spot Rate : 0.5900
Average : 0.3303

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-27
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 2.94 %

HSE.PR.A FixedReset Quote: 26.50 – 27.12
Spot Rate : 0.6200
Average : 0.4699

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-03-31
Maturity Price : 25.00
Evaluated at bid price : 26.50
Bid-YTW : 2.67 %

BAM.PR.K Floater Quote: 18.24 – 18.63
Spot Rate : 0.3900
Average : 0.2849

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-27
Maturity Price : 18.24
Evaluated at bid price : 18.24
Bid-YTW : 2.90 %

RY.PR.L FixedReset Quote: 25.59 – 25.85
Spot Rate : 0.2600
Average : 0.1785

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.59
Bid-YTW : 3.25 %

ENB.PR.N FixedReset Quote: 25.52 – 25.77
Spot Rate : 0.2500
Average : 0.1714

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-01
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 3.61 %

RY.PR.X FixedReset Quote: 26.46 – 26.70
Spot Rate : 0.2400
Average : 0.1633

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.46
Bid-YTW : 2.31 %

Video: Strategies for managing preferred shares: part 2

Tuesday, February 26th, 2013

Jade Hemeon of Investment Executive interviewed me again for IE.TV:

James Hymas, president of Hymas Investment Management and manager of Malachite Aggressive Preferred Fund, drills down to specifics of how to manage preferred shares. He spoke with Jade Hemeon, senior reporter with Investment Executive, at the TMX Broadcast Centre in Toronto.

I believe it’s eligible for next year’s Oscars!

A Preferred Source of Income

Tuesday, February 26th, 2013

Jade Hemeon was kind enough to quote me in her Financial Planning article at Investment Executive:

Because of the possibility of a preferred share being called, James Hymas, president of Toronto-based Hymas Investment Management Inc., says it is important for investors to calculate the prospective yields to the first possible call date, or “yield to worst.” If the security is trading at more than par value, investors should make sure they will be paid enough in dividends before the first possible call date to compensate for the premium being paid.

“Yield to worst is the single most important measure when buying a preferred,” says Hymas, who manages Malachite Aggressive Preferred Fund, an investment fund available to accredited investors, and also offers analysis of individual preferreds at his website www.himivest.com.

Video: The expanding world of preferred shares: part 1

Tuesday, February 26th, 2013

Jade Hemeon of Investment Executive interviewed me for IE.TV:

James Hymas, president of Hymas Investment Management and manager of Malachite Aggressive Preferred Fund, explains how preferred shares can be used in portfolio construction for your clients and itemizes some tax and income advantages provided by a preferred share fund. He spoke with Jade Hemeon, senior reporter with Investment Executive, at the TMX Broadcast Centre in Toronto.

What a great video that is!

February 26, 2013

Tuesday, February 26th, 2013

It’s an ill wind that blows nobody any good:

U.S. banks are looking to capitalize on a dearth of financing for Europe’s commercial property market that’s driven lending margins to five times the level prior to the 2008 crisis.

Citigroup Inc. (C), Morgan Stanley (MS), Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) are following insurers and distressed investors allocating capital to the region as local banks, which overextended during the last boom, are forced to contract amid new regulations. Europe faces an $82 billion shortfall between the amount of real-estate debt maturing through this year and the funding available to replace it, according to real-estate broker DTZ.

The scarcity of capital means lenders can charge as much as 3.75 percentage points over benchmarks for the safest pieces of commercial mortgage debt, about five times the spread in 2007, according to Alvarez & Marsal, an adviser on real estate transactions. Those margins will enable banks to revive the market for commercial mortgage-backed bonds, which parcel loans and slice them into securities of varying risk, after it largely shut in 2008.

Meanwhile, the Fed may find selling is harder than buying:

MSCI applied scenarios devised by the Fed itself for stress-testing the nation’s 19 largest banks.

MSCI sees the market value of Fed holdings shrinking by $547 billion over three years under an adverse scenario that includes an economic contraction and rising inflation. MSCI puts the Fed’s mark-to-market loss at less than half that, or $216 billion, if the economy performs in line with consensus forecasts of gradually rising growth, inflation and interest rates.

The potential losses are unprecedented in the Fed’s 100- year history. Bernanke began describing in detail the risk of lower payments to taxpayers for the first time today in his monetary policy testimony before the Senate Banking Committee saying that “remittances to the Treasury could be quite low for a time” if interest rates “were to rise quickly.” Bernanke didn’t describe the overall interest-rate risk to the portfolio or potential mark-to-market losses. He said the Fed is “confident” it has tools to tighten monetary policy.

But at least the money is going into something other than mortgages:

Money is pouring into leveraged loan funds at an incredible pace. It’s a natural home for investors who are leery of buying bonds at this point in the cycle, when rates could be on the rise, but who still want credit exposure. Leveraged loans are usually floating rate. And that means protection from higher interest rates, unlike bonds, which will fall in price as rates rise.

Among the biggest users of the leveraged loan market are private equity firms who use the financing for buyouts. The leveraged loan boom will help refinance balance sheets of portfolio companies, and fuel more new takeovers.

And the shadow trading sector is getting bigger:

Earlier today, JPMorgan Chase & Co. announced that it will reduce headcount in its consumer banking arm by 3,000 to 4,000 people this year.

Morgan Stanley and Citigroup Inc. have also unveiled plans in recent months to shed staff. As early as this week, Goldman Sachs Group Inc. will begin its annual exercise to cull 5 per cent of its employees, with deeper cuts possible in equity trading, Reuters reported.

But [Thomas DiNapoli, the comptroller of New York State] also noted that the industry employed 1,000 fewer people at the end of 2012 than it did a year earlier, adding that he believes “the industry will continue to restructure and downsize until a new business paradigm is established.”

If that doesn’t sound like a lot of fun, that’s probably an accurate assessment. Some traders have already decamped for hedge funds, where they don’t have to contend with the same regulatory constraints or reduced appetite for risk.

Best wishes for Graham Beck, who started working at Burns Fry in 1985, moved to the the preferred share desk in 1991 and today announced his imminent retirement from BMO Nesbitt Burns. As he says: a lot has happened in 22 years; and I’ll add that that extends to the names of his employer as well as the preferred share market!

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 4bp, FixedResets off 1bp and DeemedRetractibles up 15bp. Volatility was minimal. Volume was extremely high.

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 0.6332 % 2,615.8
FixedFloater 4.10 % 3.43 % 24,539 18.43 1 0.7829 % 3,966.5
Floater 2.54 % 2.85 % 84,540 20.04 5 0.6332 % 2,824.4
OpRet 4.81 % 3.37 % 45,674 0.33 5 -0.1701 % 2,591.1
SplitShare 4.59 % 4.37 % 43,142 4.26 2 -0.3979 % 2,932.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1701 % 2,369.3
Perpetual-Premium 5.25 % -0.20 % 91,892 0.09 29 0.0407 % 2,351.9
Perpetual-Discount 4.84 % 4.91 % 130,597 15.59 4 0.0406 % 2,649.3
FixedReset 4.91 % 2.76 % 280,102 3.36 78 -0.0093 % 2,496.5
Deemed-Retractible 4.88 % 2.88 % 140,017 0.66 44 0.1470 % 2,437.1
Performance Highlights
Issue Index Change Notes
BAM.PR.K Floater 1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-26
Maturity Price : 18.48
Evaluated at bid price : 18.48
Bid-YTW : 2.86 %
Volume Highlights
Issue Index Shares
Traded
Notes
IAG.PR.A Deemed-Retractible 203,763 TD crossed 200,000 at 25.18.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 4.67 %
RY.PR.G Deemed-Retractible 157,510 Desjardins crossed 10,000 at 25.90 and 143,200 at 25.83.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-24
Maturity Price : 25.75
Evaluated at bid price : 25.86
Bid-YTW : 2.67 %
BNS.PR.P FixedReset 137,462 Desjardins crossed 96,400 at 25.13.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 3.43 %
HSE.PR.A FixedReset 134,034 National crossed blocks of 45,000 and 52,000, both at 26.72.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-03-31
Maturity Price : 25.00
Evaluated at bid price : 26.60
Bid-YTW : 2.53 %
BNS.PR.L Deemed-Retractible 79,987 Nesbitt crossed 70,000 at 26.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-04-26
Maturity Price : 25.75
Evaluated at bid price : 25.90
Bid-YTW : 2.61 %
CU.PR.E Perpetual-Premium 77,736 Nesbitt crossed blocks of 40,000 and 25,400, both at 26.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-09-01
Maturity Price : 25.00
Evaluated at bid price : 26.36
Bid-YTW : 4.15 %
There were 81 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
HSE.PR.A FixedReset Quote: 26.60 – 27.12
Spot Rate : 0.5200
Average : 0.3053

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-03-31
Maturity Price : 25.00
Evaluated at bid price : 26.60
Bid-YTW : 2.53 %

PWF.PR.E Perpetual-Premium Quote: 25.45 – 25.99
Spot Rate : 0.5400
Average : 0.3551

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-03-28
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : -11.34 %

RY.PR.H Deemed-Retractible Quote: 26.40 – 26.71
Spot Rate : 0.3100
Average : 0.1954

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-24
Maturity Price : 26.00
Evaluated at bid price : 26.40
Bid-YTW : -0.89 %

CIU.PR.C FixedReset Quote: 24.66 – 24.94
Spot Rate : 0.2800
Average : 0.1760

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-26
Maturity Price : 23.22
Evaluated at bid price : 24.66
Bid-YTW : 2.80 %

BNA.PR.E SplitShare Quote: 25.51 – 25.99
Spot Rate : 0.4800
Average : 0.3787

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 4.37 %

RY.PR.T FixedReset Quote: 26.47 – 26.74
Spot Rate : 0.2700
Average : 0.1705

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.47
Bid-YTW : 2.28 %

NXY.PR.U, NXY.PR.A To Be Redeemed

Tuesday, February 26th, 2013

Nexen Inc. has announced:

that CNOOC Limited has completed its acquisition of the Company. Pursuant to the plan of arrangement (the “Arrangement”) holders of Nexen common shares will receive cash proceeds of US $27.50, without interest, and holders of Nexen preferred shares will receive cash proceeds of CAD $26.00, plus accrued and unpaid dividends up to, but excluding, the closing date of the Arrangement, without interest.

Kevin Reinhart will continue as CEO of Nexen and will maintain responsibility for all of Nexen’s operations. The Company’s Calgary headquarters will continue to be responsible for managing all of Nexen’s existing assets as well as CNOOC Limited’s North and Central American assets.

Nexen’s common and preferred shares are expected to be delisted from the Toronto Stock Exchange (the “TSX”) in a few trading days. Nexen’s common shares are expected to cease being traded on the NYSE prior to the market opening on February 26, 2013, and will subsequently be delisted.

With respect to NXY.PR.U, they have also announced:

that, in accordance with the terms of the indenture (the “Trust Indenture”) governing Nexen’s outstanding US$460 million aggregate principal amount of 7.35% Subordinated Notes due 2043 (the “Subordinated Notes”), Nexen has exercised its right to redeem all of the outstanding Subordinated Notes for a cash amount equal to $1,000 per $1,000 principal amount of Subordinated Notes, plus accrued and unpaid interest up to, but excluding, the redemption date. Nexen will complete the redemption of such Subordinated Notes on March 28, 2013 (the “Redemption Date”). Following the Redemption Date, holders of Subordinated Notes will have no further rights or entitlements under the Subordinated Notes or the Trust Indenture other than to receive the redemption price described above. Prior to the Redemption Date, Nexen will deposit with Deutsche Bank Trust Company Americas (the “Trustee”), the trustee under the Trust Indenture, funds sufficient to pay the total redemption amount payable to holders of redeemed Subordinated Notes.

A redemption notice will be sent to the registered holder of the Subordinated Notes today by the Trustee.

The Subordinated Notes are listed and traded on the TSX and NYSE under the symbols NXY.PR.U and NXY.PRB, respectively. Nexen intends to delist the Subordinated Notes from the TSX and NYSE as soon as possible following the Redemption Date.

The Plan of Arrangement with respect to NXY.PR.A has been reported on PrefBlog.

The particulars of NXY.PR.U were also discussed on PrefBlog.

February 25, 2013

Monday, February 25th, 2013

More bad news out of Europe, even before the Italian election returns:

he euro zone will not return to growth until 2014, the European Commission said on Friday, reversing its prediction for an end to recession this year and blaming a lack of bank lending and record joblessness for delaying the recovery.

The 17-nation bloc’s economy, which generates nearly a fifth of global output, will shrink 0.3 per cent in 2013, the Commission said, meaning the euro zone will remain in its second recession since 2009 for a year longer than originally foreseen.

I was interested to see in an unrelated article that preferred share ETFs are the benchmark du jour for asset gathering:

There are eight minimum/low volatility exchange-traded funds listed in Canada and it’s fair to say the concept hasn’t caught on like wildfire given that assets under management are collectively less than $150-million.

By comparison, the BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR/TSX) grew from zero to $160-million in the span of exactly three months. Judging by the amount of assets that have flocked to ETFs dedicated to the preferred share market, growth in that group is all but certain.

It has now been about three and a half months since the 2012-11-14 inception of ZPR and the fund is now at $243-million. Not bad!

It was a surprisingly negative day for the Canadian preferred share market, with PerpetualPremiums off 5bp, FixedResets losing 31bp and DeemedRetractibles down 16bp. As indicated in the longer-than-usual volatility highlights, it looks like a relatively modest amount of selling pressure found few bids in the last half hour. Overall volume was extremely high, but block trading details are not yet available.

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 -0.1362 % 2,599.4
FixedFloater 4.13 % 3.46 % 24,653 18.38 1 0.0435 % 3,935.7
Floater 2.56 % 2.87 % 85,700 20.00 5 -0.1362 % 2,806.6
OpRet 4.80 % 2.81 % 45,309 0.34 5 -0.2545 % 2,595.5
SplitShare 4.58 % 4.24 % 42,026 4.27 2 -0.0994 % 2,943.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2545 % 2,373.4
Perpetual-Premium 5.25 % 1.13 % 91,934 0.09 29 -0.0534 % 2,351.0
Perpetual-Discount 4.85 % 4.90 % 131,081 15.57 4 -0.0609 % 2,648.2
FixedReset 4.90 % 2.74 % 275,545 3.32 78 -0.3148 % 2,496.7
Deemed-Retractible 4.88 % 3.44 % 143,847 0.82 45 -0.1554 % 2,433.5
Performance Highlights
Issue Index Change Notes
BAM.PF.B FixedReset -1.71 % This was a day-long slide.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 3.67 %
MFC.PR.J FixedReset -1.53 % This was trading at around 26.00 until around 3:25, then there were 16 trades totalling about 4,500 shares, mostly out of Nesbitt, that took the bid right down.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.72
Bid-YTW : 3.34 %
TCA.PR.X Perpetual-Premium -1.45 % Not a real loss as the low for the day was 51.70.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-15
Maturity Price : 50.00
Evaluated at bid price : 51.00
Bid-YTW : 3.05 %
SLF.PR.H FixedReset -1.38 % Trading at around 25.50 until about 3:30, then nine trades totalling about 3,000 shares took it down.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 3.45 %
TRP.PR.B FixedReset -1.17 % Probably related to the new issue. All trading after 3:00pm was around 24.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-25
Maturity Price : 23.30
Evaluated at bid price : 24.48
Bid-YTW : 2.78 %
MFC.PR.A OpRet -1.16 % Trading had reached the mid-25.60s by noon.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-19
Maturity Price : 25.50
Evaluated at bid price : 25.60
Bid-YTW : 1.98 %
RY.PR.G Deemed-Retractible -1.11 % Not a “real” loss – the day’s low was 26.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.76
Bid-YTW : 3.53 %
ENB.PR.D FixedReset -1.08 % Competition from the new TRP issue? Trading prices had reached about 25.80 by noon.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-01
Maturity Price : 25.00
Evaluated at bid price : 25.74
Bid-YTW : 3.36 %
CM.PR.K FixedReset -1.07 % Drifted slowly lower on modest volume from about noon to the close.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 2.91 %
ENB.PR.H FixedReset -1.05 % Competition from the new TRP issue? Trading prices were steady in the afternoon.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-25
Maturity Price : 23.27
Evaluated at bid price : 25.46
Bid-YTW : 3.40 %
Volume Highlights
Issue Index Shares
Traded
Notes
GWO.PR.N FixedReset 427,672 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.66
Bid-YTW : 3.25 %
CU.PR.C FixedReset 73,345 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.40
Bid-YTW : 2.61 %
CU.PR.D Perpetual-Premium 68,548 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-09-01
Maturity Price : 25.00
Evaluated at bid price : 26.41
Bid-YTW : 4.12 %
TRP.PR.A FixedReset 68,164 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-25
Maturity Price : 23.81
Evaluated at bid price : 25.55
Bid-YTW : 3.23 %
TRP.PR.B FixedReset 67,795 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-25
Maturity Price : 23.30
Evaluated at bid price : 24.48
Bid-YTW : 2.78 %
ENB.PR.T FixedReset 61,026 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-25
Maturity Price : 23.23
Evaluated at bid price : 25.41
Bid-YTW : 3.70 %
There were 62 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TCA.PR.X Perpetual-Premium Quote: 51.00 – 51.75
Spot Rate : 0.7500
Average : 0.4494

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-15
Maturity Price : 50.00
Evaluated at bid price : 51.00
Bid-YTW : 3.05 %

W.PR.J Perpetual-Premium Quote: 25.45 – 25.97
Spot Rate : 0.5200
Average : 0.3145

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-03-27
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : -8.36 %

BAM.PR.K Floater Quote: 18.19 – 18.63
Spot Rate : 0.4400
Average : 0.3337

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-25
Maturity Price : 18.19
Evaluated at bid price : 18.19
Bid-YTW : 2.91 %

BNS.PR.J Deemed-Retractible Quote: 25.37 – 25.64
Spot Rate : 0.2700
Average : 0.1684

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-29
Maturity Price : 25.00
Evaluated at bid price : 25.37
Bid-YTW : 3.59 %

RY.PR.G Deemed-Retractible Quote: 25.76 – 26.00
Spot Rate : 0.2400
Average : 0.1464

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.76
Bid-YTW : 3.53 %

FTS.PR.C OpRet Quote: 25.25 – 25.50
Spot Rate : 0.2500
Average : 0.1682

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2013-08-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 3.35 %

New Issue: TRP FixedReset 4.00%+238

Monday, February 25th, 2013

TransCanada Corporation has announced:

that it will issue 12 million cumulative redeemable first preferred shares, series 7 (the “Series 7 Preferred Shares”) at a price of $25.00 per share, for aggregate gross proceeds of $300 million on a bought deal basis to a syndicate of underwriters in Canada co-led by Scotiabank, BMO Capital Markets and RBC Capital Markets.

The holders of Series 7 Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of $1.00 per share, payable quarterly on the 30th day of January, April, July and October, as and when declared by the board of directors of TransCanada. The Series 7 Preferred Shares will yield 4.0 per cent per annum for the initial fixed rate period ending April 30, 2019 with the first dividend payment date scheduled for April 30, 2013. The dividend rate will reset on April 30, 2019 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 2.38 per cent. The Series 7 Preferred Shares are redeemable by TransCanada, at its option, on April 30, 2019 and on April 30 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series 7 Preferred Shares will have the right to convert their shares into cumulative redeemable first preferred shares, series 8 (the “Series 8 Preferred Shares”), subject to certain conditions, on April 30, 2019 and on April 30 of every fifth year thereafter. The holders of Series 8 Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the board of directors of TransCanada, at an annualized rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 2.38 per cent.

TransCanada has granted to the underwriters an option, exercisable at any time up to 48 hours prior to the closing of the offering, to purchase up to an additional two million Series 7 Preferred Shares at a price of $25.00 per share.

The anticipated closing date is March 4, 2013. The net proceeds of the offering will be used for general corporate purposes and to reduce short term indebtedness of TransCanada and its affiliates, which short term indebtedness was used to fund TransCanada’s capital program and for general corporate purposes.

The Series 7 Preferred Shares will be offered to the public in Canada pursuant to a prospectus supplement that will be filed with securities regulatory authorities in Canada under TransCanada’s short form base shelf prospectus dated November 14, 2011. The securities referred to herein have not been and will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

It will be noted that this issue is vastly superior to the other TRP FixedResets:

  • TRP.PR.A 4.60%+192, Friday 25.80-85
  • TRP.PR.B 4.00%+128, Friday 24.77-84
  • TRP.PR.C 4.40%+154, Friday 25.75-83

Update:: Holy smokes! Monster-size me!

TransCanada Corporation (TSX, NYSE: TRP) (TransCanada) today announced that as a result of strong investor demand for its previously announced offering of cumulative redeemable first preferred shares, series 7 (the “Series 7 Preferred Shares”), the size of the offering has been increased to 24 million shares. The offering no longer includes the previously granted underwriters’ option. The aggregate gross proceeds of the offering will now be $600 million. The syndicate of underwriters is co-led by Scotiabank, BMO Capital Markets and RBC Capital Markets.

The anticipated closing date is March 4, 2013. The net proceeds of the offering will be used for general corporate purposes and to reduce short term indebtedness of TransCanada and its affiliates, which short term indebtedness was used to fund TransCanada’s capital program and for general corporate purposes.

Update, 2013-2-26: Rated Pfd-2(low) by DBRS.