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Archive for December, 2015

BRF.PR.E: Exchange Offer Extended, To Be Amended

Tuesday, December 22nd, 2015

Brookfield Renewable Energy Partners L.P. has announced:

that it has extended the expiry time of its offer to exchange each issued and outstanding Class A Preference Share, Series 5 of Brookfield Renewable Power Preferred Equity Inc. (TSX:BRF.PR.E) with an annual dividend rate of 5.00% (collectively, the “Series 5 Preferred Shares”) for one newly issued Class A Preferred Limited Partnership Unit, Series 5 of Brookfield Renewable with an annual distribution rate of 5.59% (the “Exchange Offer”) to 5:00 p.m. (Toronto Time) on January 20, 2016.

The Exchange Offer is being extended pursuant to an amendment and restatement of Brookfield Renewable’s prospectus supplement dated November 9, 2015 to its short form base shelf prospectus dated May 12, 2015 (the “Amended and Restated Prospectus Supplement”). Full details of the Exchange Offer are contained in the Amended and Restated Prospectus Supplement, which will be filed with securities regulatory authorities in each of the provinces and territories of Canada and mailed to holders of Series 5 Preferred Shares (“Series 5 Preferred Shareholders”) as required under applicable Canadian securities laws on or about December 23, 2015. Copies of the Amended and Restated Prospectus Supplement will be available on SEDAR at www.sedar.com and on Brookfield Renewable’s website at www.brookfieldrenewable.com at such time. Series 5 Preferred Shareholders are urged to evaluate carefully all information in the Exchange Offer, including risk factors, and to consult their own investment, tax and legal advisors.

Computershare Investor Services Inc. is the Depositary for the Exchange Offer and D.F. King Canada, a division of CST Investor Services Inc., is the Information Agent. Any questions or requests for assistance concerning the Exchange Offer or further information about tendering to the Exchange Offer should be directed to the Depositary at 1-800-564-6253 (toll free in North America) or 1-514-982-7555, or by e-mail at corporateactions@computershare.com; or to the Information Agent at 1-800-332-4904 (toll free in North America) or 1-201-806-7301, or by e-mail at inquiries@dfking.com.

Copies of the Amended and Restated Prospectus Supplement may be obtained free of charge upon request to the Depositary or the Information Agent. Series 5 Preferred Shareholders whose Series 5 Preferred Shares are registered in the name of a broker, investment dealer, bank, trust company or other nominee should contact such nominee for assistance in depositing their Series 5 Preferred Shares to the Exchange Offer.

The original offer was reported in PrefBlog in the post BRF.PR.E: Coercive Exchange Offer. Readers will know I consider the offer coercive because there is no mechanism whereby holders of BRF.PR.E may ensure they receive the original deal; BRF.PR.E could be delisted by the issuer without compensation to a stubborn holder, which could have serious consequences, particular for those who hold the issue in a registered account.

The press release makes reference to an “Amended and Restated Prospectus Supplement, which will be filed with securities regulatory authorities … on or about December 23, 2015.” When I’ve had a chance to look at it, I’ll comment.

Some readers may be interested to learn that Barry Critchley wrote a sadly garbled version of the exchange offer in his piece Brookfield Renewable and Dundee show that pref shares may not be preferred:

Next Friday, Brookfield Renewable preferred shareholders have to decide on an exchange offer whereby they swap their five-per-cent securities issued in 2013 for 5.59-per-cent Series 5 preferred units offered by Brookfield Renewable Power Preferred Equity, a different but related issuer.

It seems the market — and $175 million of these perpetual prefs were issued — has given its judgement: the prefs hit a six-month low during the week. The prefs, now yielding 6.75 per cent, have traded down since the November announcement of the offer.

Those prefs came with certain terms, specifically that they couldn’t be redeemed prior to April 30, 2018. After that date, the issuer was required to pay a premium that declines to $25 “on or after April 30, 2022.”

It appears holders won’t be getting any of those potential benefits if more than two-thirds of the holders tend into the offer.

The proposal has upset some holders, with one suggesting Brookfield Renewable “seems to be urging current owners of the shares to redeem for a lesser product which they pretend is a better investment.”

For example, the Series 5 preferred units “do not have a fixed maturity date and are not redeemable at the option of the holders of Series 5 Preferred Units,” according to a Brookfield Renewable circular. “The ability of a holder to liquidate its holdings of Series 5 Preferred Units may be limited.”

The circular also said that the exchange offers holders increased distributions, substantially similar other terms and conditions, unanimous board recommendation and a fairness opinion. Calls to the company seeking further comment were not returned.

Posted in Issue Comments | 5 Comments »

INE.PR.A To Reset at 3.608%

Monday, December 21st, 2015

Innergex Renewable Energy Inc. has announced:

the applicable dividend rates for its Cumulative Rate Reset Preferred Shares, Series A (“Series A shares”) and Cumulative Floating Rate Preferred Shares, Series B (“Series B shares”).

With respect to any Series A shares that remain outstanding after January 15, 2016, commencing as of such date, the holders thereof will be entitled to receive fixed cumulative preferential cash dividends, as and when declared by the Board of Directors, payable quarterly on the 15th day (or, if such day is not a Business Day, the immediately following Business Day) of January, April, July and October in each year from and including January 15, 2016 to, but excluding, January 15, 2021. The dividend rate for the five-year period commencing on January 15, 2016 to but excluding January 15, 2021 will be 3.608% per annum or $0.2255 per share per quarter, being equal to the sum of the Government of Canada Yield (as the term is defined in the Prospectus referred to below) on December 16, 2015 plus 2.79%.

With respect to any Series B shares that may be issued on January 15, 2016, the holders thereof will be entitled to receive floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors, payable quarterly on the 15th day (or, if such day is not a Business Day, the immediately following Business Day) of January, April, July and October in each year (the “Quarterly Commencement Date”), in the annual amount per Series B Share determined by multiplying the applicable Floating Quarterly Dividend Rate (as defined herein) by $25.00. The Floating Quarterly Dividend Rate from and including January 15, 2016 to, but excluding, April 15, 2016, and thereafter the period from and including the day immediately following the end of the immediately preceding Quarterly Floating Rate Period to, but excluding, the next succeeding Quarterly Commencement Date (the “Quarterly Floating Rate Period”) will be equal to the sum of the T-Bill Rate (as the term is defined in the Prospectus referred to below) plus 2.79% per annum (calculated on the basis of the actual number of days in the applicable Quarterly Floating Rate Period divided by 365) determined on the 30th day prior to the first day of the applicable Quarterly Floating Rate Period. The dividend rate for the Quarterly Floating Rate Period commencing on January 15, 2016 to but excluding April 15, 2016 will be equal to 3.262% per annum or $0.203316 per share as determined in accordance with the terms of the Series B shares.

Beneficial owners of Series A shares who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to meet the deadline to exercise such right, which is 5:00 p.m. (Montreal Time) on Thursday, December 31, 2015.

The extension of INE.PR.A was previously reported on PrefBlog.

INE.PR.A is a FixedReset, 5.00%+279, which commenced trading 2010-9-14 after being announced 2010-8-23. The new rate of 3.608% thus represents a 28% cut in dividend.

As noted in the Press Release, holders have until 5:00 p.m. (Montreal Time) on Thursday, December 31, 2015, to notify the company of a desire to convert to the FloatingReset Series B. Brokerage deadlines will be earlier; missing the deadline at the brokerage probably means you’re going to have to grovel to get them to try to get the instruction to the company in time and in such a case they will do it only on a ‘best efforts’ basis. So ensure you know well in advance – by which I mean ‘right now’ – just when your brokerage’s internal deadline is.

I will make a recommendation December 24 based on the theory of Preferred Pairs, for which a calculator is available. Given recent market behaviour, it is highly likely that I will recommend holding INE.PR.A and not to convert, but that won’t be final until Christmas Eve!

Posted in Issue Comments | No Comments »

MAPF Performance: November, 2015

Sunday, December 20th, 2015

The fund outperformed the indices in November, as low-spread FixedResets outperformed their higher-spread cousins.

When I wrote eMail To A Client towards the end of July, one had to go back to January, 2011, to find a starting point that would give you a positive return through the holding period. As of the end of September, the required starting point moved back again, to July month-end, 2010. Readers will be happy to learn that, according to the BMO-CM “50” index, one now sees slightly positive returns for the period September 2010 to November 2015. We can also say that returns have been positive since September 2015, but that’s just a blip that few will consider meaningful!

The current 62-month total cumulative return of basically zero was only exceeded during the Credit Crunch – and even then, the figure was only negative for seven months, from October 2008 to April 2009 inclusive. The discussion in eMail To A Client still applies … but more so, now!

So why is this happening? I believe that a sudden realization that low Canada yields would be reflected in dividends of FixedResets, that started with the reset of TRP.PR.A announced in early December, 2014, turned into unreasonable fear in the spring of 2015 and escalated into blind panic. The yield of FixedResets has decoupled from the five-year Canada rate (note that this chart was prepared prior to the monster rally of the second half of October):

Click for Big

This has led to a narrowing spread between PerpetualDiscounts and FixedResets:

Click for Big
n.b.: the spread here is “interest-equivalent”

… which has put pressure on the price of PerpetualDiscounts, raising their spread to long corporate bonds to Credit Crunch proportions:

Click for Big
n.b.: the spread here is “interest equivalent”

So there you have it in a nutshell! Regrettably, I am unable to predict either the timing or the degree of the correction that must happen at some point.

ZPR, is an ETF comprised of FixedResets and Floating Rate issues and a very high proportion of junk issues, returned -1.60%, -1.57% and -22.96% over the past one-, three- and twelve-month periods, respectively (according to the fund’s data), versus returns for the TXPL index of -1.48%, -1.28% and -22.63% respectively. The fund has been able to attract assets of about $1,094-million since inception in November 2012; AUM increased by $51-million in November; given an index return of -1.48% a decrease of about $16-million was expected, so there was a very significant cash inflow over the month. I feel that the flows into and out of this fund are very important in determining the performance of its constituents. ZPR changed its index provider effective October 2015; I believe that this may have been at least partially motivated by a desire to de-emphasize the horrific performance of the past three years by using an index with a very recent inception date; and that this may be taken – with a grain of salt – as an indication that the BMO Brain Trust thinks FixedResets are at a bottom. Interestingly, while the fund’s “Enhanced ETF Profile” specifies the Solactive index as the benchmark, the “Index Returns” spreadsheet provided by the fund continues to insist that TXPL is relevant. The index performance provided by the fund as a comparison is just a little different from the TXPL figures quoted above; I will admit that I’m not quite sure what they’re doing.

TXPR had returns over one-, three- and twelve-months of -1.24%, -1.38% and -17.11% respectively with CPD performance within expectations.

Returns for the HIMIPref™ investment grade sub-indices for the month were as follows:

HIMIPref™ Indices Performance to November 30, 2015
Sub-Index	1-Month	3-month
Ratchet	N/A	N/A
FixFloat	N/A	N/A
Floater	+0.66%	+6.08%
OpRet	N/A	N/A
SplitShare	+0.84%	-1.17%
Interest	N/A	N/A
PerpetualPremium	+1.75%	+1.83%
PerpetualDiscount	+0.34%	+0.31%
FixedReset	-1.25%	-4.26%
DeemedRetractible	+0.85%	+1.04%
FloatingReset	+1.18%	+0.21%

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close November 30, 2015, was $8.0876.

Returns to November 30, 2015
Period	MAPF	BMO-CM “50” Index	TXPR Total Return	CPD – according to Blackrock
One Month	-0.03%	-1.60%	-1.24%	N/A
Three Months	-3.34%	-2.50%	-1.38%	N/A
One Year	-20.25%	-17.22%	-17.11%	-17.33%
Two Years (annualized)	-6.09%	-7.30%	-6.47%	N/A
Three Years (annualized)	-4.59%	-4.51%	-4.43%	-4.78%
Four Years (annualized)	-0.57%	-1.96%	-1.94%	N/A
Five Years (annualized)	-0.34%	-0.38%	-0.71%	-1.14%
Six Years (annualized)	+2.58%	+1.63%	+0.99%
Seven Years (annualized)	+12.16%	+5.84%	+5.10%
Eight Years (annualized)	+8.47%	+2.05%	+1.32%
Nine Years (annualized)	+6.89%	+1.06%
Ten Years (annualized)	+6.86%	+1.39%
Eleven Years (annualized)	+6.82%	1.69%
Twelve Years (annualized)	+7.47%	+2.05%
Thirteen Years (annualized)	+9.09%	+2.47%
Fourteen Years (annualized)	8.29%	+2.48%
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
CPD Returns are for the NAV and are after all fees and expenses.
Figures for National Bank Preferred Equity Income Fund (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are +0.86%, +1.37% and -11.50%, respectively, according to Morningstar after all fees & expenses. Three year performance is -1.93%; five year is +0.86%
Figures for Manulife Preferred Income Class Adv [into which was merged Manulife Preferred Income Fund (formerly AIC Preferred Income Fund)] (which are after all fees and expenses) for 1-, 3- and 12-months are -1.20%, -0.42% & -17.27, respectively. It will be noted that AIC Preferred Income Fund was in existence prior to August, 2009, but long term performance figures have been suppressed.
Figures for Horizons Active Preferred Share ETF (which are after all fees and expenses) for 1-, 3- and 12-months are -0.48%, +0.06% & -13.88%, respectively. Three year performance is -2.82%, five-year is +0.60%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are -0.54%, -0.18% and -15.34% for one-, three- and twelve months, respectively. Three year performance is -4.48%
The figure for BMO S&P/TSX Laddered Preferred Share Index ETF is -1.60%, -1.57% and -22.96% for one-, three- and twelve-months, respectively. Two year performance is -10.59%, three year is -7.50%.
Figures for NexGen Canadian Preferred Share Tax Managed Fund (Dividend Tax Credit Class, the best performing) are -1.5%, +0.5% and -10.2% for one-, three- and twelve-months, respectively.
Figures for BMO Preferred Share Fund are -2.00% and -15.95% for the past three- and twelve-months, respectively.
Figures for PowerShares Canadian Preferred Share Index Class, Series F are -18.20% for the past twelve months. The three-year figure is -6.93%, five-year is -3.46%
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are -3.81%, -5.49% and -23.79% for the past one, three and twelve months, respectively. The two-, three-, four- and five-year figures are -11.63%, -9.24%, -5.36% and -4.28%, respectively.

MAPF returns assume reinvestment of dividends, and are shown after expenses but before fees. Past performance is not a guarantee of future performance. You can lose money investing in Malachite Aggressive Preferred Fund or any other fund. For more information, see the fund’s main page. The fund is available either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited.

A problem that has bedevilled the market over the past four years has been the OSFI decision not to grandfather Straight Perpetuals as Tier 1 bank capital, and their continued foot-dragging regarding a decision on insurer Straight Perpetuals has segmented the market to the point where trading has become much more difficult. Until the market became so grossly segmented, there were many comparables for any given issue – but now banks are not available to swap into (because they are so expensive) and non-regulated companies are likewise deprecated (because they are not DeemedRetractibles; they should not participate in the increase in value that will follow the OSFI decision I anticipate and, in addition, are analyzed as perpetuals). The fund’s portfolio was, in effect ‘locked in’ to the low coupon DeemedRetractibles due to projected long-term gains from a future OSFI decision to the detriment of trading gains, particularly in May, 2013, when the three lowest-coupon SLF DeemedRetractibles (SLF.PR.C, SLF.PR.D and SLF.PR.E) were the worst performing DeemedRetractibles in the sub-index, and in June, 2013, when the insurance-issued DeemedRetractibles behaved like PerpetualDiscounts in a sharply negative market. Nowadays, the fund is ‘locked-in’ to the low-spread FixedResets from these companies: GWO.PR.N, MFC.PR.F, and SLF.PR.G.

In November, insurance DeemedRetractibles outperformed bank DeemedRetractibles:

Click for Big

… and also outperformed Unregulated [and bank NVCC-compliant] Straight Perpetuals…

Click for Big

Correlations were poor for insurance DeemedRetractibles (6%, not shown), but decent for bank DeemedRetractibles (16%) and good for unregulated/NVCC-compliant issues (31%).

A lingering effect of the downdraft of 2013 has been the return of measurable Implied Volatility but given my recent updates in recent daily market reports, I will not discuss them further in this post.

Sometimes everything works … sometimes it’s 50-50 … sometimes nothing works. The fund seeks to earn incremental return by selling liquidity (that is, taking the other side of trades that other market participants are strongly motivated to execute), which can also be referred to as ‘trading noise’ – although for quite some time, noise trading has taken a distant second place to the sectoral play on insurance DeemedRetractibles; something that dismays me, particularly given that the market does not yet agree with me regarding the insurance issues! There were a lot of strongly motivated market participants during the Panic of 2007, generating a lot of noise! Unfortunately, the conditions of the Panic may never be repeated in my lifetime … but the fund will simply attempt to make trades when swaps seem profitable, without worrying about the level of monthly turnover.

What has happened over the past year has been – obviously, now! – a very significant re-pricing of the FixedReset market. My analytical software, HIMIPref™ assumes that the market is always right when it comes to pricing asset classes; it seeks to pick off the individual issues that stray too far from the normal price. Two years ago, FixedResets were yielding so little that the system didn’t see much value even in buying the mispriced ones – the weighting of FixedResets in the September, 2013, MAPF Portfolio Composition was only 8%. However, as the market drifted lower, the cheap outliers gradually became more and more attractive, and the weighting increased from 23.4% in the September, 2014, MAPF Portfolio Composition to its current figure of 70.2% in the September, 2015, MAPF Portfolio Composition. So … too early! But who would have thought that the market would be astonished in December, 2014, that the GOC-5 yields that have been so low for years could possibly have had an effect on dividends? Regrettably, when the entire market is blind, so are quantitative systems. Still, while relative performance has been poor lately, it hasn’t been disastrous … although some clients might feel that absolute performance has been quite disastrous enough, thank you very much.

There’s plenty of room for new money left in the fund. I have shown in PrefLetter that market pricing for FixedResets is very often irrational and I have lots of confidence – backed up by my bond portfolio management experience in the markets for Canadas and Treasuries, and equity trading on the NYSE & TSX – that there is enough demand for liquidity in any market to make the effort of providing it worthwhile (although the definition of “worthwhile” in terms of basis points of outperformance changes considerably from market to market!) I will continue to exert utmost efforts to outperform but it should be borne in mind that there will almost inevitably be periods of underperformance in the future.

The yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

Calculation of MAPF Sustainable Income Per Unit
Month	NAVPU	Portfolio Average YTW	Leverage Divisor	Securities Average YTW	Capital Gains Multiplier	Sustainable Income per current Unit
June, 2007	9.3114	5.16%	1.03	5.01%	1.3240	0.3524
September	9.1489	5.35%	0.98	5.46%	1.3240	0.3773
December, 2007	9.0070	5.53%	0.942	5.87%	1.3240	0.3993
March, 2008	8.8512	6.17%	1.047	5.89%	1.3240	0.3938
June	8.3419	6.034%	0.952	6.338%	1.3240	$0.3993
September	8.1886	7.108%	0.969	7.335%	1.3240	$0.4537
December, 2008	8.0464	9.24%	1.008	9.166%	1.3240	$0.5571
March 2009	$8.8317	8.60%	0.995	8.802%	1.3240	$0.5872
June	10.9846	7.05%	0.999	7.057%	1.3240	$0.5855
September	12.3462	6.03%	0.998	6.042%	1.3240	$0.5634
December 2009	10.5662	5.74%	0.981	5.851%	1.1141	$0.5549
March 2010	10.2497	6.03%	0.992	6.079%	1.1141	$0.5593
June	10.5770	5.96%	0.996	5.984%	1.1141	$0.5681
September	11.3901	5.43%	0.980	5.540%	1.1141	$0.5664
December 2010	10.7659	5.37%	0.993	5.408%	1.0298	$0.5654
March, 2011	11.0560	6.00%	0.994	5.964%	1.0298	$0.6403
June	11.1194	5.87%	1.018	5.976%	1.0298	$0.6453
September	10.2709	6.10% Note	1.001	6.106%	1.0298	$0.6090
December, 2011	10.0793	5.63% Note	1.031	5.805%	1.0000	$0.5851
March, 2012	10.3944	5.13% Note	0.996	5.109%	1.0000	$0.5310
June	10.2151	5.32% Note	1.012	5.384%	1.0000	$0.5500
September	10.6703	4.61% Note	0.997	4.624%	1.0000	$0.4934
December, 2012	10.8307	4.24%	0.989	4.287%	1.0000	$0.4643
March, 2013	10.9033	3.87%	0.996	3.886%	1.0000	$0.4237
June	10.3261	4.81%	0.998	4.80%	1.0000	$0.4957
September	10.0296	5.62%	0.996	5.643%	1.0000	$0.5660
December, 2013	9.8717	6.02%	1.008	5.972%	1.0000	$0.5895
March, 2014	10.2233	5.55%	0.998	5.561%	1.0000	$0.5685
June	10.5877	5.09%	0.998	5.100%	1.0000	$0.5395
September	10.4601	5.28%	0.997	5.296%	1.0000	$0.5540
December, 2014	10.5701	4.83%	1.009	4.787%	1.0000	$0.5060
March, 2015	9.9573	4.99%	1.001	4.985%	1.0000	$0.4964
June, 2015	9.4181	5.55%	1.002	5.539%	1.0000	$0.5217
September, 2015	7.8140	6.98%	0.999	6.987%	1.0000	$0.5460
November, 2015	8.0876	7.15%	1.001	7.143%	1.0000	$0.5777
NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains. Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00% The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99 Securities YTW divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings. The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested. Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company (definition refined in May, 2011). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or 2025-1-31 (insurers and insurance holding companies), in addition to the call schedule explicitly defined. See OSFI Does Not Grandfather Extant Tier 1 Capital, CM.PR.D, CM.PR.E, CM.PR.G: Seeking NVCC Status and the January, February, March and June, 2011, editions of PrefLetter for the rationale behind this analysis. The same reasoning is also applied to FixedResets from these issuers, other than explicitly defined NVCC from banks.
Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. From February to September 2012, yields on these issues have been set to zero. All YLO issues held were sold in October 2012.
Calculations of resettable instruments are performed assuming constant contemporary GOC-5 and 3-Month Bill rates. For September 30, 2015, yields of 0.78% and 0.40%, respectively, were assumed; base rates in November, 2015, were 0.92% and 0.45%, respectively.

Significant positions were held in DeemedRetractible, SplitShare and NVCC non-compliant regulated FixedReset issues on November 30; all of these currently have their yields calculated with the presumption that they will be called by the issuers at par prior to 2022-1-31 (banks) or 2025-1-31 (insurers and insurance holding companies) or on a different date (SplitShares) This presents another complication in the calculation of sustainable yield, which also assumes that redemption proceeds will be reinvested at the same rate.

I will also note that the sustainable yield calculated above is not directly comparable with any yield calculation currently reported by any other preferred share fund as far as I am aware. The Sustainable Yield depends on:
i) Calculating Yield-to-Worst for each instrument and using this yield for reporting purposes;
ii) Using the contemporary value of Five-Year Canadas to estimate dividends after reset for FixedResets. The assumption regarding the five-year Canada rate has become more important as the proportion of low-spread FixedResets in the portfolio has increased.
iii) Making the assumption that deeply discounted NVCC non-compliant issues from both banks and insurers, both Straight and FixedResets will be redeemed at par on their DeemedMaturity date as discussed above.

I no longer show calculations that assume the conversion of the entire portfolio into PerpetualDiscounts, as the fund has only a small position in these issues.

Most funds report Current Yield. For instance, ZPR reports a “Dividend Yield” of 4.5% as of August 29, 2014, but this is the Current Yield, a meaningless number. The Current Yield of MAPF was 4.89% as of August 29, but I will neither report that with any degree of prominence nor take any great pleasure in the fact that it’s a little higher than the ZPR number. It’s meaningless; to discuss it in the context of portfolio reporting is misleading.

However, BMO has taken a significant step forward in that they are no longer reporting the “Portfolio Yield” directly on their website; the information is taken from the “Enhanced Fund Profile” which is available only as a PDF link. CPD doesn’t report this metric on the CPD fact sheet or on their website. I may have one less thing to mock the fundcos about!

It should be noted that the concept of this Sustainable Income calculation was developed when the fund’s holdings were overwhelmingly PerpetualDiscounts – see, for instance, the bottom of the market in November 2008. It is easy to understand that for a PerpetualDiscount, the technique of multiplying yield by price will indeed result in the coupon – a PerpetualDiscount paying $1 annually will show a Sustainable Income of $1, regardless of whether the price is $24 or $17.

Things are not quite so neat when maturity dates and maturity prices that are different from the current price are thrown into the mix. If we take a notional Straight Perpetual paying $5 annually, the price is $100 when the yield is 5% (all this ignores option effects). As the yield increases to 6%, the price declines to 83.33; and 83.33 x 6% is the same $5. Good enough.

But a ten year bond, priced at 100 when the yield is equal to its coupon of 5%, will decline in price to 92.56; and 92.56 x 6% is 5.55; thus, the calculated Sustainable Income has increased as the price has declined as shown in the graph:

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The difference is because the bond’s yield calculation includes the amortization of the discount; therefore, so does the Sustainable Income estimate.

Different assumptions lead to different results from the calculation, but the overall positive trend is apparent. I’m very pleased with the long-term results! It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

the very good performance against the index
the long term increases in sustainable income per unit

As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance has generally been due to exploitation of trading anomalies.

Again, there are no predictions for the future! The fund will continue to trade between issues in an attempt to exploit market gaps in liquidity, in an effort to outperform the index and keep the sustainable income per unit – however calculated! – growing.

Posted in MAPF | No Comments »

Low-Spread FixedResets: November, 2015

Sunday, December 20th, 2015

As noted in MAPF Portfolio Composition: November 2015, the fund now has a large allocation to FixedResets, mostly of relatively low spread.

Many of these were largely purchased with proceeds of sales of DeemedRetractibles from the same issuer; it is interesting to look at the price trend of some of the Straight/FixedReset pairs. We’ll start with GWO.PR.N / GWO.PR.I; the fund sold the latter to buy the former at a takeout of about $1.00 in mid-June, 2014; relative prices over the past year are plotted as:

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Given that the November month-end take-out was $7.88, this is clearly a trade that has not worked out very well.

In July, 2014, I reported sales of SLF.PR.D to purchase SLF.PR.G at a take-out of about $0.15:

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There were similar trades in August, 2014 (from SLF.PR.C) at a take-out of $0.35. The October month-end take-out (bid price SLF.PR.D less bid price SLF.PR.G) was $5.68, so that hasn’t worked very well either.

November, 2014, saw the third insurer-based sector swap, as the fund sold MFC.PR.C to buy the FixedReset MFC.PR.F at a post-dividend-adjusted take-out of about $0.85 … given a November month-end take-out of $6.26, that’s another regrettable trade, although another piece executed in December at a take-out of $1.57 has less badly.

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This trend is not restricted to the insurance sector, which I expect will become subject to NVCC rules in the relatively near future and are thus subject to the same redemption assumptions I make for DeemedRetractibles. Other pairs of interest are BAM.PR.X / BAM.PR.N:

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… and FTS.PR.H / FTS.PR.J:

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… and PWF.PR.P / PWF.PR.S:

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I will agree that the fund’s trades highlighted in this post may be decried as cases of monumental bad timing, but I should point out that in May, 2014, the fund was 63.9% Straight / 9.5% FixedReset while in May 2015 the fund was 12% Straight / 86% FixedReset, FloatingReset and FixedFloater (The latter figures include allocations from those usually grouped as ‘Scraps’). Given that the indices are roughly 30% Straight / 60% FixedReset & FloatingReset, it is apparent that the fund was extremely overweighted in Straights / underweighted in FixedResets in May 2014 but this situation has now reversed. HIMIPref™ analytics have been heavily favouring low-spread issues and the fund’s holdings are overwhelmingly of this type.

Getting back to price spreads between low-spread FixedResets and their Straight Perpetual comparators, we can summarize the data above in tabular form and see:

FixedReset	Straight	Take-out December 2013	Take-out MAPF Trade	Take-out December 2014	October 2015	November 2015
GWO.PR.N 3.65%+130	GWO.PR.I 4.5%	($0.04)	$1.00	$2.95	7.49	7.88
SLF.PR.G 4.35%+141	SLF.PR.D 4.45%	($1.29)	$0.25	$2.16	5.65	5.68
MFC.PR.F 4.20%+141	MFC.PR.C 4.50%	($1.29)	$0.86	$1.20	6.88	6.26
BAM.PR.X 4.60%+180	BAM.PR.N 4.75%	($2.06)		$0.17	5.18	4.94
FTS.PR.H 4.25%+145	FTS.PR.J 4.75%	$0.60		$5.68	8.04	7.23
PWF.PR.P 4.40%+160	PWF.PR.S 4.80%	($0.67)		$3.00	7.99	7.47
The ‘Take-Out’ is the bid price of the Straight less the bid price of the FixedReset; approximate execution prices are used for the “MAPF Trade” column. Bracketted figures in the ‘Take-Out’ columns indicate a ‘Pay-Up’

In January, a slow decline due to fears of deflation got worse with Canada yields plummeting after the Bank of Canada rate cut with speculation rife about future cuts although this slowly died away.

And in late March / early April it got worse again, with one commenter attributing at least some of the blame to the John Heinzl piece in which I pointed out the expected reduction in dividend payouts! In May, a rise in the markets in the first half of the month was promptly followed by a slow decline in the latter half; perhaps due to increased fears that a lousy Canadian economy will delay a Canadian tightening. Changes in June varied as the markets were in an overall decline.

In August we saw increased fear of global deflation emanating from China, although the ‘China Effect’ is disputed.

In September the market just collapsed for no apparent reason; in October the market reversed the September collapse for no apparent reason.

All in all, I take the view that we’ve seen this show before: during the Credit Crunch, Floaters got hit extremely badly (to the point at which their fifteen year total return was negative) because (as far as I can make out) their dividend rate was dropping (as it was linked to Prime) while the yields on other perpetual preferred instruments were skyrocketing (due to credit concerns). Thus, at least some investors insisted on getting long term corporate yields from rates based (indirectly and with a lag, in the case of FixedResets) on short-term government policy rates. And it’s happening again!

There is further discussion of the extremely poor performance in the seven months to July 31 of FixedResets in the post eMail to a Client. Things haven’t really changed since that was written; they’ve just gotten ever so much more so.

What happened, essentially, is that the software assumes a certain amount of efficiency in the market. For instance, in 2013 PerpetualDiscounts were trading to yield 250-300bp over FixedResets (see the chart “PDIE-FR Spread”, below, for the PerpetualDiscount Interest Equivalent – FixedReset Spread), where the yield-to-perpetuity of FixedResets was calculated using the contemporary five-year Canada yield of 1.50%-2.00% (see the chart “Historical Government Yields”, below, for the historical government yields). The software assumes the market will get the big things right, so it therefore assumed that this 250-300bp spread would be maintained; and that a spread in this range represented fair value. Therefore, it would only purchase FixedResets if they were sufficiently cheap to other FixedResets to give a good chance of making up this fairly large yield difference.

When this spread started increasing in 2014, FixedResets started looking more attractive as the system assumes a certain amount of mean reversion and the system started buying those issues that were cheap to other FixedResets. However, the underlying assumption that the market would get the big things more-or-less right appears to have been unjustified in this instance: incredibly, the market was not accounting for changes in the five-year Canada rate (and therefore for changes in the projected dividend rate on reset) during this period. So we can call this period an episode of structural change in the markets – and no quantitative system can account for future structural change unless that is programmed into the system … in which case the analysis is no longer quantitative.

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Here’s the November performance for FixedResets that had a YTW Scenario of ‘To Perpetuity’ at mid-month.:

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The market was very disorderly in November and correlations of performance are negligible, whether against spread or term-to-reset. However, I have added the regression line for the Pfd-2 group to the above chart, not because the correlation is so great (at only 12%, it isn’t) but because it shows that to the extent that there is a correlation between spreads and returns, the slope is negative.

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Three month performance is uncorrelated for both the Pfd-2 and Pfd-3 groups:

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Posted in Issue Comments, MAPF | 8 Comments »

December 18, 2015

Saturday, December 19th, 2015

Amidst all the snivelling from old-stock Canadians unable to compete in the Vancouver housing market it’s nice to see a major move in the other direction:

President Barack Obama signed into law a measure easing a 35-year-old tax on foreign investment in U.S. real estate, potentially opening the door to greater purchases by overseas investors, a major source of capital since the financial crisis.

Contained in the $1.1 trillion spending measure that was passed to avoid a government shutdown is a provision that treats foreign pension funds the same as their U.S. counterparts for real estate investments. The provision waives the tax imposed on such investors under the 1980 Foreign Investment in Real Property Tax Act, known as FIRPTA.

“FIRPTA has historically made direct investment in U.S. property a non-starter for trillions of dollars worth of foreign pensions,” said James Corl, a managing director at private equity firm Siguler Guff & Co. “This tax-law modification is a game changer” that could result in hundreds of billions of new capital flows into U.S. real estate.

S&P has downgraded Alberta:

We are lowering our long-term issuer credit and senior unsecured debt ratings on the Province of Alberta to ‘AA+’ from ‘AAA’. We are also lowering our ‘AAA’ senior unsecured debt rating on Alberta Capital Finance Authority to ‘AA+’ from ‘AAA’.

The downgrade reflects our view of Alberta’s projected oil price-driven weak budgetary performances in the next two years; moderate, but rapidly rising, tax-supported debt burden; and now-average economic prospects. The stable outlook reflects our expectations that the province’s liquidity will continue to be exceptional in the next two years, real GDP growth will be positive in 2016 and 2017, and that the debt burden will remain moderate despite large deficit-driven increases in fiscal years 2016-2018.
…
We assess the provincial economy as strong despite the plunge in oil prices and declining real GDP that we expect for 2015. The concentration in the oil and gas industry tempers our assessment of the provincial economy. In 2014, the industry, which includes supporting activities, represented about 27% of real GDP and about 6% of employment. This exposure brings economic and fiscal volatility as oil and gas prices move, as the decline in oil prices indicates. Furthermore, the prospects for energy prices have caused us to reassess Alberta’s growth prospects as average, from above-average previously. We estimate the provincial GDP per capita to be about US$80,800 (2012-2014), which we consider to be high compared with that of peers. Real and nominal GDP growth in 2014 was what we consider very strong despite the fall in oil prices in the second half of the year. Real GDP rose 4.5% (5.1% in 2014): nominal GDP increased 9.1%, compared with 10.2%. Labor force results were also strong, in our opinion. Employment grew 2.2% (2.5% in 2013) and the unemployment rate was 4.7%, up only slightly from 2013. For 2015, the province expects real and nominal GDP to decline 1.0% and 9.4%, respectively. In 2016, we believe real and nominal GDP should rebound, with about 1.0% and 4.0% growth, respectively.

Alberta’s financial management is very strong, in our view. Budget information is comprehensive and detailed. The province produces a five-year capital plan annually. The level of transparency and disclosure in financial statements is high. The independent auditor-general, who reports to the legislature, audits financial statements. Debt and liquidity management and related policies and practices are prudent and risk-averse. A capable and experienced administration supports the recently elected governing party.

I mentioned the Capital Power debt reorganization on November 19 and November 20; now it has come to fruition:

Capital Power Corporation (“Capital Power”) (TSX: CPX) and Capital Power L.P. (“CPLP”) announced today the completion of a previously announced transaction to exchange all outstanding CPLP medium term notes (“CPLP Notes”) for newly issued Capital Power medium term notes (“Capital Power Notes”) that have the same financial and other terms as the CPLP Notes and that are unconditionally guaranteed by CPLP (“Note Exchange”).

The Note Exchange transaction received strong support and was approved by more than 87% of the votes cast at the December 17, 2015 meeting of holders of CPLP Notes, voting as a single class.

As a result of the Note Exchange, the CPLP Notes have been cancelled and the following Capital Power Notes were issued in exchange for them:
◦4.85% Medium Term Notes of Capital Power due February 21, 2019, Series 1
◦5.276% Medium Term Notes of Capital Power due November 16, 2020, Series 2

The Note Exchange and additional steps to reorganize CPLP’s capital structure were undertaken to simplify the organizational structure and reduce reporting obligations. The cessation of CPLP as a reporting issuer and transition of long-term credit ratings to only Capital Power will result in efficiencies for Capital Power while providing noteholders with better liquidity over time and structural enhancement. The timing of the Note Exchange follows the exchange of all remaining Exchangeable Common Limited Partnership Units of CPLP for shares of Capital Power by EPCOR Power Development Corporation on April 2, 2015.

RBC Capital Markets acted as the Solicitation Agent for the Note Exchange transaction

So, what’s done is done. RBC got paid and their counsel got paid:

The Solicitation Agent will be entitled to receive a fee for its services and be reimbursed for certain reasonable out-of-pocket expenses, including fees of legal counsel, and will be indemnified against certain liabilities and expenses in connection with the solicitation of votes in favour of the Note Exchange Resolution.

… and Kingsdale got paid:

CPLP has retained Kingsdale Shareholder Services to act as information agent in connection with the Note Exchange Transaction. The Information Agent will receive reasonable and customary compensation from CPLP for its services in connection with the Note Exchange Transaction, will be reimbursed for certain out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection with the Note Exchange Transaction.

… and I’m sure lots of other people got paid, but the Noteholders didn’t get paid, not a penny. And they voted in favour anyway! Like I always say, there’s one born every minute!

It was a modestly negative day for the Canadian preferred share market, with PerpetualDiscounts losing 26bp, FixedResets down 25bp and DeemedRetractibles off 8bp. The Performance Highlights table continues to be enormous, though, indicating a lot of churn under the placid surface. Volume was extremely high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 18.50 to be $1.26 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.84 cheap at its bid price of 11.91.

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Most expensive is MFC.PR.G, resetting at +290bp on 2016-12-19, bid at 21.30 to be 0.37 cheap, while MFC.PR.N, resetting at +230bp on 2020-3-19, is bid at 19.75 to be 0.57 rich.

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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.41 to be $1.35 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 19.50 and appears to be $1.36 rich.

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FTS.PR.M, with a spread of +248bp, and bid at 20.39, looks $0.33 expensive and resets 2019-12-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 16.89 and is $0.98 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.03%, with one outlier below -2.00%. There is one junk outlier below -2.00% and four above 0.00%.

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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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	4.94 %	6.01 %	33,464	16.63	1	0.7326 %	1,569.5
FixedFloater	7.20 %	6.38 %	36,162	15.77	1	0.7634 %	2,711.6
Floater	4.24 %	4.37 %	83,977	16.68	4	2.4810 %	1,803.7
OpRet	4.87 %	4.26 %	24,386	0.69	1	0.0000 %	2,735.4
SplitShare	4.83 %	5.58 %	81,423	1.87	6	0.8948 %	3,201.0
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.8948 %	2,497.6
Perpetual-Premium	5.82 %	5.90 %	97,893	13.95	7	-0.0514 %	2,488.4
Perpetual-Discount	5.78 %	5.86 %	102,834	14.04	33	-0.2576 %	2,477.9
FixedReset	5.25 %	4.65 %	272,003	14.77	81	-0.2534 %	1,967.7
Deemed-Retractible	5.23 %	5.37 %	135,266	5.31	33	-0.0839 %	2,565.0
FloatingReset	2.80 %	4.19 %	67,614	5.67	11	-0.3235 %	2,107.1

Performance Highlights
Issue	Index	Change	Notes
IFC.PR.A	FixedReset	-4.44 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.50 Bid-YTW : 9.19 %
TRP.PR.A	FixedReset	-3.71 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 14.79 Evaluated at bid price : 14.79 Bid-YTW : 4.75 %
TRP.PR.H	FloatingReset	-3.64 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 9.80 Evaluated at bid price : 9.80 Bid-YTW : 4.39 %
MFC.PR.K	FixedReset	-3.59 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.51 Bid-YTW : 7.22 %
TRP.PR.B	FixedReset	-3.57 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 10.80 Evaluated at bid price : 10.80 Bid-YTW : 4.79 %
PWF.PR.P	FixedReset	-2.78 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 13.66 Evaluated at bid price : 13.66 Bid-YTW : 4.37 %
MFC.PR.L	FixedReset	-2.70 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.72 Bid-YTW : 7.17 %
IAG.PR.G	FixedReset	-2.60 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.26 Bid-YTW : 6.53 %
FTS.PR.I	FloatingReset	-2.49 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 11.35 Evaluated at bid price : 11.35 Bid-YTW : 4.19 %
GWO.PR.N	FixedReset	-2.42 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 13.33 Bid-YTW : 9.99 %
HSE.PR.A	FixedReset	-2.35 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 11.20 Evaluated at bid price : 11.20 Bid-YTW : 5.57 %
TRP.PR.D	FixedReset	-2.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 17.67 Evaluated at bid price : 17.67 Bid-YTW : 4.73 %
SLF.PR.G	FixedReset	-2.24 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.81 Bid-YTW : 8.84 %
HSE.PR.C	FixedReset	-2.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 16.75 Evaluated at bid price : 16.75 Bid-YTW : 6.05 %
VNR.PR.A	FixedReset	-2.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 4.79 %
RY.PR.L	FixedReset	-2.00 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.55 Bid-YTW : 4.28 %
FTS.PR.K	FixedReset	-1.99 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 17.69 Evaluated at bid price : 17.69 Bid-YTW : 4.27 %
FTS.PR.G	FixedReset	-1.97 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 16.89 Evaluated at bid price : 16.89 Bid-YTW : 4.51 %
FTS.PR.H	FixedReset	-1.76 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 13.95 Evaluated at bid price : 13.95 Bid-YTW : 4.10 %
FTS.PR.M	FixedReset	-1.73 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 20.39 Evaluated at bid price : 20.39 Bid-YTW : 4.21 %
NA.PR.Q	FixedReset	-1.57 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.52 Bid-YTW : 3.81 %
HSB.PR.C	Deemed-Retractible	-1.52 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.65 Bid-YTW : 5.37 %
TRP.PR.F	FloatingReset	-1.51 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 13.05 Evaluated at bid price : 13.05 Bid-YTW : 4.52 %
MFC.PR.M	FixedReset	-1.49 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.80 Bid-YTW : 6.60 %
TRP.PR.E	FixedReset	-1.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 4.58 %
W.PR.J	Perpetual-Discount	-1.41 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 22.72 Evaluated at bid price : 23.01 Bid-YTW : 6.19 %
MFC.PR.F	FixedReset	-1.39 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.21 Bid-YTW : 9.45 %
TRP.PR.C	FixedReset	-1.33 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 11.91 Evaluated at bid price : 11.91 Bid-YTW : 4.88 %
PWF.PR.T	FixedReset	-1.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 22.07 Evaluated at bid price : 22.45 Bid-YTW : 3.68 %
W.PR.H	Perpetual-Discount	-1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 22.53 Evaluated at bid price : 22.78 Bid-YTW : 6.15 %
ELF.PR.G	Perpetual-Discount	-1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 20.52 Evaluated at bid price : 20.52 Bid-YTW : 5.90 %
SLF.PR.H	FixedReset	-1.20 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.30 Bid-YTW : 7.79 %
CIU.PR.A	Perpetual-Discount	-1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 19.60 Evaluated at bid price : 19.60 Bid-YTW : 5.93 %
HSB.PR.D	Deemed-Retractible	-1.15 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.82 Bid-YTW : 5.13 %
BNS.PR.A	FloatingReset	-1.06 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.37 Bid-YTW : 4.46 %
ELF.PR.F	Perpetual-Discount	-1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 22.12 Evaluated at bid price : 22.40 Bid-YTW : 6.02 %
TD.PF.E	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 20.66 Evaluated at bid price : 20.66 Bid-YTW : 4.46 %
CU.PR.C	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 18.80 Evaluated at bid price : 18.80 Bid-YTW : 4.31 %
BMO.PR.Y	FixedReset	-1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 4.62 %
RY.PR.A	Deemed-Retractible	-1.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.47 Bid-YTW : 4.94 %
PVS.PR.C	SplitShare	1.02 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2017-12-10 Maturity Price : 25.00 Evaluated at bid price : 24.75 Bid-YTW : 5.50 %
BAM.PR.K	Floater	1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 10.51 Evaluated at bid price : 10.51 Bid-YTW : 4.50 %
PVS.PR.D	SplitShare	1.09 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 22.34 Bid-YTW : 6.81 %
BNS.PR.L	Deemed-Retractible	1.13 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.96 Bid-YTW : 4.67 %
MFC.PR.J	FixedReset	1.23 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.50 Bid-YTW : 6.17 %
BAM.PR.T	FixedReset	1.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 16.20 Evaluated at bid price : 16.20 Bid-YTW : 4.88 %
BNS.PR.E	FixedReset	1.27 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-25 Maturity Price : 25.00 Evaluated at bid price : 25.52 Bid-YTW : 5.09 %
CIU.PR.C	FixedReset	1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 13.40 Evaluated at bid price : 13.40 Bid-YTW : 4.01 %
BAM.PF.F	FixedReset	1.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 20.50 Evaluated at bid price : 20.50 Bid-YTW : 4.64 %
ENB.PR.A	Perpetual-Discount	1.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 22.98 Evaluated at bid price : 23.25 Bid-YTW : 5.96 %
RY.PR.M	FixedReset	1.55 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 4.56 %
HSE.PR.G	FixedReset	1.66 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 18.40 Evaluated at bid price : 18.40 Bid-YTW : 5.95 %
BAM.PF.A	FixedReset	1.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 4.74 %
MFC.PR.H	FixedReset	1.79 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.15 Bid-YTW : 5.63 %
BAM.PR.B	Floater	1.89 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 10.80 Evaluated at bid price : 10.80 Bid-YTW : 4.37 %
BAM.PR.R	FixedReset	2.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 15.41 Evaluated at bid price : 15.41 Bid-YTW : 5.04 %
BAM.PF.B	FixedReset	2.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 18.65 Evaluated at bid price : 18.65 Bid-YTW : 4.74 %
TRP.PR.G	FixedReset	2.31 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 19.95 Evaluated at bid price : 19.95 Bid-YTW : 4.72 %
BAM.PR.C	Floater	2.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 10.70 Evaluated at bid price : 10.70 Bid-YTW : 4.42 %
BNS.PR.B	FloatingReset	2.43 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.38 Bid-YTW : 4.08 %
HSE.PR.E	FixedReset	2.80 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 18.34 Evaluated at bid price : 18.34 Bid-YTW : 5.98 %
PVS.PR.E	SplitShare	3.56 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-10-31 Maturity Price : 25.00 Evaluated at bid price : 24.45 Bid-YTW : 5.96 %
BAM.PF.E	FixedReset	4.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 4.57 %
PWF.PR.A	Floater	4.30 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 12.60 Evaluated at bid price : 12.60 Bid-YTW : 3.78 %
IAG.PR.A	Deemed-Retractible	4.77 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.65 Bid-YTW : 7.26 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.Q	FixedReset	356,269	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 23.21 Evaluated at bid price : 25.22 Bid-YTW : 5.22 %
BNS.PR.E	FixedReset	167,063	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-25 Maturity Price : 25.00 Evaluated at bid price : 25.52 Bid-YTW : 5.09 %
BAM.PF.B	FixedReset	113,133	Scotia crossed blocks of 37,600 and 54,000, both at 18.35. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 18.65 Evaluated at bid price : 18.65 Bid-YTW : 4.74 %
POW.PR.C	Perpetual-Premium	104,835	Nesbitt crossed blocks of 51,400 and 50,000, both at 25.05. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 24.81 Evaluated at bid price : 25.03 Bid-YTW : 5.90 %
BIP.PR.B	FixedReset	47,175	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 22.57 Evaluated at bid price : 23.56 Bid-YTW : 5.84 %
HSE.PR.E	FixedReset	46,986	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 18.34 Evaluated at bid price : 18.34 Bid-YTW : 5.98 %
There were 73 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
RY.PR.L	FixedReset	Quote: 24.55 – 25.13 Spot Rate : 0.5800 Average : 0.3617 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.55 Bid-YTW : 4.28 %
VNR.PR.A	FixedReset	Quote: 19.35 – 20.07 Spot Rate : 0.7200 Average : 0.5351 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 4.79 %
IFC.PR.A	FixedReset	Quote: 15.50 – 16.09 Spot Rate : 0.5900 Average : 0.4132 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.50 Bid-YTW : 9.19 %
BMO.PR.Y	FixedReset	Quote: 19.35 – 19.77 Spot Rate : 0.4200 Average : 0.2835 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 4.62 %
FTS.PR.I	FloatingReset	Quote: 11.35 – 11.79 Spot Rate : 0.4400 Average : 0.3146 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 11.35 Evaluated at bid price : 11.35 Bid-YTW : 4.19 %
BAM.PF.A	FixedReset	Quote: 20.00 – 20.40 Spot Rate : 0.4000 Average : 0.2885 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-18 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 4.74 %

Posted in Market Action | 2 Comments »

CPX.PR.A: No Conversion to FloatingReset

Friday, December 18th, 2015

Capital Power Corporation has announced:

that after having taken into account all Election Notices following the December 16, 2015 conversion deadline, in respect of the Cumulative Rate Reset Preference Shares, Series 1 (Series 1 Shares) tendered for conversion into Cumulative Floating Rate Preference Shares, Series 2 (Series 2 Shares), the holders of Series 1 Shares were not entitled to convert their shares. There were approximately 930,800 Series 1 Shares tendered for conversion, which was less than the one million shares required for conversion into Series 2 Shares.

There are five million Series 1 Shares listed on the Toronto Stock Exchange (TSX) under the symbol CPX.PR.A. Effective December 31, 2015, the annual fixed dividend rate for the next five year period has been reset to 3.06%.

For more information on the terms and risks associated with an investment in the Series 1 Shares, please see Capital Power’s prospectus supplement dated December 1, 2010 which is available on sedar.com or on Capital Power’s website at capitalpower.com.

It will be recalled that I recommended against conversion and

CPX.PR.A will reset to 3.06% effective December 31. Holders of CPX.PR.A have the option to convert to FloatingResets, which will pay 3-month bills plus 217bp, reset quarterly.

Posted in Issue Comments | 2 Comments »

GWO.PR.N / GWO.PR.O: 15% Conversion to FloatingReset

Friday, December 18th, 2015

Great-West Lifeco Inc. has announced:

that holders of 1,475,578 Lifeco Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series N (the “Series N Shares”) have elected to convert their Series N Shares on a one-for-one basis into Non-Cumulative Floating Rate First Preferred Shares, Series O (the “Series O Shares”) on December 31, 2015.

Consequently, on December 31, 2015, Lifeco will have 8,524,422 Series N Shares and 1,475,578 Series O Shares issued and outstanding. The Series N Shares and Series O Shares will be listed on the Toronto Stock Exchange under the symbols GWO.PR.N and GWO.PR.O respectively.

It will be recalled that I recommended against the conversion and

GWO.PR.N will reset to 2.176% effective December 31. Holders of GWO.PR.N have the option to convert to FloatingResets, which will pay 3-month bills plus 130bp, reset quarterly.

Posted in Issue Comments | 6 Comments »

December 17, 2015

Friday, December 18th, 2015

The Fed’s implementation of new policy tools to raise the overnight rate went smoothly:

The Federal Reserve succeeded in nudging borrowing costs higher Thursday after its first interest-rate increase since 2006, and policy makers only needed to siphon $105 billion from money-market funds to achieve their goal.

Led by Chair Janet Yellen, the Fed lifted the federal funds rate from near zero, where it had been since the financial crisis unfolded in 2008. Thursday, the quarter-point rate boost rippled through money markets that are awash in nearly $3 trillion in excess cash that the Fed injected through bond purchases.

For all the talk of the challenge facing officials as they orchestrate higher rates with so much money sloshing around, Thursday’s market operations weren’t much different in scale than previous days. And the benchmark rate rose 0.2 percentage point, or 20 basis points — practically to the middle of the Fed’s intended range.
…
While the Fed is sticking to the funds rate as its main method of communicating its policy stance, the burden of lifting rates fell elsewhere. That’s because with so much cash in the system, interbank lending has fallen almost 90 percent since 2008.

Click for Big

It looks as if somebody was either naughty or careless at Octagon:

Octagon Capital Corp. has been declared bankrupt, its chief financial officer has been fired and the brokerage is facing a shortfall of as much as $6.1-million.

The Canadian Investor Protection Fund (CIPF) paid out millions of dollars to investors after the small Toronto-based investment firm was unable to meet obligations to clients when it entered bankruptcy proceedings earlier this month. The Investment Industry Regulatory Organization of Canada (IIROC) discovered the deficiency in late November after a routine audit, according to court documents filed by Octagon’s bankruptcy trustee, Ernst and Young Inc. reason for the shortfall is unknown and an investigation continues.

“I am co-operating fully with the trustee,” John Palumbo, Octagon Capital’s chief executive officer, said in an e-mail. “I can say that [the $6.1-million shortfall] represents an accounting amount which is in dispute, and I believe the total is much less.”

On the same day the shortfall was revealed, Octagon notified the IIROC that its chief financial officer, Christopher Everest, “was unable to return to work and was being removed from Octagon’s accounts, e-mail and payroll systems,” according to court documents.

“He was terminated for cause,” Mr. Palumbo said on Thursday.

The banks are claiming they are forced to publish shoddy analysis:

In a world where market news zips around at lightning speed with a click or a tweet, there is at least one anachronism: The delay in analyst research on companies that have just completed an IPO. Analysts who work for the investment firms that have taken the companies public have been blocked from issuing reports for 40 full days after the stock’s debut.

Regulators have now moved to shorten that period. FINRA, the U.S. body that governs its investment dealers, cut the IPO “quiet period” to 10 days this fall. And IIROC, the Investment Industry Regulatory Organization of Canada, followed quickly with a rule that harmonized the Canadian rules with the U.S. so as not to disadvantage this country’s investment dealers.

The biggest Canadian investment banks have now responded to this liberalization with a universal position: We want no part of this. Instead, they say, they want the quiet period extended to a full 25 days.
…
With a new publication schedule of 10 days post-IPO, analysts won’t have enough time to meet with management and produce a robust report, the firms argue.

If firms compete to be first to market with their reports, just 10 days after the IPO, “a likely outcome is a dilution in the quality of research being produced,” Quentin Broad, the head of equity research at CIBC World Markets Inc., said in that firm’s comment letter to IIROC. And the most likely investor to be harmed, Mr. Broad says, are retail investors who “may consume a single research product without conducting or having access to any additional research of their own.”

Does it really make any difference? Sell-side analysis is excellent for data, pretty good for generating ideas regarding analytical techniques … but as far as actual actionable investment recommendations are concerned? Entertainment value only.

As part of what appears to be a global redefinition of what the word “Conservative” means in politics, the UK wants all businesses and the self-employed to file four tax returns every year:

Tax returns will have to be filed four times a year as part of a “digital revolution” at HMRC, George Osborne has indicated

Business and self-employed workers will be expected to file their tax returns online from 2020 using free apps on their smartphones and HMRC’s website.

The Government estimates that the move will raise an additional £600million a year by the end of this Parliament because it will help the taxman keep a better track of people’s income. It has insisted that the new digital service will make it easier to file tax returns.
…
A spokeswoman for the ICAEW group of Chartered Accountants said: “This is an additional burden for small businesses especially at a time when they are already struggling with changes such as auto-enrollment. It is already a significant burden for people to file it once a year.”

Earlier this year it MPs condemned the “abysmal” customer service at HMRC after it emerged that half of all calls to the taxman go unanswered.

This has provoked howls of anguish:

Self-employed workers, landlords and small business owners currently have to submit their figures just once every 12 months.

Switching them to quarterly returns will bring them into line with big corporations. But financial experts say the move will simply add to the reams of red tape already strangling small firms.

‘These changes are going to be very onerous,’ said Chas Roy-Chowdhury, of the Association of Chartered Certified Accountants.

‘It is not just about filling in a form, it is going to be a real burden.

‘Workers will have to make sure their books and records are up to date at least four times a year in case the taxman decides something is amiss and investigates them.’

Initially workers will not have to pay tax four times a year. But accountants suspect quarterly returns are a step toward this.

The plans were slipped out in the small print of George Osborne’s autumn statement. Around four million people will be affected: the self employed, small business owners and landlords who make more than £10,000 a year profit.

Industrial Alliance Insurance and Financial Services Inc., proud issuer of IAG.PR.A and IAG.PR.G, was confirmed at Pfd-2(high) by DBRS:

The Company has strong capitalization as illustrated by (1) its financial leverage ratio of 24.5% at Q3 2015, significantly reduced from a high of 35.2% at year-end 2012; (2) the improvement in the EBIT fixed-charge coverage ratio to 6.8x at Q3 2015, compared with 5.6x at Q3 2014; and (3) the minimum continuing capital and surplus requirement (MCCSR) of 225% at Q3 2015, an improvement of ten percentage points from Q3 2014.

The Stable trends on IAG’s credit ratings take into account the Company’s conservative risk management, good financial metrics and capital levels coupled with low volatility. Negative ratings pressure could arise if IAG experiences a sustained erosion of market share in key segments, a negative impact on its earnings because of lower interest rates, equity market declines or adverse policyholder behaviour, or acquisitions of risky businesses. Positive pressure on IAG’s ratings could emerge if underperforming businesses become profitable, if there is a reduction in exposure to interest rate and stock market value fluctuations, and if there is a significant increase in market share without cutting premium rates.

There has been a massive amount of issue news today, so for convenience I will list the posts here:

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 28bp, FixedResets off 22bp and DeemedRetractibles up 43bp. The Performance Highlights table has shortened to a more manageable length. Volume was extremely high, though off the peaks of the past few days.

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	4.98 %	6.06 %	33,112	16.57	1	-0.3650 %	1,558.0
FixedFloater	7.25 %	6.43 %	35,636	15.72	1	-0.0763 %	2,691.0
Floater	4.34 %	4.46 %	83,721	16.52	4	-0.6391 %	1,760.0
OpRet	4.87 %	4.24 %	25,393	0.69	1	0.0397 %	2,735.4
SplitShare	4.87 %	6.04 %	82,279	1.87	6	-0.0968 %	3,172.7
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0968 %	2,475.4
Perpetual-Premium	5.82 %	5.89 %	97,851	13.96	7	0.4765 %	2,489.7
Perpetual-Discount	5.77 %	5.84 %	102,586	14.08	33	0.2777 %	2,484.3
FixedReset	5.24 %	4.68 %	271,798	14.86	81	-0.2172 %	1,972.7
Deemed-Retractible	5.22 %	4.88 %	139,760	5.31	33	0.4316 %	2,567.1
FloatingReset	2.79 %	4.26 %	68,255	5.68	11	0.4952 %	2,113.9

Performance Highlights
Issue	Index	Change	Notes
HSE.PR.E	FixedReset	-6.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 17.84 Evaluated at bid price : 17.84 Bid-YTW : 6.15 %
HSE.PR.G	FixedReset	-4.74 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 18.10 Evaluated at bid price : 18.10 Bid-YTW : 6.05 %
IAG.PR.A	Deemed-Retractible	-4.09 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.71 Bid-YTW : 7.92 %
HSE.PR.C	FixedReset	-3.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 17.11 Evaluated at bid price : 17.11 Bid-YTW : 5.91 %
FTS.PR.H	FixedReset	-3.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 14.20 Evaluated at bid price : 14.20 Bid-YTW : 4.02 %
CIU.PR.C	FixedReset	-2.72 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 13.23 Evaluated at bid price : 13.23 Bid-YTW : 4.07 %
TD.PF.D	FixedReset	-2.45 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 4.62 %
SLF.PR.I	FixedReset	-2.41 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.86 Bid-YTW : 6.61 %
BAM.PR.C	Floater	-2.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 10.45 Evaluated at bid price : 10.45 Bid-YTW : 4.52 %
BAM.PR.X	FixedReset	-2.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 14.05 Evaluated at bid price : 14.05 Bid-YTW : 4.84 %
CIU.PR.A	Perpetual-Discount	-2.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 19.83 Evaluated at bid price : 19.83 Bid-YTW : 5.86 %
BAM.PR.B	Floater	-2.21 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 10.60 Evaluated at bid price : 10.60 Bid-YTW : 4.46 %
MFC.PR.I	FixedReset	-2.17 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.65 Bid-YTW : 5.70 %
TRP.PR.A	FixedReset	-2.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 15.36 Evaluated at bid price : 15.36 Bid-YTW : 4.57 %
IAG.PR.G	FixedReset	-2.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.80 Bid-YTW : 6.17 %
TRP.PR.B	FixedReset	-2.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 11.20 Evaluated at bid price : 11.20 Bid-YTW : 4.61 %
MFC.PR.J	FixedReset	-1.94 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.25 Bid-YTW : 6.34 %
TRP.PR.G	FixedReset	-1.81 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 4.83 %
PWF.PR.P	FixedReset	-1.75 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 14.05 Evaluated at bid price : 14.05 Bid-YTW : 4.24 %
SLF.PR.J	FloatingReset	-1.69 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 12.83 Bid-YTW : 10.16 %
BMO.PR.Q	FixedReset	-1.66 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.20 Bid-YTW : 5.97 %
FTS.PR.I	FloatingReset	-1.36 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 11.64 Evaluated at bid price : 11.64 Bid-YTW : 4.09 %
MFC.PR.G	FixedReset	-1.26 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.09 Bid-YTW : 6.01 %
BNS.PR.Q	FixedReset	-1.25 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.76 Bid-YTW : 4.05 %
BAM.PR.K	Floater	-1.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 10.40 Evaluated at bid price : 10.40 Bid-YTW : 4.54 %
BNS.PR.Z	FixedReset	-1.14 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.15 Bid-YTW : 7.07 %
FTS.PR.G	FixedReset	-1.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 17.23 Evaluated at bid price : 17.23 Bid-YTW : 4.42 %
SLF.PR.G	FixedReset	1.00 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.15 Bid-YTW : 8.54 %
BNS.PR.O	Deemed-Retractible	1.02 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-01-16 Maturity Price : 25.50 Evaluated at bid price : 25.83 Bid-YTW : -1.64 %
GWO.PR.I	Deemed-Retractible	1.03 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.62 Bid-YTW : 7.16 %
BAM.PF.H	FixedReset	1.07 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2020-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.47 Bid-YTW : 4.56 %
FTS.PR.M	FixedReset	1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 20.75 Evaluated at bid price : 20.75 Bid-YTW : 4.13 %
MFC.PR.C	Deemed-Retractible	1.08 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.53 Bid-YTW : 7.25 %
TRP.PR.D	FixedReset	1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 18.08 Evaluated at bid price : 18.08 Bid-YTW : 4.61 %
TD.PR.T	FloatingReset	1.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.50 Bid-YTW : 3.87 %
HSB.PR.C	Deemed-Retractible	1.13 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-01-16 Maturity Price : 25.00 Evaluated at bid price : 25.03 Bid-YTW : 1.26 %
NA.PR.Q	FixedReset	1.18 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.91 Bid-YTW : 3.52 %
ELF.PR.F	Perpetual-Discount	1.30 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 22.38 Evaluated at bid price : 22.64 Bid-YTW : 5.95 %
NA.PR.W	FixedReset	1.35 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 17.25 Evaluated at bid price : 17.25 Bid-YTW : 4.70 %
ELF.PR.G	Perpetual-Discount	1.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 20.77 Evaluated at bid price : 20.77 Bid-YTW : 5.83 %
MFC.PR.M	FixedReset	1.52 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.10 Bid-YTW : 6.39 %
BNS.PR.Y	FixedReset	1.53 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.85 Bid-YTW : 5.92 %
BNS.PR.N	Deemed-Retractible	1.63 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-01-27 Maturity Price : 25.25 Evaluated at bid price : 25.55 Bid-YTW : 0.57 %
TD.PR.S	FixedReset	1.68 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.20 Bid-YTW : 3.48 %
ENB.PR.A	Perpetual-Discount	1.78 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 22.66 Evaluated at bid price : 22.90 Bid-YTW : 6.06 %
TD.PR.Z	FloatingReset	1.81 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.55 Bid-YTW : 3.92 %
TD.PF.E	FixedReset	1.85 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 20.88 Evaluated at bid price : 20.88 Bid-YTW : 4.42 %
GWO.PR.H	Deemed-Retractible	1.97 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.70 Bid-YTW : 6.83 %
BIP.PR.B	FixedReset	2.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 22.46 Evaluated at bid price : 23.35 Bid-YTW : 5.89 %
PWF.PR.T	FixedReset	2.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 22.27 Evaluated at bid price : 22.75 Bid-YTW : 3.62 %
BNS.PR.D	FloatingReset	2.44 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.90 Bid-YTW : 6.30 %
BIP.PR.A	FixedReset	2.50 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 19.70 Evaluated at bid price : 19.70 Bid-YTW : 5.56 %
TRP.PR.F	FloatingReset	2.63 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 13.25 Evaluated at bid price : 13.25 Bid-YTW : 4.45 %
PWF.PR.A	Floater	2.81 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 12.08 Evaluated at bid price : 12.08 Bid-YTW : 3.94 %
CM.PR.P	FixedReset	3.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 17.56 Evaluated at bid price : 17.56 Bid-YTW : 4.58 %
VNR.PR.A	FixedReset	3.95 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 19.75 Evaluated at bid price : 19.75 Bid-YTW : 4.69 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BNS.PR.E	FixedReset	1,123,441	New issue settled today. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-25 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : 5.36 %
RY.PR.Q	FixedReset	297,994	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 23.17 Evaluated at bid price : 25.12 Bid-YTW : 5.25 %
CU.PR.I	FixedReset	163,858	Nesbitt crossed 133,200 at 25.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 23.13 Evaluated at bid price : 24.89 Bid-YTW : 4.44 %
RY.PR.H	FixedReset	132,160	Desjardins crossed 100,000 at 18.40 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 18.19 Evaluated at bid price : 18.19 Bid-YTW : 4.42 %
NA.PR.S	FixedReset	69,879	Nesbitt crossed 21,000 at 18.05; Desjardins crossed 36,400 at 17.80. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 17.75 Evaluated at bid price : 17.75 Bid-YTW : 4.74 %
BNS.PR.A	FloatingReset	65,000	RBC crossed 55,200 at 22.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.61 Bid-YTW : 4.26 %
There were 72 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
GWO.PR.F	Deemed-Retractible	Quote: 25.09 – 25.99 Spot Rate : 0.9000 Average : 0.5544 YTW SCENARIO Maturity Type : Call Maturity Date : 2016-01-16 Maturity Price : 25.00 Evaluated at bid price : 25.09 Bid-YTW : -1.23 %
TRP.PR.G	FixedReset	Quote: 19.50 – 20.40 Spot Rate : 0.9000 Average : 0.5610 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 4.83 %
CIU.PR.C	FixedReset	Quote: 13.23 – 14.33 Spot Rate : 1.1000 Average : 0.8335 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 13.23 Evaluated at bid price : 13.23 Bid-YTW : 4.07 %
BNS.PR.B	FloatingReset	Quote: 21.85 – 22.40 Spot Rate : 0.5500 Average : 0.3408 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.85 Bid-YTW : 4.50 %
NA.PR.W	FixedReset	Quote: 17.25 – 18.00 Spot Rate : 0.7500 Average : 0.5431 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-12-17 Maturity Price : 17.25 Evaluated at bid price : 17.25 Bid-YTW : 4.70 %
BNS.PR.C	FloatingReset	Quote: 22.09 – 22.73 Spot Rate : 0.6400 Average : 0.4564 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.09 Bid-YTW : 4.50 %

Posted in Market Action | No Comments »

BNS.PR.E Firm On Good Volume

Friday, December 18th, 2015

The Bank of Nova Scotia has announced:

that it has completed the domestic public offering of Non-cumulative 5-Year Rate Reset Preferred Shares Series 34 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 34”).

Scotiabank sold 14 million Preferred Shares Series 34 at a price of $25.00 per share and holders will be entitled to receive a non-cumulative quarterly fixed dividend for the initial period ending April 25, 2021 yielding 5.50% per annum, as and when declared by the Board of Directors of Scotiabank. The gross proceeds of the offering were $350 million.

The offering was made through a syndicate of underwriters led by Scotia Capital Inc. The Preferred Shares Series 34 commence trading on the Toronto Stock Exchange today under the symbol BNS.PR.E.

On April 26, 2021 and on April 26 every five years thereafter, Scotiabank may, at its option, with the prior approval of the Superintendent of Financial Institutions (Canada), redeem all or any part of the Preferred Shares Series 34 then outstanding at a redemption price which is equal to par. Thereafter, the dividend rate will reset every five years at a rate equal to 4.51% over the 5-year Government of Canada bond yield. Holders of Preferred Shares Series 34 will, subject to certain conditions, have the right to convert all or any part of their shares to Non-cumulative Floating Rate Preferred Shares Series 35 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 35”) of Scotiabank on April 26, 2021 and on April 26 every five years thereafter.

Holders of the Preferred Shares Series 35 will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.51%, as and when declared by the Board of Directors of Scotiabank. Holders of Preferred Shares Series 35 will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series 34 on April 26, 2026 and on April 26 every five years thereafter.

BNS.PR.E is a FixedReset 5.50%+451, announced 2015-12-8. It will be tracked by HIMIPref™ and has been assigned to the FixedResets subindex.

The issue traded 1,123,441 shares today in a range of 25.12-28 before closing at 25.20-26, 2×15. Vital statistics are:

BNS.PR.E

FixedReset

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 5.36 %

DBRS finalized the rating at Pfd-2.

Posted in Issue Comments | 2 Comments »

DC.PR.C: Dundee Gets Support from Glass, Lewis & Co., Proxy Advisors

Friday, December 18th, 2015

Dundee Corporation has announced:

that Glass Lewis & Co. (“Glass Lewis”), a leading, independent, governance analysis and proxy voting firm, has recommended that holders of Dundee’s First Preference Shares, Series 4 (the “Series 4 Preferred Shares”) vote FOR the special resolution to approve the proposed preferred share exchange transaction whereby each of its Series 4 Preferred Shares would be exchanged for 0.7136 of a First Preference Share, Series 5 (the “Series 5 Preferred Shares”) pursuant to a statutory plan of arrangement under the Business Corporations Act (Ontario) (the “Arrangement”). The resolution will be considered at the upcoming special meeting of holders of Series 4 Preferred Shares to be held on January 7, 2016 at 9:00 a.m. (Toronto time) at the offices of Dundee Corporation, 1 Adelaide St. East, Suite 2100, Toronto, Ontario, Canada.

In its recommendation, Glass Lewis noted that while “the retraction date of the Series 4 Preferred Shares will be effectively extended three years through the Arrangement, the par value of the Series 5 Preferred Shares is functionally equivalent to that of the Series 4 Preferred Shares, their cumulative dividend rate is greater, and the redemption features of the Series 5 Preferred Shares are more generous”. Glass Lewis also stated that it believes that “decisions regarding a Company’s capital structure, business and operations are best left to the judgment of the board” and that “the arrangement resolution proposed by the board is reasonable and consistent with standard market practice”.

The Company continues to seek dialogue with significant institutional holders who have expressed concerns about the proposal, and there can be no assurance that such discussions will be successful or that the proposal will proceed as currently proposed or at all.

I am unable to find a copy of the report on-line (not surprising, since Glass, Lewis is Subscriber-Pay), so I am unable to comment regarding what the report may contain that Dundee did not choose to highlight. I will note that the quoted sections do not address the investment merits of the potential new issue compared to those of the old one.

Update, 2015-12-18: I sent Glass, Lewis the following eMail:

Subject: Recommendation Regarding Dundee Corporation Preferred Shares

Sirs,

I was astonished to read that you have recommended that holders of Dundee’s First Preference Shares, Series 4 vote FOR the special resolution to approve the proposed preferred share exchange transaction (http://www.dundeecorp.com/pdf/2015-12-17-Glass-Lewis.pdf )

How may I obtain a copy of your full report?

Sincerely,

A few hours later I received the reply:

Hello James,

If you are interested in our research the fee for the report, based on Dundee’s market cap, is $3,500.

Please let me know if you are interested or if you have any other questions.

Best,

I’m not particularly surprised, but I will say that I eagerly await the comments of those Assiduous Readers who are convinced that “Subscriber Pay” is the only way to go for Credit Rating Agencies.

I will not comment much on the Glass, Lewis recommendation, since I have not seen anything of it other than the very short quotations provided by Dundee. However, I will reiterate that the quotations do not address the investment merits of the Series 5 shares vs. the Series 4 and that while it is of course true that:

“decisions regarding a Company’s capital structure, business and operations are best left to the judgment of the board”

it is also true that decisions regarding an investors portfolio are best left to the judgment of the investor!

Posted in Issue Comments | 7 Comments »

PrefBlog

Archive for December, 2015

BRF.PR.E: Exchange Offer Extended, To Be Amended

INE.PR.A To Reset at 3.608%

MAPF Performance: November, 2015

Low-Spread FixedResets: November, 2015

December 18, 2015

CPX.PR.A: No Conversion to FloatingReset

GWO.PR.N / GWO.PR.O: 15% Conversion to FloatingReset

December 17, 2015

BNS.PR.E Firm On Good Volume

DC.PR.C: Dundee Gets Support from Glass, Lewis & Co., Proxy Advisors

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