Archive for February, 2018

ABK.PR.C To Mature on Schedule

Friday, February 23rd, 2018

AllBanc Split Corp. has announced:

The Board of Directors of AllBanc Split Corp. (the “Company”) has today declared dividends of $0.3164 per Preferred Share and $0.5600 per Capital Share, payable on March 9, 2018 to holders of record at the close of business on March 7, 2018.

The Class A Capital Shares (“Capital Shares”) and Class C Preferred Shares, Series 1 (“Preferred Shares”) will be redeemed by the Company in accordance with their terms on March 9, 2018 and the Company will wind up and terminate as soon as practicable after such date. Pursuant to these provisions, the Preferred Shares will be redeemed at a price per share equal to the lesser of $31.64 and the net asset value per unit. The Capital Shares will be redeemed at a price per share equal to the amount by which the net asset value per unit exceeds $31.64.

Holders of Capital Shares who requested to receive their redemption payment in portfolio shares and gave notice to this effect and tendered $31.64 for each Capital Share by February 9, 2018 will receive their pro rata share of the portfolio shares. The redemption of Capital Shares and Preferred Shares will constitute a taxable disposition of the Company’s shares at the time of the redemption whether the payment is received in the form of cash or portfolio shares.

A further press release will be issued by the Company in connection with the redemption prices on March 8, 2018. Payment of the amounts due to holders of Capital Shares and Preferred Shares will be made by the Company on March 9, 2018.

AllBanc Split Corp. is a mutual fund corporation created to hold a portfolio of publicly listed common shares of selected Canadian chartered banks. Class A Capital Shares, and Class C Preferred Shares of AllBanc Split Corp. are listed for trading on The Toronto Stock Exchange under the symbols ABK.A and ABK.PR.C respectively.

ABK.PR.C is a SplitShare paying 4.00% that commenced trading 2013-3-8 after being announced 2013-1-29. It has been tracked by HIMIPref™ but relegated to the Scraps index on volume concerns.

Despite the company’s caution regarding the expected redemption price of the issue, full payment seems assured given the NAVPU of 106.78 on 2018-2-15.

February 22, 2018

Thursday, February 22nd, 2018

A Bank of Canada Staff Working Paper by Patricia Palhau Mora titled The “Too Big to Fail” Subsidy in Canada: Some Estimates contains a warning for future changes to Canadian bank credit ratings:

Despite progress on regulation, CRAs [Credit Rating Agencies] continue to generally factor in some (or even the same) expectation of public support, which suggests that challenges to effective resolution are expected to remain. In Canada, revisions to the ratings’ methodologies did not generally result in changes to state-support expectations for the domestic banks. Moody’s still rates Canada as a “supportive jurisdiction” in its government support assessment framework, reflecting an expectation that the government would still need to bail out a large financial institution given the size of Canadian banks relative to the national economy, and the potential for contagion among large interconnected players. Following the release of the 2014 bail-in consultation paper (Department of Finance Canada 2014), CRAs placed the credit ratings of the D-SIBs and Desjardins under negative watch, indicating they would likely be revised down “in the near future.”42 Moody’s kicked off the revisions in July 2014 by changing the outlook of the seven largest Canadian banks’ long-term senior unsecured debt and deposit notes’ ratings to “negative” from “stable.” S&P followed in August 2014, also revising the D-SIBs’ outlook to “negative” from “stable,” factoring in an expectation that extraordinary government support to D-SIBs’ senior bondholders would become less certain.

While bail-in legislation received Royal Assent in summer 2016, CRAs have not yet changed the support assumptions, publicly stating they are still awaiting more detail on the operational aspects of the regime. More recently, in a request for comments published on November 6, 2017, Moody’s proposed designating Canada as an “operational resolution regime,” given the introduction of preliminary bail-in rules, signalling that government support expectations for D-SIBs are likely to decrease soon. This would be consistent with large bank ratings being lowered up to three notches in the US and the EU in response to Dodd–Frank Title II and the EU Bank Recovery and Resolution Directive.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.6906 % 3,016.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.6906 % 5,535.6
Floater 3.29 % 3.50 % 93,369 18.46 4 -0.6906 % 3,190.2
OpRet 0.00 % 0.00 % 0 0.00 0 -0.2820 % 3,150.0
SplitShare 4.71 % 4.03 % 63,778 3.34 5 -0.2820 % 3,761.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2820 % 2,935.1
Perpetual-Premium 5.44 % 4.95 % 67,144 14.37 20 0.0220 % 2,830.4
Perpetual-Discount 5.42 % 5.40 % 82,695 14.77 14 -0.0412 % 2,935.1
FixedReset 4.25 % 4.62 % 157,407 4.28 102 0.0090 % 2,517.0
Deemed-Retractible 5.14 % 5.76 % 88,768 5.72 28 -0.0391 % 2,908.1
FloatingReset 3.00 % 3.01 % 38,941 3.71 10 0.0478 % 2,768.1
Performance Highlights
Issue Index Change Notes
PWF.PR.A Floater -1.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-22
Maturity Price : 21.15
Evaluated at bid price : 21.15
Bid-YTW : 2.87 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.C FixedReset 164,000 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-22
Maturity Price : 22.82
Evaluated at bid price : 23.16
Bid-YTW : 4.63 %
BNS.PR.Z FixedReset 118,000 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.98
Bid-YTW : 4.71 %
MFC.PR.J FixedReset 113,000 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.90
Bid-YTW : 4.72 %
IFC.PR.E Deemed-Retractible 102,000 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.56
Bid-YTW : 5.68 %
BNS.PR.Q FixedReset 81,400 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.96
Bid-YTW : 3.89 %
BAM.PF.J FixedReset 76,100 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.22
Bid-YTW : 4.73 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
RY.PR.N Perpetual-Premium Quote: 25.03 – 25.50
Spot Rate : 0.4700
Average : 0.2834

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2024-11-24
Maturity Price : 25.00
Evaluated at bid price : 25.03
Bid-YTW : 4.91 %

HSE.PR.A FixedReset Quote: 17.91 – 18.45
Spot Rate : 0.5400
Average : 0.3681

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-22
Maturity Price : 17.91
Evaluated at bid price : 17.91
Bid-YTW : 5.04 %

IFC.PR.C FixedReset Quote: 23.60 – 23.90
Spot Rate : 0.3000
Average : 0.1723

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.60
Bid-YTW : 5.06 %

SLF.PR.G FixedReset Quote: 19.30 – 19.66
Spot Rate : 0.3600
Average : 0.2385

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.30
Bid-YTW : 7.39 %

CU.PR.G Perpetual-Discount Quote: 21.32 – 21.60
Spot Rate : 0.2800
Average : 0.2000

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-22
Maturity Price : 21.32
Evaluated at bid price : 21.32
Bid-YTW : 5.30 %

BAM.PR.B Floater Quote: 17.39 – 17.75
Spot Rate : 0.3600
Average : 0.2817

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-22
Maturity Price : 17.39
Evaluated at bid price : 17.39
Bid-YTW : 3.51 %

February 21, 2018

Wednesday, February 21st, 2018

PerpetualDiscounts now yield 5.40%, equivalent to 7.02% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.99%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 300bp, unchanged from February 14.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.1782 % 3,037.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.1782 % 5,574.1
Floater 3.27 % 3.48 % 93,144 18.51 4 1.1782 % 3,212.4
OpRet 0.00 % 0.00 % 0 0.00 0 0.5281 % 3,158.9
SplitShare 4.69 % 3.99 % 66,014 3.34 5 0.5281 % 3,772.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.5281 % 2,943.4
Perpetual-Premium 5.45 % 4.95 % 65,142 14.38 20 -0.1455 % 2,829.8
Perpetual-Discount 5.42 % 5.40 % 85,128 14.77 14 -0.0317 % 2,936.3
FixedReset 4.25 % 4.62 % 157,756 5.89 102 0.2279 % 2,516.8
Deemed-Retractible 5.14 % 5.67 % 89,652 5.73 28 0.0150 % 2,909.3
FloatingReset 3.01 % 3.03 % 37,965 3.72 10 -0.0347 % 2,766.8
Performance Highlights
Issue Index Change Notes
BAM.PR.Z FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 23.08
Evaluated at bid price : 24.75
Bid-YTW : 4.97 %
BAM.PR.T FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 21.53
Evaluated at bid price : 21.53
Bid-YTW : 4.92 %
MFC.PR.G FixedReset 1.10 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-12-19
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 4.16 %
BAM.PR.R FixedReset 1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 21.03
Evaluated at bid price : 21.03
Bid-YTW : 4.97 %
PWF.PR.P FixedReset 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 19.85
Evaluated at bid price : 19.85
Bid-YTW : 4.41 %
PVS.PR.F SplitShare 1.39 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2024-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 4.58 %
BAM.PR.C Floater 1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 3.48 %
PWF.PR.A Floater 2.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 21.27
Evaluated at bid price : 21.54
Bid-YTW : 2.79 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.Q FixedReset 176,690 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.97
Bid-YTW : 3.88 %
TD.PF.A FixedReset 118,862 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 23.07
Evaluated at bid price : 23.46
Bid-YTW : 4.58 %
TD.PF.D FixedReset 109,486 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 23.19
Evaluated at bid price : 24.26
Bid-YTW : 4.82 %
TRP.PR.G FixedReset 100,525 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 23.01
Evaluated at bid price : 24.00
Bid-YTW : 5.00 %
W.PR.M FixedReset 100,300 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-15
Maturity Price : 25.00
Evaluated at bid price : 26.07
Bid-YTW : 4.11 %
MFC.PR.Q FixedReset 71,660 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 4.75 %
There were 31 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BIP.PR.D FixedReset Quote: 25.07 – 25.49
Spot Rate : 0.4200
Average : 0.2601

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.07
Bid-YTW : 5.15 %

BAM.PF.G FixedReset Quote: 24.29 – 24.66
Spot Rate : 0.3700
Average : 0.2231

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 23.22
Evaluated at bid price : 24.29
Bid-YTW : 5.02 %

BAM.PR.K Floater Quote: 17.32 – 17.73
Spot Rate : 0.4100
Average : 0.2633

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 17.32
Evaluated at bid price : 17.32
Bid-YTW : 3.52 %

BAM.PF.D Perpetual-Discount Quote: 21.76 – 22.25
Spot Rate : 0.4900
Average : 0.3531

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 21.48
Evaluated at bid price : 21.76
Bid-YTW : 5.71 %

BAM.PR.M Perpetual-Discount Quote: 21.26 – 21.71
Spot Rate : 0.4500
Average : 0.3336

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 21.26
Evaluated at bid price : 21.26
Bid-YTW : 5.68 %

BAM.PF.E FixedReset Quote: 23.56 – 24.04
Spot Rate : 0.4800
Average : 0.3757

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-21
Maturity Price : 23.24
Evaluated at bid price : 23.56
Bid-YTW : 4.94 %

INE Off Watch-Positive, Says S&P

Wednesday, February 21st, 2018

Standard & Poor’s has announced:

  • •We are affirming our ratings on Innergex Renewable Energy Inc., including our ‘BBB-‘ long-term corporate credit rating on the company, and removing the ratings from CreditWatch with positive implications.
  • •We believe the acquisition of Alterra Power Corp. increases Innergex’s scale and improves diversity by geography and fuel-type or resource.
  • •We are revising our financial risk profile to significant from
    intermediate after the additional debt used to fund the cash portion of the acquisition.

  • •The stable outlook reflects our expectation that Innergex’s portfolio of power generation facilities will continue to operate under long-term contracts with investment-grade counterparties and generate fairly predictable cash flows to support its holding-company debt obligations.


S&P Global Ratings today affirmed its ‘BBB-‘ long-term corporate credit rating on Longueuil, Que.-based Innergex Renewable Energy Inc. At the same time, S&P Global Ratings affirmed its ‘BB’ global scale rating and ‘P-3’ Canada scale rating on the company’s preferred shares. S&P Global Ratings removed the ratings from CreditWatch with positive implications, where they were placed Nov. 2, 2017. The outlook is stable.

A downgrade could happen if FFO-to-debt ratio consistently falls below 23% over our outlook period. This could result from increased costs at projects under construction resulting in increased capital contributions from Innergex funded through debt, or from a significant reduction in cash flows from its
projects due to operational challenges.

An upgrade could happen if Innergex continues to meet projections while FFO-to-debt moves materially higher than 35%. This could result from increased cash flows from new projects or new acquisitions or deleveraging with paying
down of debt or lower balances outstanding on the credit facility.

Affected issues are INE.PR.A and INE.PR.C.

Toronto Rock Lacrosse Ticket Giveaway – Update #2

Wednesday, February 21st, 2018

I have five more pairs of Toronto Rock Lacrosse tickets to give away!

The games take place at the Air Canada Centre and the seats are very good. Just tell me which ones you would like. A decision regarding who gets tickets will be made two weeks before each game and I will mail them to the lucky winner; while preference will be given to customers and those who tell me they’ve got a kid who plays lacrosse, anybody can win. If you win and don’t want your name publicized, that’s fine.

The games are:

Toronto Rock Lacrosse Ticket Giveaway
Date Opponent
Saturday
2018-1-27
7pm
New England Black Wolves
Saturday
2018-2-3
7pm
Calgary Roughnecks
Saturday
2018-3-3
7pm
Georgia Swarm
Sunday
2018-3-11
3pm
New England Black Wolves
Friday
2018-3-30
7:30pm
Colorado Mammoth
Friday
2018-4-13
7:30pm
Rochester Knighthawks
???
???
???
Home Playoff Game 1
If there is one!
???
???
???
Coupons Redeemable for available tickets
Expires 2018-4-14

The tickets for the January 27 game were given to a non-client … see, anybody can win! Assiduous Reader fed received the February 3 tickets and Assiduous Reader CC will be going to the March 3 game. There’s not much time left until the game against New England on March 11 … get your eMails in! Or, get an early entry in for a later game!

The games are a lot of fun. One thing that has impressed me is that these guys’ technical skills are so good they can concentrate on strategy … there are a lot fewer loose balls than I remember from my days of box lacrosse at age 10!

The redeemable coupons can be exchanged for tickets for any game, but there are no guarantees regarding just what seats you will get. Still, if you would like to plan an outing for four, rather than just a pair, let me know and … you might get two ‘real’ tickets and the two coupons!

The play-off game? There’s no guarantee that there will be one, but you could always cross your fingers and ask for them.

To try your luck at receiving a pair of tickets, just eMail me or comment on this post.

MFC.PR.J To Reset At 4.731%

Wednesday, February 21st, 2018

Manulife Financial Corporation has announced (emphasis added):

the applicable dividend rates for its Non-cumulative Rate Reset Class 1 Shares Series 11 (the “Series 11 Preferred Shares”) (TSX: MFC.PR.J) and Non-cumulative Floating Rate Class 1 Shares Series 12 (the “Series 12 Preferred Shares”).

With respect to any Series 11 Preferred Shares that remain outstanding after March 19, 2018, holders thereof will be entitled to receive fixed rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Manulife and subject to the provisions of the Insurance Companies Act (Canada). The dividend rate for the five-year period commencing on March 20, 2018, and ending on March 19, 2023, will be 4.73100% per annum or $0.295688 per share per quarter, being equal to the sum of the five-year Government of Canada bond yield as at February 20, 2018, plus 2.61%, as determined in accordance with the terms of the Series 11 Preferred Shares.

With respect to any Series 11 Preferred Shares that may be issued on March 19, 2018 in connection with the conversion of the Series 11 Preferred Shares into the Series 12 Preferred Shares, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, calculated on the basis of actual number of days elapsed in each quarterly floating rate period divided by 365, as and when declared by the Board of Directors of Manulife and subject to the provisions of the Insurance Companies Act (Canada). The dividend rate for the three-month period commencing on March 20, 2018, and ending on June 19, 2018, will be 0.96209% (3.81700% on an annualized basis) or $0.240523 per share, being equal to the sum of the three-month Government of Canada Treasury bill yield as at February 20, 2018, plus 2.61%, as determined in accordance with the terms of the Series 12 Preferred Shares.

Beneficial owners of Series 11 Preferred Shares who wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right before 5:00 p.m. (Toronto time) on March 5, 2018. The news release announcing such conversion right was issued on February 12, 2018 and can be viewed on SEDAR or Manulife’s website. Conversion inquiries should be directed to Manulife’s Registrar and Transfer Agent, AST Trust Company (Canada), at 1‑800-783-9495.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 12 Preferred Shares effective upon conversion. Listing of the Series 12 Preferred Shares is subject to Manulife fulfilling all the listing requirements of the TSX and, upon approval, the Series 12 Preferred Shares will be listed on the TSX under the trading symbol “MFC.PR.S”.

MFC.PR.J is a FixedReset, 4.00%+261, that commenced trading 2012-12-4 after being announced 2012-11-27. It is tracked by HIMIPref™ and is assigned to the FixedReset sub-index.

As this issue is not NVCC compliant and it is an insurance issue, it is analyzed as having a Deemed Retraction, effective 2025-1-31 (this date may change in the future).

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., MFC.PR.J and the FloatingReset MFC.PR.S that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_fr_180220
Click for Big

The market appears to be relatively uninterested in floating rate product; most of the implied rates until the next interconversion are scattered around the current 3-month bill rate and the averages for investment-grade and junk issues are slightly below current market rates, at +1.23% and +0.93%, respectively – although these break-even rates are much closer to the market rate than has been case for recent resets! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the MFC.PR.J FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart, MFC.PR.S, given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset MFC.PR.S (received in exchange for MFC.PR.J) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 1.75% 1.25% 0.75%
MFC.PR.J 24.80 261bp 24.42 23.91 23.40

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, it seems likely that I will recommend that holders of MFC.PR.J continue to hold the issue and not to convert, but I will wait until it’s closer to the March 5, 2018 notification deadline before making a final pronouncement. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

ENB.PR.D : No Conversion to FloatingReset

Wednesday, February 21st, 2018

Enbridge Inc. has announced:

that after having taken into account all conversion notices received from holders of its outstanding Cumulative Redeemable Preference Shares, Series D (Series D Shares) by the February 14, 2018 deadline for the conversion of the Series D Shares into Cumulative Redeemable Preference Shares, Series E of Enbridge (Series E Shares), less than the 1,000,000 Series D Shares required to give effect to conversions into Series E Shares were tendered for conversion. As a result, none of Enbridge’s outstanding Series D Shares will be converted into Series E Shares on March 1, 2018.

ENB.PR.D is now a FixedReset, 4.46%+237, that commenced trading (with a 4.00% coupon) 2011-11-23 after being announced 2011-11-14. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

It will be recalled that ENB.PR.D will reset to 4.46% effective March 1 and I recommended against conversion.

MFC.PR.Q A Little Soft on Decent Volume

Tuesday, February 20th, 2018

Manulife Financial Corporation has announced:

that it has completed its offering of 10 million Non-cumulative Rate Reset Class 1 Shares Series 25 (the “Series 25 Preferred Shares”) at a price of $25 per share to raise gross proceeds of $250 million.

The offering was underwritten by a syndicate of investment dealers co-led by RBC Capital Markets, Scotiabank and TD Securities. The Series 25 Preferred Shares commence trading on the Toronto Stock Exchange today under the ticker symbol MFC.PR.Q.

The Series 25 Preferred Shares were issued under a prospectus supplement dated February 12, 2018 to Manulife’s short form base shelf prospectus dated December 15, 2017.

MFC.PR.Q is a FixedReset, 4.70%+255, announced 2018-2-12. It will be tracked by HIMIPref™ and has been assigned to the FixedReset sub-index.

As this issue is not NVCC compliant and it is an insurance issue, it is analyzed as having a Deemed Retraction, effective 2025-1-31 (this date may change in the future).

The issue traded 798,808 shares today in a range of 24.70-94 before closing at 24.90-94. Vital statistics are:

MFC.PR.Q FixedReset YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.90
Bid-YTW : 4.78 %

This issue looks quite expensive to me, according to Implied Volatility Analysis:

impvol_mfc_180220
Click for Big

We see in this chart many of the same features we saw when reviewing the recent BIP.PR.E, BEP.PR.M, CM.PR.S and NA.PR.E: the curve is very steep, with Implied Volatility equal to 40% (a ridiculously large figure).

The ludicrously high figure of Implied Volatility is something I take to mean that the underlying assumption of the Black-Scholes model, that of no directionality of prices, is not accepted by the market; the market seems to be taking the view that since things seem rosy now, they will always be rosy and everything will trade near par in the future.

If the MFC series were an isolated example of this behaviour, I would grin smugly to myself and declare that the implied directionality was a strong indication that the market is starting to take my predictions of Deemed Retraction seriously; but it’s not isolated. In addition, if the market was accounting for future redemption, I would expect the projected yields-to-deemed-retraction to be lower.

In the absence of DeemedRetraction, I balk at ascribing a 100% probability to the ‘all issues will be called, or at least exhibit price stability’ hypothesis. There may still be a few old geezers amongst the Assiduous Readers of this blog who can still (faintly) remember the Great Bear Market of 2014-16, in which quite a few similar assumptions made earlier turned out to be slightly inaccurate. The extra cushion implied by an Issue Reset Spread that is well over the market spread is worth something, even if nothing gets called.

All told, though, I have no hesitation in slapping an ‘Expensive’ label on this issue – according to the Implied Volatility analysis shown above, the theoretical price of the new issue without any accounting for the potential of a DeemedRetraction is 23.76. The two near-par issues, MFC.PR.Q and MFC.PR.J, form a noticeably expensive pothole in the plotted curve.

February 20, 2018

Tuesday, February 20th, 2018

Have no fear, Vancouver! The BC government is going to make BC great again!:

Starting Wednesday, foreigners will pay the province a 20 percent tax on top of the listing value, up from 15 percent now, and a levy on property speculators will be introduced later this year, according to budget documents released Tuesday. The government will also crack down on the condo pre-sale market and beneficial ownership to ensure that property flippers, offshore trusts and hidden investors are paying taxes on gains.

[British Columbia Finance Minister Carole] James said a raft of new measures are intended to “moderate” the surge in housing prices, which she said had emerged as one of the top concerns of both residents and businesses struggling to recruit workers due to the high cost of living.

The new speculator tax takes effect this fall and will apply to foreign and domestic investors who don’t pay income tax in the province. It will start at 0.5 percent of the property’s assessed value in 2018 and rise to 2 percent thereafter. Primary residences and homes leased as long-term rentals will be exempt.

Swedish authorities are worried about the demise of cash:

“No cash accepted” signs are becoming an increasingly common sight in shops and eateries across Sweden as payments go digital and mobile.

But the pace at which cash is vanishing has authorities worried. A broad review of central bank legislation that’s under way is now taking a special look at the situation, with an interim report due as early as the summer.

“If this development with cash disappearing happens too fast, it can be difficult to maintain the infrastructure” for handling cash, said Mats Dillen, the head of the parliamentary review. He declined to give more details on the types of proposals that could be included in the report.

An annual survey by Insight Intelligence released last month found that only 25 percent of Swedes paid in cash at least once a week in 2017, down from 63 percent just four years ago. A full 36 percent never use cash, or just pay with it once or twice a year.

In response, the central bank is considering whether there’s a need for an official form of digital currency, an e-krona. A final proposal isn’t expected until late next year, but the idea is that the e-krona would work as a complement to cash, not replace it completely.

I was pleased to see the following in a piece on Australia’s $20 minimum wage:

There is an often overlooked efficiency to high minimum wages. They can reduce the burden on the state and the taxpayer. Why, after all, should a person working full time depend on a patchwork of confusing and often arbitrary government entitlements and social programs funded through general tax revenue when they could more directly be paid a living wage by their employer? Government bureaucracies can be slow moving and uneven in their decision making. A low-wage system shifts the burden of providing the necessities of life from the employer to the taxpayer. It subsidizes marginal businesses with cheap labour. It disadvantages those employers who either voluntarily pay higher wages or are forced to do so through collective bargaining. Some credit the Australian “wages welfare state” as having contributed to a comparatively low level of sovereign debt (OECD data for 2015 puts Australia at 67-per-cent debt/GDP ratio and Canada at 114 per cent.)

It was a run-of-the-mill, slightly negative day for the Canadian preferred share market today … until about 3pm:

txpr_180220
Click for Big
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.8846 % 3,002.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.8846 % 5,509.1
Floater 3.31 % 3.52 % 89,118 18.43 4 0.8846 % 3,174.9
OpRet 0.00 % 0.00 % 0 0.00 0 0.2111 % 3,142.3
SplitShare 4.67 % 4.08 % 65,286 3.31 5 0.2111 % 3,752.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2111 % 2,927.9
Perpetual-Premium 5.44 % 4.95 % 65,343 14.28 20 0.0598 % 2,833.9
Perpetual-Discount 5.42 % 5.40 % 85,108 14.78 14 -0.0475 % 2,937.2
FixedReset 4.26 % 4.64 % 158,094 5.89 102 -0.3615 % 2,511.1
Deemed-Retractible 5.14 % 5.71 % 90,326 5.73 28 -0.0928 % 2,908.8
FloatingReset 3.00 % 2.95 % 38,033 3.72 10 0.1261 % 2,767.7
Performance Highlights
Issue Index Change Notes
NA.PR.W FixedReset -1.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 22.30
Evaluated at bid price : 22.61
Bid-YTW : 4.75 %
BAM.PF.E FixedReset -1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 23.01
Evaluated at bid price : 23.33
Bid-YTW : 4.99 %
HSE.PR.A FixedReset -1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 17.85
Evaluated at bid price : 17.85
Bid-YTW : 5.06 %
TD.PF.A FixedReset -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 22.97
Evaluated at bid price : 23.36
Bid-YTW : 4.60 %
TRP.PR.G FixedReset -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 22.99
Evaluated at bid price : 23.96
Bid-YTW : 5.01 %
TD.PF.E FixedReset -1.13 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-10-31
Maturity Price : 25.00
Evaluated at bid price : 24.39
Bid-YTW : 4.78 %
BMO.PR.T FixedReset -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 22.78
Evaluated at bid price : 23.20
Bid-YTW : 4.62 %
TD.PF.C FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 22.66
Evaluated at bid price : 23.00
Bid-YTW : 4.66 %
BMO.PR.S FixedReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 23.09
Evaluated at bid price : 23.58
Bid-YTW : 4.64 %
RY.PR.M FixedReset -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 22.99
Evaluated at bid price : 23.96
Bid-YTW : 4.70 %
BAM.PF.J FixedReset -1.02 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.14
Bid-YTW : 4.80 %
BAM.PR.K Floater 1.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 17.32
Evaluated at bid price : 17.32
Bid-YTW : 3.52 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.Q FixedReset 798,808 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.90
Bid-YTW : 4.78 %
GWO.PR.S Deemed-Retractible 204,471 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.80
Bid-YTW : 5.55 %
GWO.PR.G Deemed-Retractible 101,646 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.39
Bid-YTW : 5.80 %
TRP.PR.D FixedReset 89,559 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 22.57
Evaluated at bid price : 23.05
Bid-YTW : 4.82 %
PWF.PR.A Floater 65,074 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 21.10
Evaluated at bid price : 21.10
Bid-YTW : 2.87 %
MFC.PR.O FixedReset 55,835 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.21
Bid-YTW : 3.93 %
There were 22 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
NA.PR.W FixedReset Quote: 22.61 – 23.05
Spot Rate : 0.4400
Average : 0.2893

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 22.30
Evaluated at bid price : 22.61
Bid-YTW : 4.75 %

BAM.PF.E FixedReset Quote: 23.33 – 23.72
Spot Rate : 0.3900
Average : 0.2613

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 23.01
Evaluated at bid price : 23.33
Bid-YTW : 4.99 %

BAM.PF.D Perpetual-Discount Quote: 21.68 – 21.95
Spot Rate : 0.2700
Average : 0.2029

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 21.68
Evaluated at bid price : 21.68
Bid-YTW : 5.75 %

TD.PF.A FixedReset Quote: 23.36 – 23.55
Spot Rate : 0.1900
Average : 0.1256

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 22.97
Evaluated at bid price : 23.36
Bid-YTW : 4.60 %

BAM.PR.C Floater Quote: 17.25 – 17.47
Spot Rate : 0.2200
Average : 0.1590

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 17.25
Evaluated at bid price : 17.25
Bid-YTW : 3.53 %

CM.PR.O FixedReset Quote: 23.35 – 23.67
Spot Rate : 0.3200
Average : 0.2631

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-20
Maturity Price : 22.91
Evaluated at bid price : 23.35
Bid-YTW : 4.68 %

February 16, 2018

Friday, February 16th, 2018
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.2738 % 2,976.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.2738 % 5,460.8
Floater 3.34 % 3.54 % 82,208 18.38 4 1.2738 % 3,147.1
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0469 % 3,135.7
SplitShare 4.68 % 4.59 % 65,952 4.10 5 -0.0469 % 3,744.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0469 % 2,921.8
Perpetual-Premium 5.44 % 4.92 % 66,456 14.42 20 -0.0598 % 2,832.2
Perpetual-Discount 5.41 % 5.36 % 84,081 14.83 14 -0.2214 % 2,938.6
FixedReset 4.24 % 4.57 % 157,189 4.26 101 -0.0337 % 2,520.2
Deemed-Retractible 5.13 % 5.74 % 91,655 5.74 28 0.1082 % 2,911.5
FloatingReset 3.08 % 3.04 % 37,370 3.72 10 -0.0130 % 2,764.2
Performance Highlights
Issue Index Change Notes
BAM.PR.N Perpetual-Discount -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-16
Maturity Price : 21.05
Evaluated at bid price : 21.05
Bid-YTW : 5.73 %
BAM.PF.C Perpetual-Discount -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-16
Maturity Price : 21.58
Evaluated at bid price : 21.58
Bid-YTW : 5.71 %
MFC.PR.B Deemed-Retractible 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.27
Bid-YTW : 6.83 %
MFC.PR.M FixedReset 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.01
Bid-YTW : 5.10 %
MFC.PR.C Deemed-Retractible 1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.55
Bid-YTW : 7.24 %
BAM.PR.B Floater 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-16
Maturity Price : 17.20
Evaluated at bid price : 17.20
Bid-YTW : 3.54 %
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 : 19.02
Bid-YTW : 7.34 %
SLF.PR.J FloatingReset 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 : 6.44 %
PWF.PR.A Floater 2.93 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-16
Maturity Price : 21.05
Evaluated at bid price : 21.05
Bid-YTW : 2.88 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.Z FixedReset 258,076 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.96
Bid-YTW : 4.71 %
NA.PR.A FixedReset 104,819 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-15
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 3.96 %
PWF.PR.P FixedReset 80,621 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-16
Maturity Price : 19.74
Evaluated at bid price : 19.74
Bid-YTW : 4.40 %
BNS.PR.A FloatingReset 80,000 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 1.08 %
MFC.PR.F FixedReset 72,100 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.02
Bid-YTW : 7.34 %
TD.PF.C FixedReset 69,097 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-16
Maturity Price : 22.91
Evaluated at bid price : 23.25
Bid-YTW : 4.59 %
There were 31 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.F FloatingReset Quote: 20.77 – 21.20
Spot Rate : 0.4300
Average : 0.3212

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-16
Maturity Price : 20.77
Evaluated at bid price : 20.77
Bid-YTW : 3.82 %

CU.PR.D Perpetual-Discount Quote: 23.19 – 23.50
Spot Rate : 0.3100
Average : 0.2021

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-16
Maturity Price : 22.75
Evaluated at bid price : 23.19
Bid-YTW : 5.28 %

HSE.PR.G FixedReset Quote: 25.07 – 25.35
Spot Rate : 0.2800
Average : 0.1750

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.07
Bid-YTW : 4.77 %

GWO.PR.H Deemed-Retractible Quote: 22.68 – 22.98
Spot Rate : 0.3000
Average : 0.2050

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.68
Bid-YTW : 6.69 %

SLF.PR.A Deemed-Retractible Quote: 22.47 – 22.78
Spot Rate : 0.3100
Average : 0.2206

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.47
Bid-YTW : 6.75 %

PVS.PR.B SplitShare Quote: 25.33 – 25.66
Spot Rate : 0.3300
Average : 0.2494

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 25.33
Bid-YTW : 3.83 %