Archive for December, 2018

December 4, 2018

Tuesday, December 4th, 2018
explosion_181204
Click for Big

Broad markets were hammered today, with some help from the Stable Genius:

Stocks fell on Tuesday, after President Trump sowed confusion over the status of a truce in the trade war between the United States and China, while the bond market, often considered a safe haven for investors, sent a stark warning about expectations for an economic slowdown.

The S&P 500 dropped more than 3 percent, with economically sensitive financial and transportation stocks sliding.

The warning from the bond market came through what’s known as the yield curve, the difference between interest rates on short-term United States government bonds, such as two-year notes, and longer term bonds, such as the 10-year Treasury.

The gap between the two-year and 10-year yields has decreased to less than 0.12 percentage points — the lowest it has been since before the financial crisis. Many analysts say it could soon fall below zero, a phenomenon known as an “inversion.”

The Trump administration and Beijing said on Saturday that they had essentially reached an agreement to pause the trade war for 90 days while the two sides try and reach a formal trade deal. The S&P 500-stock index had climbed more than 1 percent on Monday following news of that deal.

But Mr. Trump’s tweet on Tuesday seemed to undercut the promise of that agreement.

trumptradetweet_181204
Click for Big

I’m not entirely happy about reproducing tweets to convey what in any other administration would be a major policy announcement, but nobody cares about my happiness.

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 -1.6093 % 2,594.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.6093 % 4,761.4
Floater 4.48 % 4.82 % 39,192 15.74 4 -1.6093 % 2,744.0
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1395 % 3,171.6
SplitShare 4.64 % 5.32 % 86,243 4.63 7 -0.1395 % 3,787.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1395 % 2,955.2
Perpetual-Premium 5.60 % 3.05 % 129,340 0.08 2 -0.3174 % 2,857.1
Perpetual-Discount 5.75 % 5.93 % 72,832 13.94 33 0.2731 % 2,867.5
FixedReset Disc 5.01 % 5.62 % 191,354 14.48 66 -1.8832 % 2,237.7
Deemed-Retractible 5.54 % 7.60 % 90,205 5.17 27 -0.0217 % 2,856.5
FloatingReset 4.10 % 5.17 % 34,815 2.99 7 -1.9866 % 2,506.5
FixedReset Prem 5.17 % 4.39 % 290,205 2.32 14 0.0531 % 2,504.1
FixedReset Bank Non 2.98 % 4.16 % 121,847 2.94 6 0.0000 % 2,568.9
FixedReset Ins Non 4.96 % 8.13 % 125,132 5.22 22 -0.8790 % 2,266.9
Performance Highlights
Issue Index Change Notes
TRP.PR.F FloatingReset -7.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 15.55
Evaluated at bid price : 15.55
Bid-YTW : 5.82 %
HSE.PR.A FixedReset Disc -6.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 13.40
Evaluated at bid price : 13.40
Bid-YTW : 6.95 %
TRP.PR.H FloatingReset -6.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 13.05
Evaluated at bid price : 13.05
Bid-YTW : 5.71 %
TRP.PR.B FixedReset Disc -5.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 13.06
Evaluated at bid price : 13.06
Bid-YTW : 6.46 %
TRP.PR.E FixedReset Disc -5.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 17.90
Evaluated at bid price : 17.90
Bid-YTW : 6.44 %
TRP.PR.A FixedReset Disc -5.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 15.66
Evaluated at bid price : 15.66
Bid-YTW : 6.53 %
TRP.PR.C FixedReset Disc -5.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 14.15
Evaluated at bid price : 14.15
Bid-YTW : 6.35 %
CU.PR.C FixedReset Disc -4.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 18.30
Evaluated at bid price : 18.30
Bid-YTW : 6.00 %
EMA.PR.F FixedReset Disc -4.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 19.25
Evaluated at bid price : 19.25
Bid-YTW : 6.30 %
TRP.PR.D FixedReset Disc -4.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 17.97
Evaluated at bid price : 17.97
Bid-YTW : 6.46 %
VNR.PR.A FixedReset Disc -4.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.10
Evaluated at bid price : 21.10
Bid-YTW : 5.93 %
BAM.PF.G FixedReset Disc -3.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.18
Evaluated at bid price : 20.18
Bid-YTW : 6.31 %
BIP.PR.D FixedReset Disc -3.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.90
Evaluated at bid price : 22.23
Bid-YTW : 6.51 %
BAM.PF.E FixedReset Disc -3.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 19.33
Evaluated at bid price : 19.33
Bid-YTW : 6.23 %
BMO.PR.T FixedReset Disc -3.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 5.59 %
BAM.PF.B FixedReset Disc -3.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 19.83
Evaluated at bid price : 19.83
Bid-YTW : 6.20 %
BAM.PR.B Floater -3.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 14.30
Evaluated at bid price : 14.30
Bid-YTW : 4.91 %
BAM.PF.A FixedReset Disc -3.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 6.19 %
TRP.PR.G FixedReset Disc -2.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 19.45
Evaluated at bid price : 19.45
Bid-YTW : 6.48 %
TD.PF.D FixedReset Disc -2.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.40
Evaluated at bid price : 21.72
Bid-YTW : 5.65 %
NA.PR.W FixedReset Disc -2.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 19.44
Evaluated at bid price : 19.44
Bid-YTW : 5.75 %
BAM.PF.F FixedReset Disc -2.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.27
Evaluated at bid price : 20.27
Bid-YTW : 6.35 %
BAM.PR.R FixedReset Disc -2.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 17.23
Evaluated at bid price : 17.23
Bid-YTW : 6.30 %
TD.PF.E FixedReset Disc -2.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.67
Evaluated at bid price : 22.11
Bid-YTW : 5.61 %
BIP.PR.A FixedReset Disc -2.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.26
Evaluated at bid price : 20.26
Bid-YTW : 6.99 %
PWF.PR.P FixedReset Disc -2.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 16.21
Evaluated at bid price : 16.21
Bid-YTW : 5.65 %
HSE.PR.C FixedReset Disc -2.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 6.78 %
NA.PR.E FixedReset Disc -2.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 5.84 %
MFC.PR.Q FixedReset Ins Non -2.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.10
Bid-YTW : 8.93 %
TD.PF.B FixedReset Disc -2.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.41
Evaluated at bid price : 20.41
Bid-YTW : 5.53 %
CM.PR.O FixedReset Disc -2.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.18
Evaluated at bid price : 20.18
Bid-YTW : 5.65 %
GWO.PR.N FixedReset Ins Non -2.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.52
Bid-YTW : 11.85 %
MFC.PR.N FixedReset Ins Non -2.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.88
Bid-YTW : 9.75 %
IFC.PR.G FixedReset Ins Non -2.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.72
Bid-YTW : 7.83 %
MFC.PR.M FixedReset Ins Non -2.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.10
Bid-YTW : 9.64 %
HSE.PR.E FixedReset Disc -2.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.55
Evaluated at bid price : 20.55
Bid-YTW : 6.90 %
BAM.PR.C Floater -2.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 14.49
Evaluated at bid price : 14.49
Bid-YTW : 4.84 %
CM.PR.S FixedReset Disc -2.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.76
Evaluated at bid price : 20.76
Bid-YTW : 5.64 %
NA.PR.G FixedReset Disc -1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.88
Evaluated at bid price : 22.35
Bid-YTW : 5.59 %
RY.PR.M FixedReset Disc -1.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.12
Evaluated at bid price : 21.12
Bid-YTW : 5.60 %
MFC.PR.J FixedReset Ins Non -1.88 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.39
Bid-YTW : 7.81 %
EMA.PR.H FixedReset Disc -1.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 22.78
Evaluated at bid price : 23.95
Bid-YTW : 5.09 %
TD.PF.C FixedReset Disc -1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.25
Evaluated at bid price : 20.25
Bid-YTW : 5.52 %
MFC.PR.L FixedReset Ins Non -1.68 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.68
Bid-YTW : 9.94 %
CU.PR.I FixedReset Disc -1.65 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-01
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 5.62 %
PWF.PR.Q FloatingReset -1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 18.25
Evaluated at bid price : 18.25
Bid-YTW : 4.56 %
MFC.PR.H FixedReset Ins Non -1.59 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.67
Bid-YTW : 8.13 %
NA.PR.C FixedReset Disc -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 22.35
Evaluated at bid price : 23.00
Bid-YTW : 5.85 %
BNS.PR.I FixedReset Disc -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 22.13
Evaluated at bid price : 22.76
Bid-YTW : 5.22 %
BAM.PR.Z FixedReset Disc -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.76
Evaluated at bid price : 20.76
Bid-YTW : 6.19 %
SLF.PR.A Deemed-Retractible -1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.17
Bid-YTW : 8.86 %
BMO.PR.S FixedReset Disc -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.65
Evaluated at bid price : 20.65
Bid-YTW : 5.53 %
TD.PF.A FixedReset Disc -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.58
Evaluated at bid price : 20.58
Bid-YTW : 5.44 %
MFC.PR.F FixedReset Ins Non -1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.50
Bid-YTW : 11.83 %
BMO.PR.W FixedReset Disc -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.25
Evaluated at bid price : 20.25
Bid-YTW : 5.48 %
MFC.PR.G FixedReset Ins Non -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.51
Bid-YTW : 8.26 %
BAM.PR.M Perpetual-Discount 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 19.45
Evaluated at bid price : 19.45
Bid-YTW : 6.23 %
CU.PR.D Perpetual-Discount 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.47
Evaluated at bid price : 21.47
Bid-YTW : 5.75 %
POW.PR.D Perpetual-Discount 1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.47
Evaluated at bid price : 21.47
Bid-YTW : 5.92 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.C FixedReset Disc 89,382 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 14.15
Evaluated at bid price : 14.15
Bid-YTW : 6.35 %
RY.PR.Q FixedReset Prem 88,183 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.77
Bid-YTW : 4.26 %
TD.PF.A FixedReset Disc 79,564 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.58
Evaluated at bid price : 20.58
Bid-YTW : 5.44 %
PWF.PR.S Perpetual-Discount 63,378 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 20.68
Evaluated at bid price : 20.68
Bid-YTW : 5.88 %
CM.PR.Q FixedReset Disc 58,666 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.54
Evaluated at bid price : 21.91
Bid-YTW : 5.57 %
BMO.PR.Y FixedReset Disc 50,615 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.37
Evaluated at bid price : 21.68
Bid-YTW : 5.57 %
There were 62 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.E FixedReset Disc Quote: 17.90 – 18.87
Spot Rate : 0.9700
Average : 0.6080

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 17.90
Evaluated at bid price : 17.90
Bid-YTW : 6.44 %

TRP.PR.F FloatingReset Quote: 15.55 – 16.50
Spot Rate : 0.9500
Average : 0.6026

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 15.55
Evaluated at bid price : 15.55
Bid-YTW : 5.82 %

VNR.PR.A FixedReset Disc Quote: 21.10 – 22.02
Spot Rate : 0.9200
Average : 0.6005

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.10
Evaluated at bid price : 21.10
Bid-YTW : 5.93 %

TD.PF.D FixedReset Disc Quote: 21.72 – 22.34
Spot Rate : 0.6200
Average : 0.3815

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 21.40
Evaluated at bid price : 21.72
Bid-YTW : 5.65 %

TRP.PR.D FixedReset Disc Quote: 17.97 – 18.55
Spot Rate : 0.5800
Average : 0.3496

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 17.97
Evaluated at bid price : 17.97
Bid-YTW : 6.46 %

TRP.PR.A FixedReset Disc Quote: 15.66 – 16.35
Spot Rate : 0.6900
Average : 0.4631

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-04
Maturity Price : 15.66
Evaluated at bid price : 15.66
Bid-YTW : 6.53 %

BIG.PR.D to Mature on Schedule

Tuesday, December 4th, 2018

Timbercreek Asset Management Inc. has announced:

Big 8 Split Inc. (the “Company”) announced today that in connection with the previously announced upcoming maturity of the fund on December 14, 2018, 739,483 Class D Preferred Shares and 739,483 Class D Capital Shares have been tendered for redemption. The redemption price to be paid for the Class D Preferred Shares will be $10.00 per Class D Preferred Share, and the redemption price for the Class D Capital Shares will be $16.56 per Class D Capital Share.

Holders of Class D Capital Shares tendered 140,139 Class D Capital Shares (representing approximately 15.93% of the outstanding Class D Capital Shares), together with a cash amount of $10.00 per Class D Capital Share tendered (together, a “Big 8 Split Unit”), in exchange for the holder’s pro rata share of the Company’s shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, The Toronto-Dominion Bank, Great-West Lifeco Inc., Manulife Financial Corporation, and Sun Life Financial Inc.

Payments of cash and delivery of the underlying portfolio shares owing to shareholders as a result of the final redemptions will be made by the Company on December 14, 2018.

The Company was established to generate dividend income for the Class D Preferred Shares while providing holders of the Class D Capital Shares with a leveraged opportunity to participate in capital appreciation from a portfolio of common shares of Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada, The Toronto-Dominion Bank, Great-West Lifeco Inc., Manulife Financial Corporation, and Sun Life Financial Inc. Information concerning Big 8 Split Inc. is available on our website at www.timbercreek.com/investments/managed-companies/big8-split-inc/overview.

The Class D Capital Shares and Class D Preferred Shares of Big 8 Split are listed on the Toronto Stock Exchange under the symbols BIG.D and BIG.pr.D respectively.

BIG.PR.D has not been tracked by HIMIPref™, as it was too small to allow reasonable expectations of efficient trading.

AQN.PR.A To Reset At 5.162%

Tuesday, December 4th, 2018

Algonquin Power & Utilities Corp. has announced (emphasis added):

the applicable dividend rates for its Cumulative 5-Year Rate Reset Preferred Shares, Series A (the “Series A Preferred Shares”) and Cumulative Floating Rate Preferred Shares, Series B (the “Series B Preferred Shares”).

With respect to any Series A Preferred Shares that remain outstanding after December 31, 2018, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, if, as and when declared by the board of directors of the Company (the “Board”). The dividend rate for the 5-year period from and including December 31, 2018 to but excluding December 31, 2023 will be 5.162%, being equal to the 5-year Government of Canada bond yield determined as of today plus 2.94%, in accordance with the terms of the Series A Preferred Shares.

With respect to any Series B Preferred Shares that may be issued on December 31, 2018, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, if, as and when declared by the Board. The dividend rate for the 3-month floating rate period from and including December 31, 2018 to but excluding March 31, 2019 will be 4.653%, being equal to the 3-month Government of Canada Treasury Bill yield determined as of today plus 2.94%, calculated on the basis of the actual number of days in such quarterly period divided by 365, in accordance with the terms of the Series B Preferred Shares.

Beneficial owners of Series A Preferred Shares who wish to exercise their conversion right should communicate with their broker or other nominee to ensure their instructions are followed so that the registered holder of the Series A Preferred Shares can meet the deadline to exercise such conversion right, which is 5:00 p.m. (EST) on December 17, 2018.

AQN.PR.A is a FixedReset, 4.50%+294, that commenced trading 2012-11-9 after being announced 2012-10-25. The 2018-11-28 notice of extension was reported on PrefBlog. The issue is tracked by HIMIPref™, but relegated to the Scraps – FixedReset Discount index on credit concerns.

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., AQN.PR.A and the FloatingReset 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_181203
Click for Big

The market appears to be becoming relatively more interested in floating rate product; the implied rates until the next interconversion are above the current 3-month bill rate as the averages for investment-grade and junk issues are at +2.03% and +2.18%, respectively. 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 AQN.PR.A FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for AQN.PR.A) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 2.50% 2.00% 1.50%
AQN.PR.A 20.37 294bp 20.64 20.16 19.68

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade below the price of their FixedReset counterparts, AQN.PR.A. Therefore, it seems likely that I will recommend that holders of AQN.PR.A continue to hold the issue and not to convert, but I will wait until it’s closer to the December 17 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.

ALA.PR.E To Reset At 5.393%

Monday, December 3rd, 2018

AltaGas Ltd. has announced:

reset dividend rates for the currently outstanding Cumulative Redeemable Five-Year Rate Reset Preferred Shares, Series E (the “Series E Shares”) (TSX: ALA.PR.E) and the Cumulative Redeemable Floating Rate Preferred Shares, Series F (the “Series F Shares”).

As previously announced by AltaGas on November 28, 2018, AltaGas does not intend to exercise its right to redeem its Series E Shares on December 31, 2018 (the “Conversion Date”). As a result, subject to certain conditions, the holders of the Series E Shares have the right to convert all or part of their Series E Shares on a one-for-one basis into Series F Shares on the Conversion Date. Holders who do not exercise their right to convert their Series E Shares into Series F Shares will, subject to automatic conversion in certain circumstances, retain their Series E Shares. Holders of Series E Shares should review the prior press release for further details.

With respect to any Series E Shares that remain outstanding after the Conversion Date, holders shall be entitled to receive, as and when declared by the Board of Directors of AltaGas, fixed cumulative preferential cash dividends, payable quarterly. The new annual dividend rate applicable to the Series E Shares for the five-year period commencing on and including December 31, 2018 to, but excluding, December 31, 2023 will be 5.393 percent, being equal to the sum of the five-year Government of Canada bond yield determined as of today plus 3.17 percent.

With respect to any Series F Shares that may be issued on the Conversion Date, holders shall be entitled to receive, as and when declared by the Board of Directors of AltaGas, quarterly floating rate cumulative preferential cash dividends. The dividend rate applicable to the Series F Shares for the three-month floating rate period commencing on and including December 31, 2018 to, but excluding, March 31, 2019 will be 4.88 percent, being equal to the sum of the annual rate of interest for the most recent auction of 90 day Government of Canada treasury bills plus 3.17 percent (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

ALA.PR.E is a FixedReset, 5.00%+317, that commenced trading 2013-12-13 after being announced 2013-12-4. The 2018-11-28 notice of extension was reported on PrefBlog. The issue is tracked by HIMIPref™ but is relegated to the Scraps – FixedReset Discount subindex due to credit concerns.

It is worth noting the company’s recent announcement of:

the timing of its financial and operational outlook conference call. To align the previously discussed “update call” to review AltaGas’ 2019 outlook, capital plan and update on other strategic and operational items with the start date of the recently announced incoming Chief Executive Officer, Randy Crawford, AltaGas intends to host the conference call on Thursday, December 13, 2018.

This call, which will be led by Randy Crawford and Tim Watson, Executive Vice President and Chief Financial Officer, will discuss AltaGas’ 2019 financial outlook and capital funding plan, with an update on key initiatives including dividend policy.

The question of what changes in dividend policy might be in store has received a certain amount of notice:

AltaGas (TSX:ALA) stock has lost nearly half of its value in the last year. The news of a new CEO coming on board did not trigger any meaningful rally in the stock. The big change in asset mix with a weight toward utility assets in the near term and the fact that the stock’s yield has been pushed up to 13.8% will likely lead to a dividend cut.

In summary, management will be reviewing the payout ratio, and it also seemed to hint that a dividend cut could be coming. For a yield that more closely aligns with that of other utilities, we could be seeing a dividend cut of at least 50% for AltaGas from its current yield of about 13.8% as of writing.

Assiduous Reader PL points out to me:

They have about 60 million preferred shares [52-million as of 2018-2-23 … JH] and over 200 million common [270.5 million (as at October 19, 2018, included in Q3 Report). … JH] The common stock is down so much the dividend is around 15 per cent.

On Dec 13 9 A.M Alta Gas will have a conference call on Financial and Operational Outlook. Pretty sure they will cut the common dividend by at least 50 per cent.

I do not think we will have a Husky situation where they cut the common dividend entirely and that tanked the Husky preferred . Question is have the Alta Gas preferred already been spooked.

The ALA issues have certainly been hammered during the recent downdraft, with the five FixedReset issues tracked down between 21% and 31%:

ala_downdraftperf_181203
Click for Big

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., ALA.PR.E and the FloatingReset 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_181203
Click for Big

The market appears to be becoming relatively more interested in floating rate product; the implied rates until the next interconversion are above the current 3-month bill rate as the averages for investment-grade and junk issues are at +2.03% and +2.18%, respectively. 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 ALA.PR.E FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for ALA.PR.E) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 2.50% 2.00% 1.50%
ALA.PR.E 17.18 317bp 17.43 16.98 16.52

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade below the price of their FixedReset counterparts, ALA.PR.E. Therefore, it seems likely that I will recommend that holders of ALA.PR.E continue to hold the issue and not to convert, but I will wait until it’s closer to the December 17 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.

EFN.PR.A To Reset At 6.933%

Monday, December 3rd, 2018

Element Fleet Management Corp. has announced (emphasis added):

the applicable dividend rates for its Cumulative 5-Year Rate Reset Preferred Shares, Series A (the “Series A shares”) and Cumulative Floating Rate Preferred Shares, Series B (the “Series B shares”).

With respect to any Series A shares that remain outstanding after December 31, 2018, holders thereof shall be entitled to receive, and the Corporation shall pay thereon, if, as and when declared by the directors of the Corporation, fixed, cumulative, preferential cash dividends payable quarterly. The dividend rate applicable to the Series A shares for the period from and including December 31, 2018 up to, but excluding, December 31, 2023, will be 6.933%, being equal to the sum of the 5-year Government of Canada bond yield determined as of today plus 4.71%, in accordance with the terms of the Series A shares.

With respect to any Series B shares that may be issued on December 31, 2018, holders thereof shall be entitled to receive, and the Corporation shall pay thereon, if, as and when declared by the directors of the Corporation, floating rate, cumulative, preferential cash dividends payable quarterly. The dividend rate applicable to the Series B shares for the period from and including December 31, 2018 up to, but excluding, March 31, 2019, will be 6.444%, being equal to the sum of the 3-month Government of Canada Treasury Bill yield determined as of today plus 4.71%, calculated on the basis of the actual number of days in such quarterly period divided by 365, in accordance with the terms of the Series B shares.

Beneficial owners of Series A shares who wish to exercise their Conversion Privilege should communicate with their broker or other nominee to ensure their instructions are followed so that the registered holder of the Series A shares can meet the deadline to exercise the Conversion Privilege. Such deadline is 5:00 p.m. (EST) on December 17, 2018, as further described in the Corporation’s news release dated November 20, 2018 and in the rights, privileges, restrictions and conditions attaching to the Series A shares, as provided in Article 4 of the Corporation’s restated articles of incorporation dated October 4, 2016.

EFN.PR.A is a FixedReset, 6.60%+471, that was announced 2013-12-9; HIMIPref™ commenced tracking the issue in September 2015 after it received a DBRS rating. The notice of extension dated 2018-11-20 was reported on PrefBlog. The issue is relegated to the Scraps – FixedReset Discount subindex on credit concerns.

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., EFN.PR.A and the FloatingReset 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_181203
Click for Big

The market appears to be becoming relatively more interested in floating rate product; the implied rates until the next interconversion are above the current 3-month bill rate as the averages for investment-grade and junk issues are at +2.03% and +2.18%, respectively. 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 EFN.PR.A FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for EFN.PR.A) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 2.50% 2.00% 1.50%
EFN.PR.A 21.02 471bp 21.27 20.82 20.37

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade below the price of their FixedReset counterparts, EFN.PR.A. Therefore, it seems likely that I will recommend that holders of EFN.PR.A continue to hold the issue and not to convert, but I will wait until it’s closer to the December 17 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.

CPX.PR.C to Reset at 5.453%

Monday, December 3rd, 2018

Capital Power Corporation has announced (emphasis added):

that it has notified registered shareholders of its Cumulative Rate Reset Preference Shares, Series 3 (Series 3 Shares) (TSX: CPX.PR.C) of the Conversion Privilege and Dividend Rate Notice.

Subject to certain conditions, beginning on December 1, 2018 and ending at 5:00 p.m. (Toronto time) on December 17, 2018, each registered holder of Series 3 Shares will have the right to elect to convert any or all of their Series 3 Shares into an equal number of Cumulative Floating Rate Preference Shares, Series 4 (Series 4 Shares) by delivering an Election Notice to the Corporation.

If Capital Power does not receive an Election Notice from a holder of Series 3 Shares during the time fixed therefor, then the Series 3 Shares shall be deemed not to have been converted (except in the case of an Automatic Conversion, see below). Holders of the Series 3 Shares and the Series 4 Shares will have the opportunity to convert their shares again on December 31, 2023, and every five years thereafter as long as the shares remain outstanding.

Effective December 31, 2018, on December 3, 2018, the Annual Fixed Dividend Rate for the Series 3 Shares was set for the next five-year period at 5.45300%. Effective December 31, 2018, on December 3, 2018, the Floating Quarterly Dividend for the Series 4 Shares was set for the first Quarterly Floating Rate Period (being the period from and including December 31, 2018, to but excluding March 31, 2019) at 1.21882%. The Floating Quarterly Dividend Rate will be reset every quarter.

The Series 3 Shares are issued in “book entry only” form and, as such, the sole registered holder of the Series 3 Shares is CDS Clearing and Depository Services Inc. (CDS). All rights of beneficial holders of Series 3 Shares must be exercised through CDS or the CDS participant through which the Series 3 Shares are held. The deadline for the registered shareholder to provide notice of exercise of the right to convert Series 3 Shares into Series 4 Shares is 3:00 p.m. (MST) / 5:00 p.m. (EST) on December 17, 2018. Any Election Notices received after this deadline will not be valid. As such, beneficial holders of Series 3 Shares who wish to exercise their rights to convert their shares should contact their broker or other intermediary for more information and it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps.

After December 17, 2018, (i) if Capital Power determines that there would remain outstanding on December 31, 2018, less than 1,000,000 Series 3 Shares, all remaining Series 3 Shares will be automatically converted into Series 4 Shares on a one-for one basis effective December 31, 2018 (an Automatic Conversion); or (ii) if Capital Power determines that there would remain outstanding after December 31, 2018, less than 1,000,000 Series 4 Shares, no Series 3 Shares will be permitted to be converted into Series 4 Shares effective December 31, 2018. There are currently 6,000,000 Series 3 Shares outstanding.

The Toronto Stock Exchange (TSX) has conditionally approved the listing of the Series 4 Shares effective upon conversion. Listing of the Series 4 Shares is subject to the Capital Power fulfilling all the listing requirements of the TSX and upon approval, the Series 4 Shares will be listed on the TSX under the trading symbol CPX.PR.D.

For more information on the terms of, and risks associated with an investment in, the Series 3 Shares and the Series 4 Shares, please see Capital Power’s prospectus supplement dated December 10, 2012 which is available on sedar.com or on Capital Power’s website at capitalpower.com.

CPX.PR.C is a FixedReset, 4.60%+323, that commenced trading 2012-12-18 after being announced 2012-12-6. It is tracked by HIMIPref™ but relegated to the Scraps – FixedReset Discount index on credit concerns.

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., CPX.PR.C and the FloatingReset, CPX.PR.D, 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_181203
Click for Big

The market appears to be becoming relatively more interested in floating rate product; the implied rates until the next interconversion are above the current 3-month bill rate as the averages for investment-grade and junk issues are at +2.03% and +2.18%, respectively. 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 CPX.PR.C FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset CPX.PR.D (received in exchange for CPX.PR.C) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 2.50% 2.00% 1.50%
CPX.PR.C 21.15 323bp 21.42 20.94 20.46

Based on current market conditions, I suggest that the FloatingResets, CPX.PR.D, that will result from conversion are likely to trade below the price of their FixedReset counterparts, CPX.PR.C. Therefore, it seems likely that I will recommend that holders of CPX.PR.C continue to hold the issue and not to convert, but I will wait until it’s closer to the December 17 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.

BPO.PR.T to Reset at 5.383%

Monday, December 3rd, 2018

Brookfield Office Properties has announced (emphasis added):

the reset dividend rate on its Class AAA Preference Shares, Series T (“Series T Shares”) (TSX: BPO.PR.T) …

Series T Shares

If declared, the fixed quarterly dividends on the Series T Shares for the five years commencing January 1, 2019 and ending December 31, 2023 will be paid at an annual rate of 5.383% ($0.336438 per share per quarter).

Holders of Series T Shares have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on December 17, 2018, to convert all or part of their Series T Shares, on a one-for-one basis, into Class AAA Preference Shares, Series U (the “Series U Shares”), effective December 31, 2018.

The quarterly floating rate dividends on the Series U Shares have an annual rate, calculated for each quarter, of 3.16% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate for the January 1, 2019 to March 31, 2019 dividend period for the Series U Shares will be 1.200820% (4.87% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.300205 per share, payable on March 29, 2019.

Holders of Series T Shares are not required to elect to convert all or any part of their Series T Shares into Series U Shares.

As provided in the share conditions of the Series T Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series T Shares outstanding after December 31, 2018, all remaining Series T Shares will be automatically converted into Series U Shares on a one-for-one basis effective December 31, 2018; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series U Shares outstanding after December 31, 2018, no Series T Shares will be permitted to be converted into Series U Shares. There are currently 10,000,000 Series T Shares outstanding.

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

BPO.PR.T is a FixedReset, 4.60%+316, that commenced trading 2012-9-13 after being announced 2012-9-5. It is tracked by HIMIPref™, but relegated to the Scraps – FixedReset Discount index on credit concerns.

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., BPO.PR.T and the FloatingReset, BPO.PR.L, 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_181203
Click for Big

The market appears to be becoming relatively more interested in floating rate product; the implied rates until the next interconversion are above the current 3-month bill rate as the averages for investment-grade and junk issues are at +2.03% and +2.18%, respectively. 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 BPO.PR.T FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset BPO.PR.L (received in exchange for BPO.PR.T) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 2.50% 2.00% 1.50%
BPO.PR.T 20.35 316bp 20.61 20.14 19.66

Based on current market conditions, I suggest that the FloatingResets, BPO.PR.L, that will result from conversion are likely to trade below the price of their FixedReset counterparts, BPO.PR.T. Therefore, it seems likely that I will recommend that holders of BPO.PR.T continue to hold the issue and not to convert, but I will wait until it’s closer to the December 17 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.

December 3, 2018

Monday, December 3rd, 2018

A number of big names from the Fed – Kenechukwu Anadu, Mathias Kruttli, Patrick E. McCabe, Emilio Osambela and Chaehee Shin – have published a working paper titled The Shift From Active to Passive Investing: Potential Risks to Financial Stability?:

The past couple of decades have seen a significant shift in assets from active to passive investment strategies. We examine the potential effects of this shift on financial stability through four different channels: (1) effects on investment funds’ liquidity transformation and redemption risks; (2) passive strategies that amplify market volatility; (3) increases in asset-management industry concentration; and (4) the effects on valuations, volatility, and co-movement of assets that are included in indexes. Overall, the shift from active to passive investment strategies appears to be increasing some types of risk while diminishing others: The shift has probably reduced liquidity transformation risks, although some passive strategies amplify market volatility, and passive-fund growth is increasing asset-management industry concentration. We find mixed evidence that passive investing is contributing to the co-movement of assets. Finally, we use our framework to assess how financial stability risks are likely to evolve if the shift to passive investing continues, noting that some of the repercussions of passive investing ultimately may slow its growth.

The Harvard Law School Forum on Corporate Governance and Financial Regulation has published a summary of the work.

Speaking of the Fed, I learned today that the New York Fed has a webpage titled Measuring the Natural Rate of Interest, which estimates the Natural Rate of Interest in the US as about 0.75% and 0.5% for ‘Advanced Economies’. Canada is estimated at 1.43%.

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 0.8679 % 2,637.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.8679 % 4,839.2
Floater 4.41 % 4.74 % 39,947 15.89 4 0.8679 % 2,788.9
OpRet 0.00 % 0.00 % 0 0.00 0 0.2272 % 3,176.0
SplitShare 4.64 % 5.26 % 85,102 4.64 7 0.2272 % 3,792.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2272 % 2,959.3
Perpetual-Premium 5.58 % -1.02 % 128,756 0.08 2 0.5786 % 2,866.2
Perpetual-Discount 5.77 % 5.95 % 73,304 13.91 33 0.1077 % 2,859.7
FixedReset Disc 4.91 % 5.53 % 186,234 14.64 66 0.0703 % 2,280.7
Deemed-Retractible 5.53 % 7.60 % 87,744 5.17 27 -0.0234 % 2,857.1
FloatingReset 4.02 % 4.83 % 34,950 3.00 7 0.0504 % 2,557.3
FixedReset Prem 5.17 % 4.37 % 288,966 2.32 14 0.2100 % 2,502.8
FixedReset Bank Non 2.98 % 4.17 % 122,291 2.94 6 0.0551 % 2,568.9
FixedReset Ins Non 4.92 % 7.92 % 125,621 5.22 22 -0.0531 % 2,287.0
Performance Highlights
Issue Index Change Notes
BNS.PR.I FixedReset Disc -2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 22.31
Evaluated at bid price : 23.08
Bid-YTW : 5.14 %
HSE.PR.G FixedReset Disc -1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 20.59
Evaluated at bid price : 20.59
Bid-YTW : 6.85 %
BIP.PR.A FixedReset Disc -1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 20.80
Evaluated at bid price : 20.80
Bid-YTW : 6.81 %
BAM.PR.T FixedReset Disc -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 17.65
Evaluated at bid price : 17.65
Bid-YTW : 6.18 %
ELF.PR.H Perpetual-Discount -1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 23.11
Evaluated at bid price : 23.55
Bid-YTW : 5.91 %
GWO.PR.M Deemed-Retractible -1.33 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.43
Bid-YTW : 6.21 %
BAM.PR.X FixedReset Disc -1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 16.04
Evaluated at bid price : 16.04
Bid-YTW : 5.92 %
TRP.PR.G FixedReset Disc -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 20.05
Evaluated at bid price : 20.05
Bid-YTW : 6.29 %
TRP.PR.F FloatingReset -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 16.75
Evaluated at bid price : 16.75
Bid-YTW : 5.40 %
CGI.PR.D SplitShare -1.01 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 24.55
Bid-YTW : 4.18 %
EMA.PR.F FixedReset Disc 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 20.17
Evaluated at bid price : 20.17
Bid-YTW : 6.01 %
PWF.PR.Q FloatingReset 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 18.55
Evaluated at bid price : 18.55
Bid-YTW : 4.49 %
BAM.PR.N Perpetual-Discount 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 19.41
Evaluated at bid price : 19.41
Bid-YTW : 6.24 %
EIT.PR.A SplitShare 1.11 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2024-03-14
Maturity Price : 25.00
Evaluated at bid price : 24.67
Bid-YTW : 5.09 %
PWF.PR.T FixedReset Disc 1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 21.71
Evaluated at bid price : 22.11
Bid-YTW : 5.22 %
BAM.PF.B FixedReset Disc 1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 20.55
Evaluated at bid price : 20.55
Bid-YTW : 5.98 %
BMO.PR.E FixedReset Disc 1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 22.54
Evaluated at bid price : 23.49
Bid-YTW : 5.24 %
TD.PF.E FixedReset Disc 1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 22.38
Evaluated at bid price : 22.70
Bid-YTW : 5.47 %
BAM.PR.C Floater 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 14.80
Evaluated at bid price : 14.80
Bid-YTW : 4.74 %
HSE.PR.A FixedReset Disc 1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 14.39
Evaluated at bid price : 14.39
Bid-YTW : 6.48 %
BAM.PR.B Floater 2.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 14.80
Evaluated at bid price : 14.80
Bid-YTW : 4.74 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.Q FixedReset Disc 523,600 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 21.63
Evaluated at bid price : 22.05
Bid-YTW : 5.53 %
BIP.PR.B FixedReset Disc 143,970 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-31
Maturity Price : 25.00
Evaluated at bid price : 24.80
Bid-YTW : 5.73 %
RY.PR.Z FixedReset Disc 113,816 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 20.85
Evaluated at bid price : 20.85
Bid-YTW : 5.33 %
BMO.PR.Y FixedReset Disc 67,538 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 21.42
Evaluated at bid price : 21.75
Bid-YTW : 5.55 %
BAM.PF.F FixedReset Disc 58,600 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 20.85
Evaluated at bid price : 20.85
Bid-YTW : 6.17 %
TRP.PR.C FixedReset Disc 58,498 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 14.90
Evaluated at bid price : 14.90
Bid-YTW : 6.04 %
There were 34 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CU.PR.E Perpetual-Discount Quote: 21.22 – 21.88
Spot Rate : 0.6600
Average : 0.3829

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 21.22
Evaluated at bid price : 21.22
Bid-YTW : 5.82 %

ELF.PR.H Perpetual-Discount Quote: 23.55 – 24.38
Spot Rate : 0.8300
Average : 0.6085

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 23.11
Evaluated at bid price : 23.55
Bid-YTW : 5.91 %

GWO.PR.T Deemed-Retractible Quote: 21.98 – 22.55
Spot Rate : 0.5700
Average : 0.4211

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.98
Bid-YTW : 7.61 %

MFC.PR.O FixedReset Ins Non Quote: 25.38 – 25.72
Spot Rate : 0.3400
Average : 0.2134

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-06-19
Maturity Price : 25.00
Evaluated at bid price : 25.38
Bid-YTW : 4.89 %

BAM.PF.C Perpetual-Discount Quote: 19.90 – 20.38
Spot Rate : 0.4800
Average : 0.3644

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-12-03
Maturity Price : 19.90
Evaluated at bid price : 19.90
Bid-YTW : 6.22 %

CGI.PR.D SplitShare Quote: 24.55 – 24.96
Spot Rate : 0.4100
Average : 0.3088

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 24.55
Bid-YTW : 4.18 %

MAPF Performance: November, 2018

Monday, December 3rd, 2018

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close November 30, 2018, was $9.0526.

Returns to November 30, 2018
Period MAPF BMO-CM “50” Preferred Share Index TXPR*
Total Return
CPD – according to Blackrock
One Month -8.37% -6.54% -5.99% N/A
Three Months -12.25% -9.98% -8.87% N/A
One Year -7.21% -6.99% -6.40% -6.90%
Two Years (annualized) +9.21% +6.46% +4.93% N/A
Three Years (annualized) +8.57% +6.57% +5.17% +4.70%
Four Years (annualized) +0.51% +0.05% -0.91% N/A
Five Years (annualized) +2.45% +0.79% +0.35% -0.06%
Six Years (annualized) +1.78% +0.88% +0.25% N/A
Seven Years (annualized) +3.25% +1.61% +1.05% N/A
Eight Years (annualized) +2.91% +2.17% +1.45% N/A
Nine Years (annualized) +4.54% +3.25% +2.36% N/A
Ten Years (annualized) +11.07% +6.06% +5.12% +4.56%
Eleven Years (annualized) +8.50% +3.26% +2.24%  
Twelve Years (annualized) +7.31% +2.41%    
Thirteen Years (annualized) +7.25% +2.56%    
Fourteen Years (annualized) +7.19% +2.72%    
Fifteen Years (annualized) +7.69% +2.94%    
Sixteen Years (annualized) +8.99% +3.23%    
Seventeen Years (annualized) +8.34% +3.19%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The full name of the BMO-CM “50” index is the BMO Capital Markets “50” Preferred Share Index. It is calculated without accounting for fees.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
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 -4.56%, -7.72% and -5.62%, respectively, according to Morningstar after all fees & expenses. Three year performance is +4.23%; five year is +1.12%; ten year is +5.54%
Manulife Preferred Income Class Adv has been terminated by Manulife.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are -7.18%, -10.65% & -7.85%, respectively. Three year performance is +5.43%, five-year is +1.20%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are -7.14%, -10.65% and -8.36% for one-, three- and twelve months, respectively. Three year performance is +4.74%; five-year is +0.28%

According to the fund’s fact sheet as of June 30, 2016, the fund’s inception date was October 30, 2015. I do not know how they justify this nonsensical statement, but will assume that prior performance is being suppressed in some perfectly legal manner that somebody at National considers ethical.

The figures for the NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) is -7.19% for the past twelve months. Two year performance is +5.60%, three year is +5.24%, five year is -1.41%.
Figures for Natixis Canadian Preferred Share Class Series F (formerly NexGen Canadian Preferred Share Tax Managed Fund) are -6.88%, -9.82% and -8.88% for one-, three- and twelve-months, respectively. Three year performance is +4.01%; five-year is +1.94%
Figures for BMO Preferred Share Fund (advisor series) according to Morningstar are -7.01%, -10.49% and -9.55% for the past one-, three- and twelve-months, respectively. Three year performance is +2.47%; five-year is -1.36%.
Figures for PowerShares Canadian Preferred Share Index Class, Series F are -7.88% for the past twelve months. The three-year figure is +6.45%; five years is +0.86%
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are no longer available since the fund has merged with First Asset Preferred Share ETF (FPR)
Figures for Lysander-Slater Preferred Share Dividend Fund according to Morningstar are -7.49%, -11.25% and -9.18% for the past one, three and twelve months, respectively. Three year performance is +3.60%.
Figures for the Desjardins Canadian Preferred Share Fund A Class, as reported by Morningstar are -6.46%, -9.92% and -8.26% for the past one, three and twelve months, 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.

The preferred share market has suffered a sharp reverse in the past two months, but I think that there is still room for outsized gains. The Seniority Spread (the interest-equivalent yield on reasonably liquid, investment-grade PerpetualDiscounts less the yield on long term corporate bonds) is still quite elevated (chart end-date 2018-11-09)

pl_181109_body_chart_1
Click for Big

Note that the Seniority Spread was a breathtaking 350bp on November 28. As a good practical example of the spreads between markets, consider that on November 19, CIU issued $385-million of 30-year bonds yielding 3.95%, at a time when issuing Straight Perpetuals would have cost them about 5.75% – a very wide spread even before considering the tax effect.

… and the relationship between five-year Canada yields and yields on investment-grade FixedResets is also well within what I consider ‘decoupled panic’ territory (chart end-date 2018-11-9):

pl_181109_body_chart_5
Click for Big

In addition, I feel that the yield on five-year Canadas is unsustainably low (it should be the inflation rate plus an increment of … 1%? 1.5%? 2.0%?),and a return to sustainable levels is likely over the medium term.

FixedReset (Discount) performance on the month was -8.68% vs. PerpetualDiscounts of -1.18% in November; the two classes finally decoupled in mid-November after months of moving in lockstep.:

himi_indexperf_181130
Click for Big

Floaters took a shellacking on the month, as they returned -13.55% for November and +5.06% for the past twelve months. But look at the long-term performance:

himi_floaterperf_181130
Click for Big

Some Assiduous Readers will be interested to observe that the ‘Quantitative Easing’ decline was not as bad as the ‘Credit Crunch’ decline, which took the sector down to the point where the 15-year cumulative total return was negative. I wrote about that at the time and still can’t get over it. Fifteen years!

As for the future, of course, it’s one thing to say that ‘spreads are unsustainable and so are government yields’ and it’s quite another to forecast just how and when a more economically sustainable environment will take effect. It could be years. There could be a reversal, particularly if Trump’s international trade policies cause a severe recession or even a depression. And, of course, I could be just plain wrong about the sustainability of the current environment. However, November’s sharp declines clarify the market’s fears, which were unclear on October 29: the market is behaving more as if it fears falling interest rates rather than rising ones, although I will agree that some amount of confusion is evident from the fact that PerpetualDiscounts are also falling in price, although not to the same extent.

Yields on preferred shares of all stripes are extremely high compared to those available from other investments of similar quality. A I told John Heinzl in an eMail interview in late November, the best advice I can offer investors remains Shut up and clip your coupons!

I think that a broad, sustainable rally in FixedResets will require higher five-year Canada yields (or a widespread expectation of them) … and although I’m sure this will happen eventually, it would be foolish to speculate on just when it will happen!

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 7.8140 6.98% 0.999 6.987% 1.0000 $0.5460
December, 2015 8.1379 6.85% 0.997 6.871% 1.0000 $0.5592
March, 2016 7.4416 7.79% 0.998 7.805% 1.0000 $0.5808
June 7.6704 7.67% 1.011 7.587% 1.0000 $0.5819
September 8.0590 7.35% 0.993 7.402% 1.0000 $0.5965
December, 2016 8.5844 7.24% 0.990 7.313% 1.0000 $0.6278
March, 2017 9.3984 6.26% 0.994 6.298% 1.0000 $0.5919
June 9.5313 6.41% 0.998 6.423% 1.0000 $0.6122
September 9.7129 6.56% 0.998 6.573% 1.0000 $0.6384
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
November, 2018 9.0526 8.41% 1.014 8.294% 1.0000 $0.7508
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.

These calculations were performed assuming constant contemporary GOC-5 and 3-Month Bill rates, as follows:

Canada Yields Assumed in Calculations
Month-end GOC-5 3-Month Bill
September, 2015 0.78% 0.40%
December, 2015 0.71% 0.46%
March, 2016 0.70% 0.44%
June 0.57% 0.47%
September 0.58% 0.53%
December, 2016 1.16% 0.47%
March, 2017 1.08% 0.55%
June 1.35% 0.69%
September 1.79% 0.97%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
November, 2018 2.31% 1.70%

Significant positions were held in NVCC non-compliant regulated FixedReset issues on October 31, 2018; 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. It will also be noted that my analysis of likely insurance industry regulation as updated is not given much weight by the market.

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.

MAPF Portfolio Composition: November, 2018

Sunday, December 2nd, 2018

Turnover declined to minimal levels in November to 1%.

There is extreme segmentation in the marketplace, with OSFI’s NVCC rule changes in February 2011 having had the effect of splitting the formerly relatively homogeneous Straight Perpetual class of preferreds into three parts:

  • Unaffected Straight Perpetuals
  • DeemedRetractibles explicitly subject to the rules (banks)
  • DeemedRetractibles considered by me, but not (yet!) by the market, to be likely to be explicitly subject to the rules in the future (insurers and insurance holding companies)

This segmentation, and the extreme valuation differences between the segments, has cut down markedly on the opportunities for trading.

To make this more clear, it used to be that there were 70-odd Straight Perpetuals and I was more or less indifferent as to which ones I owned (subject, of course, to issuer concentration concerns and other risk management factors). Thus, if any one of these 70 were to go down in price by – say – $0.25, I would quite often have something in inventory that I’d be willing to swap for it. The segmentation means that I am no longer indifferent; in addition to checking the valuation of a potential buy to other Straights, I also have to check its peer group. This cuts down on the potential for trading.

And, of course, the same segmentation has the same effect on trading opportunities between FixedReset issues.

There is no real hope that this situation will be corrected in the near-term. OSFI has indicated that the long-promised “Draft Definition of Capital” for insurers will not be issued “for public consultation in late 2012 or early 2013”, as they fear that it might encourage speculation in the marketplace. It is not clear why OSFI is so afraid of informed speculation, since the constant speculation in the marketplace is currently less informed than it would be with a little bit of regulatory clarity. While the framework has been updated, the modifications focus on the amount of capital required, not the required characteristics of that capital. However, OSFI has recently indicated that it would support a mechanism similar to the NVCC rule for banks, so we may see some developments as the IAIS deliberations regarding insurance capital continue.

As a result of this delay, I have extended the Deemed Maturity date for insurers and insurance holding companies by three years (to 2025-1-31), in the expectation that when OSFI finally does provide clarity, they will allow the same degree of lead-in time for these companies as they did for banks. This had a major effect on the durations of preferred shares subject to the change but, fortunately, not much on their calculated yields as most of these issues were either trading near par when the change was made or were trading at sufficient premium that a par call was expected on economic grounds. However, with the declines in the market over the past nine months, the expected capital gain on redemption of the insurance-issued DeemedRetractibles has become an important component of the calculated yield.

Due to the footdragging by OSFI, I will be extending the DeemedMaturity date for insurance issues by another few years in the near future.

Sectoral distribution of the MAPF portfolio on November 30 was as follows:

MAPF Sectoral Analysis 2018-11-30
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 7.9% 5.39% 5.09
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 13.1% 6.09% 13.76
Fixed-Reset Discount 22.8% 6.45% 13.75
Deemed-Retractible 9.7% 8.34% 5.20
FloatingReset 0% N/A N/A
FixedReset Premium 0% N/A N/A
FixedReset Bank non-NVCC 0% N/A N/A
FixedReset Insurance non-NVCC 36.5% 10.78% 5.35
Scraps – Ratchet 0% N/A N/A
Scraps – FixedFloater 0% N/A N/A
Scraps – Floater 0% N/A N/A
Scraps – OpRet 0% N/A N/A
Scraps – SplitShare 0% N/A N/A
Scraps – PerpPrem 0% N/A N/A
Scraps – PerpDisc 0% N/A N/A
Scraps – FR Discount 10.8% 7.73% 12.15
Scraps – DeemedRet 0% N/A N/A
Scraps – FloatingReset 0.7% 8.61% 10.65
Scraps – FR Premium 0% N/A N/A
Scraps – Bank non-NVCC 0% N/A N/A
Scraps – Ins non-NVCC 0% N/A N/A
Cash -1.4% 0.00% 0.00
Total 100% 8.41% 9.17
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices.
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. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or 2025-1-3 (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: NVCC Status Confirmed and the January, February, March and June, 2011, editions of PrefLetter for the rationale behind this analysis.

Note that the estimate for the time this will become effective for insurers and insurance holding companies was extended by three years in April 2013, due to the delays in OSFI’s providing clarity on the issue.

Calculations of resettable instruments are performed assuming a constant GOC-5 rate of 2.31% and a constant 3-Month Bill rate of 1.70%

The “total” reflects the un-leveraged total portfolio (i.e., cash is included in the portfolio calculations and is deemed to have a duration and yield of 0.00.). MAPF will often have relatively large cash balances, both credit and debit, to facilitate trading. Figures presented in the table have been rounded to the indicated precision.

Credit distribution is:

MAPF Credit Analysis 2018-11-30
DBRS Rating Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 26.0%
Pfd-2 33.8%
Pfd-2(low) 30.2%
Pfd-3(high) 3.3%
Pfd-3 4.5%
Pfd-3(low) 3.0%
Pfd-4(high) 0%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0.7%
Pfd-5 0.0%
Cash -1.4%
Totals will not add precisely due to rounding.
The fund holds a position in AZP.PR.C, which is rated P-5(high) by S&P and is unrated by DBRS; it is included in the Pfd-5(high) total.
A position held in INE.PR.A is not rated by DBRS, but has been included as “Pfd-3” in the above table on the basis of its S&P rating of P-3.

Liquidity Distribution is:

MAPF Liquidity Analysis 2018-11-30
Average Daily Trading Weighting
<$50,000 3.3%
$50,000 – $100,000 61.7%
$100,000 – $200,000 34.0%
$200,000 – $300,000 1.4%
>$300,000 1.0%
Cash -1.4%
Totals will not add precisely due to rounding.

MAPF is, of course, Malachite Aggressive Preferred Fund, a “unit trust” managed by Hymas Investment Management Inc. Further information and links to performance, audited financials and subscription information are available the fund’s web page. The fund may be purchased either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited. A “unit trust” is like a regular mutual fund, but is sold by offering memorandum rather than prospectus. This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission). Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.

A similar portfolio composition analysis has been performed on the Claymore Preferred Share ETF (symbol CPD) (and other funds) as of July 31, 2017, and published in the August, 2017, PrefLetter. It is fair to say:

  • MAPF credit quality is much better
  • MAPF liquidity is lower
  • MAPF Yield is higher
  • Weightings
    • MAPF is somewhat more exposed to Straight Perpetuals
    • Neither portfolio is exposed to Operating Retractibles (there aren’t too many of those any more!)
    • MAPF is more exposed to SplitShares
    • MAPF is less exposed to FixFloat / Floater / Ratchet
    • MAPF is a little lower weighted in FixedResets, but has a greater emphasis on lower-spread issues